Project ID: 37233

[CPEC] CDB contributes to $1.292 billion syndicated loan for 720MW Karot Hydropower Project (Linked to Project ID#54012, #92310, #92311)

Commitment amount

$ 530843777.67150307

Adjusted commitment amount

$ 530843777.67

Constant 2021 USD

Summary

Funding agency [Type]

China Development Bank (CDB) [State-owned Policy Bank]

Recipient

Pakistan

Sector

Energy (Code: 230)

Flow type

Loan

Level of public liability

Central government-guaranteed debt

Financial distress

Yes

Infrastructure

Yes

Category

Intent

Mixed (The next section lists the possible statuses.)

Commercial

Development

Representational

Mixed

Financial Flow Classification

OOF-like (The next section lists the possible statuses.)

Official Development Assistance

Other Official Flows

Vague (Official Finance)

Flows categorized based on OECD-DAC guidelines

Project lifecycle

Status

Implementation (The next section lists the possible statuses.)

Pledge

Commitment

Implementation

Completion

Suspended

Cancelled

Milestones

Commitment

2017-02-22

Actual start

2016-12-01

Planned complete

2021-12-28

Geography

Description

In May 2007, Karot Power Company Limited (KPCL) obtained a letter of interest from Pakistan’s Private Power Infrastructure Board (PPIB) to develop the 720 MW Karot Hydropower Project. KPCL is a special purpose vehicle (SPV) that was created for the purpose of financing, building, operating and maintaining the 720 MW run-of-the-river Karot hydropower plant on the Jhelum River in Pakistan. China Three Gorges South Asia Investment Limited (C-SAIL)—an investment holding company formed by China Three Gorges Corporation on September 30, 2011 in the Cayman Islands, to acquire, develop, build, own and operate renewable power generation projects in Pakistan—holds a 93% ownership stake in KPCL, while Pakistan's Associated Technologies holds a 7% ownership stake in KPCL. In October 2009, PPIB approved a feasibility study report for the 720MW Karot hydropower project and Pakistan’s National Electric Power Regulatory Authority (NEPRA) granted KPCL a generation license to develop the project on November 2013. Then, on September 9, 2016, KPCL and the Central Power Purchasing Agency–Guarantee (CPPA-G) signed a Power Purchase Agreement (PPA) for the Karot Hydropower Project. On February 22, 2017, China Development Bank (CDB), the Export-Import Bank of China (China Eximbank), and the Silk Road Fund (SRF) signed a $1.292 billion syndicated buyer's credit (loan) agreement with Karot Power Company (Pvt.) Ltd. (KPCL) for the 720 MW Karot Hydropower Project (captured via Project ID#37233). The borrowing terms of the loan are as follows: a maturity of 17 years, a grace period of 6 years, an interest rate of 6-month LIBOR plus a 4.75% margin, a 1% arrangement (management), and a 0.5% commitment fee. The borrower is expected to make equal, semi-annual repayments on April 21 and October 21 of each year during the loan's repayment period. The total cost of the 720 MW Karot Hydropower Project, excluding contingencies, was $1.74 billion and it was financed according to a debt-to-equity ratio of 80:20. The World Bank Group’s International Finance Corporation (IFC) issued a $100 million loan in support of the project on November 25, 2016. The remaining $1.292 billion of debt financing was provided by this syndicate of Chinese state-owned lenders. CDB's contribution is captured via Project ID#37233. China Eximbank's contribution is captured in Project ID#92310. The Silk Road Fund's contribution is captured via Project ID#92311. The proceeds of the loan were to be used by the borrower to partially finance a $1.6 billion commercial (EPC) contract with Yangtze Three Gorges Technology & Economy Development Co., Ltd. (TGDC). Sinosure also issued a buyer’s credit insurance policy at a cost of $54.3 million, and the borrower pledged the following sources of collateral to the lending syndicate: fixed (project) assets, future rights to electricity charges, and the Sinosure credit insurance policy. Additionally, China Three Gorges Corporation reportedly made a $316.20 million equity investment in project, while Associated Technologies reportedly made a $23.90 million equity investment (captured via Project ID#54012). The purpose of the independent power project (IPP) is to construct a 720MW hydropower generation complex — with four, 180MW power generation units — near Karot village, some 1.7 kilometers upstream of Karot Bridge and 74 km upstream of Mangla Dam. The project involves the construction of a roc-filled dam, spillway, powerhouse, diversion tunnels, head-race power tunnels and a tail-race tunnel end. The project site is accessible through the Islamabad – Kahuta – Kotli road, approximately 29 kilometers from Kahuta, and 65 kilometers from Islamabad. Upon completion, the power plant is expected to generate 2,970 GWh (net) of clean energy annually and reduce 2.3 million tons of carbon emissions each year. The IPP is being implemented on a Build-Own-Operate-Transfer (BOOT) basis. KPCL will sell all its energy to the National Transmission and Dispatch Company Limited (NTDC) under a 30-year power purchase agreement [at a levelized tariff of Rs 7.68 (7.57 cents) per unit]. The Government of Pakistan GoP guaranteed the (power purchase) payment obligations of the NTDC to the KPCL. The Government of Pakistan also issued a 17% return on equity (ROE) guarantee. The general EPC contractor responsible for implementation is Yangtze Three Gorges Technology & Economy Development Co., Ltd (TGDC). China Machinery Engineering Corporation (CMEC) is also involved in implementation. A formal groundbreaking ceremony took place on April 20, 2015. A construction mobilization ceremony was held on January 10, 2016. A project implementation agreement was signed on September 28, 2016. Then, a “notice to proceed" was issued to (TGDC) on December 1, 2016. Construction works were 25% complete as of September 2017. On September 22, 2018, the project successfully achieved river closure. Construction works were 70% complete as of January 2020. Then, on May 2, 2021, the first rotor of the power plant was successfully hoisted into place. Construction works were 88% complete as of May 2021. On November 20, 2021, the hydropower station closed the gates of its diversion tunnels and started water storage in its reservoir for future use. To date, the project has reportedly employed 3000-5000 people. The originally expected commercial operation date (COD) of the hydropower plant was December 28, 2021. KPCL is responsible for handing over this project to the Pakistani government after the term of its 30-year concession agreement has expired. The project has been the subject of local controversy. In August 2019, a complaint was submitted to the IFC’s Compliance Advisor Ombudsman (CAO) by a former employee of the project. The complaint raised concerns about lack of payment of exit wages, as well as discrimination against local workers in relation to access to drinking water, conditions of accommodations and transportation at the project site. Then, in July 2020, a complaint was lodged with CAO by representatives of Building and Wood Workers International (BWI) and the Pakistan Federation of Building and Wood Workers (PFBWW), on behalf of the Awami Labor Union. The complaint raises a range of social issues related to the working conditions and terms of employment, workers' organizations, and grievance redress mechanism at the Karot hydropower plant. The complainants claimed adverse impacts on approximately 3,000 project workers, including violations of IFC Performance Standard 2 on workers’ organizations, health and safety, working conditions and terms of employment, grievance mechanisms, retrenchment, and concerns related to the use of security forces under IFC Performance Standard 4. There are also some indications that the syndicated loan for the 720MW Karot Hydropower Project has financially underperformed vis-a-vis the original expectations of the lenders. In March 2023, KPCL sought Rs 22.703 billion from Central Power Purchasing Agency–Guarantee (CPPA-G) by April 10, 2023 to settle its outstanding debts (including principal and interest) to SRF, CDB, China Eximbank, and IFC and avoid default. In a letter to Rehan Akhtar, the CEO of CPPA-G, KPCL’s CEO Wang Minsheng noted that his company had to make mandatory principal, interest, and commitment fee payments and any delays in payment would result in a breach of covenants resulting in an event of default for the company. He noted that, per section 2.05 of the facility agreements signed by KPCL and its lenders, his company needed to make its second loan repayment (equivalent to 3.31 percent of the outstanding loan amount, or Rs. 22.703 billion) by April 21, 2023. KPCL therefore requested that CPPA-G pay its overdue invoices (receivables) -- worth Rs 4.937 billion -- by April 10, 2023. At the time, invoices were being submitted based on a reference tariff without indexation determined by NEPRA on the actual costs incurred by KPCL at the time of Commercial Operation Date (COD) stage tariff.

