1. 'Coal: Least Cost Option for Power Generation in Pakistan‘ Date: 22 nd OCTOBER 2011 Location: INTERNATIONAL COAL CONFERENCE, SHERATON HOTEL, KARACHI. © SRK Consulting (UK) Ltd 2011. All rights reserved. Presented: NIGEL PICKETT, PRINCIPAL CONSULTANT, DUE DILIGENCE

2. Take Away Statement Rising energy demand Significant energy shortage. Power generating mix out of step with world norms Continuing long term trend of rising oil prices Natural gas demand exceeding supply Very large untapped potential source of power generation fuel in Thar Lignite Deposit The following 2 slides are drawn from a presentation by the Sindh Government to the Standing Committee to the National Assembly of Pakistan Key energy issues facing Pakistan The energy challenge for Pakistan is very significant in terms of its future growth © SRK Consulting (UK) Ltd 2011. All rights reserved.

3. Demand & Supply Gap Projection for Pakistan Current Installed Capacity (MW) Project Demand Gap (MW) YearMW 19,566 201024,4746,577 201536,21718,320 2020 54,35936,462 2025 80,56662,669 2030 113,69595,798 Future Energy Demand Supply Gap is Alarming! Source: Pakistan Electric Power Company (PEPCO) 3 3www.sindhcoal.gos.pk

4. World Power Generation fuel Mix 2008-09 WorldPakistan A Comparison of Power Generation fuel Mix Hydro 16% Gas 20% Oil 6% Coal 41% Others 2% 4www.sindhcoal.gos.pk

5. Take Away Statement J.P Morgan in a January 2011 review of the demand for Coal noted  Oil and Gas increasingly costly to produce from diminishing reserves  Coal remained the fasting growth fuel in the World for the 6 th consecutive year in 2008  Coal fired industrialisation is expected especially in India and China Source: EIA, World Energy Projections plus noted:  Coal will have an increasingly dominant role in Power generation over the period 2006 – 2030.  Natural Gas and Renewable Energy will double in in generating output over the same period, equalling each other  Coal will also double in generating output over the same period but will be equal to the combined output of Natural Gas and Renewable Energy FUTURE CHANGES IN ENERGY DEMAND THE ENERGY GAP FOR THE CURRENT PAKISTAN GENERATING MODEL CAN ONLY GET WORSE © SRK Consulting (UK) Ltd 2011. All rights reserved. THE ENERGY MIX FOR PAKISTAN IS OUT OF STEP WITH BOTH CURRENT & FUTURE ENERGY MODELS

6. Take Away Statement Pakistan will need to consider a model which addresses the following:  Imported Oil increasingly costly in the face of future demand and diminishing reserves, with consequent reduction in use in Power Generation  Need to carry out further exploration for gas deposits in Pakistan to maintain existing model level, or face reduction in use of Gas for Power Generation  The current renewables element of the model is largely composed of Hydro – consideration should be given to further Hydro developments  With the high levels of natural sunlight,Pakistan could consider the potential for light industrial power supply in more remote areas, via Photo Voltaic energy sources  Increasingly major companies are developing propositions in this field, i.e. SunEdison  With its massive Lignite reserves the country should consider a move to Coal for base load power generation  Countries with major Lignite deposits produce a high % of their electricity from lignite fed power stations i.e. Germany, Poland  Other such as Indonesia are increasingly switching from hard coal to soft coal (lignite) as the generating power source and keeping their hard coal deposits for export. A FUTURE ENERGY MODEL FUTURE GROWTH OF THE ECONOMY REQUIRES A CHANGE IN THE POWER GENERATING MODEL © SRK Consulting (UK) Ltd 2011. All rights reserved.

7. Take Away Statement Pakistan will need to consider the following:  Ensuring the development of lignite mining operations by pro-active support to possible mine developers.  Need to encourage existing Power Generators to draw up plans for conversion of power stations from oil and back to coal.  We understand that in a number of cases the power stations were originally coal fired and so conversion back from oil to coal may not be too onerous a task.  The above also offers a low capital cost solution in the short term, but does have transportation challenges for Lignite.  If the conversion route is followed the rail routes from Thar to the power stations may need overhaul.  This may require dedicated train sets established for the operation along with rapid loading and offloading facilities LIGNITE SOURCED POWER GENERATION LIGNITE A MEANS TO GENERATING FUTURE GROWTH OF THE ECONOMY © SRK Consulting (UK) Ltd 2011. All rights reserved.

8. Take Away Statement Pakistan will need to consider the following:  Ultimately Power Generation Plants will need to be constructed on site in Thar.  This will minimise the coal transportation costs and optimise the coal and power production processes.  It will follow a well established World Model of Lignite Power Generation  However in order to achieve low cost production and possible avoidance of operating subsidies, such as is used in Western Countries, i.e. Germany and Poland, a different production model will be required.  The model is based upon an avoidance of technical complexity and high Capital Cost LIGNITE SOURCED POWER GENERATION LIGNITE POWERING THE NATION © SRK Consulting (UK) Ltd 2011. All rights reserved.

9. Take Away Statement Pakistan will need to consider the following:  At least in the first ten years of production, the production model, in the opinion of SRK, should be for:  Low capital cost, truck, shovel and bulldozer operations for both stripping operations, mining of coal, and waste dump handling.  Minimise coal handling and processing by feeding directly to mine site power stations.  Consider use of expert mining contractors to bring the required expertise not currently located in-country.  This should be supported by development of training facilities to develop both local expertise and a local labour pool. LIGNITE SOURCED POWER GENERATION LIGNITE THE LOW COST MEANS TO POWER GENERATION SUPPORTING GROWTH OF THE ECONOMY © SRK Consulting (UK) Ltd 2011. All rights reserved.

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