China Eximbank contributes $60 million to $150.151 million syndicated buyer's credit loan (BCL) for the 425MW Nandipur Power Plant Construction Project

Project narrative

On December 27, 2007, Pakistan's Economic Coordination Committee (ECC) approved the 425MW Nandipur Power Plant Construction Project at a total cost of $329 million. Then, on March 19, 2009, China Eximbank, HSBC, and BNP Paribas signed a $150.151 million syndicated buyer’s credit facility agreement with Northern Power Generation Company Ltd. (NPGCL) -- a Pakistani state-owned energy company -- for the 425MW Combined Cycle Power Plant Construction Project at Nandipur, Pakistan. China Eximbank contributed approximately $60 million through a USD-denominated tranche and a EUR-denominated tranche. The syndicated buyer’s credit facility had a 10-year maturity period but its interest rate and grace period are unknown. Pakistan's Ministry of Finance issued a sovereign guarantee on October 31, 2009 in support of the BCL. China Export & Credit Insurance Corporation (Sinosure) issued a credit insurance policy for the BCL on March 19, 2009. The borrower was expected to use the loan (BCL) proceeds to partially finance an EPC contract between Northern Power Generation Company Limited (NPGCL) and Donggang Electric Corporation (DEC), which was signed on January 28, 2008. The purpose of the project was to construct the gas-fired 425 MW Combined Cycle Power Plant at Nandipur, Nandipur near Gujranwala in the Punjab Province. The general EPC contractor responsible for project implementation was Dongfang Electric Corporation Ltd. G.E. France served as a subcontractor. Construction began on October 16, 2008. The project's originally expected completion date was March 31, 2010. However, the project was plagued by delays and controversy. In January 2008, under a provision of the 18th amendment, the Government of Punjab, Pakistan signed a $329 million EPC contract with Dongfang Electric Corporation of China to construct the Nandipur Power Project and paid a 10% down payment. Then, a conflict between the Ministry of Water and Power and the Ministry of Law and Justice delayed the project execution for two years from March 2010 to March 2012. The Ministry of Law and Justice raised an objection over a violation of Public Procurement Regulatory Authority (PPRA) rules and the granting of the contract to China Dongfang Electric Corporation, which was blacklisted; the ministry further refused to vet the permissions before issuing an explanation of procedures. As a result, machinery worth $85 million remained stuck at the Karachi Port for over two years. In September 2012, the president of Dongfang Electric Corporation, Zhang Guorong, terminated the contract for the construction of the Nandipur Power Project, saying his company had suffered losses worth $85 million. In June 2013, Pakistan's Ministry of Water and Power started renegotiating the contract with Dongfang Electric Corporation to resume work on the Nandipur Power Project. After successful negotiations, the firm agreed to resume work on the power station. On July 8, 2013, engineers of Dongfang Electric Corporation arrived in Karachi to inspect the machinery lying at the Karachi Port and to secure its release. Later, work on the project was restarted at an escalated cost. After several delays, the project was finally inaugurated by the Prime Minister of Pakistan Nawaz Sharif on May 31, 2014. However, the plant remained operational for only five days after the inauguration and had to be shut down due to mismanagement, conflicts with the National Electric Power Regulatory Authority (NEPRA) over high production costs, and the use of inappropriate fuel. Since then, the plant has faced several controversies and operational failures, yielding inquiries and probes into misappropriations within the project. Ultimately, the energy produced by the Nandipur power plant was extremely expensive and the project was shut down after five days of operation.