Additional details

1. The Chinese project title is 720兆瓦 Karot水电项目的. 2. The IMF reports that the loan's all-in interest rate is 5.11% (6-month LIBOR of .36% + a 4.75% margin). However, KPCL’s tariff generation application to NEPRA (prior to financial close) cites an interest rate of 6-month LIBOR (0.36%) plus a 4.5% margin. For the time being, AidData has elected to use the IMF’s estimate since it was obtained after financial close. 3. According to multiple, official sources, the Government of Pakistan has issued sovereign guarantees in support of all loans issued by Chinese state-owned banks for independent power projects (IPPs) in Pakistan (see https://www.fmprc.gov.cn/ce/cepk/chn/zbgx/t1735166.htm and http://pk.chineseembassy.org/eng/zbgx/202110/t20211010_9558510.htm and https://www.dropbox.com/s/bmx3w2b38o7guxm/Debt%20Pricing%20of%20IPPs%20%28002%29.pdf?dl=0). As such, AidData assumes that the loan captured in this record is backed by a sovereign guarantee from the Government of Pakistan. 4. The individual contributions of the China Eximbank, CDB, and Silk Road Fund to the $1.292 billion syndicated loan are unknown. For the time being, AidData assumes that all three lenders contributed equal amounts ($430,666,666.67). 5. This project was the very first hydroelectric independent power project (IPP) to be financed by Chinese banks in Pakistan. 6. This transaction has been described as a limited recourse project financial transaction, which implies that that syndicated loan is secured by (collateralized against) the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors. 7. On August 29, 2013, KPCL identified the total cost of its Sinosure insurance policy as $54.3 million (see https://nepra.org.pk/tariff/Tariff/IPPs/karoot%20hydro%20power/Determination%20of%20the%20authority%20in%20the%20matter%20of%20EPC%20Stage%20tariff%20of%20Karot%20Power.PDF). 8. The Silk Road Fund (SFR) is a medium- to long term state-owned special fund supporting projects under the Belt and Road Initiative. It focuses on equity investments but also provides other types of financing. It is funded by China's State Administration on Foreign Exchange (SAFE), CDB, China Eximbank, and China Investment Corporation (CIC). 9. China Three Gorges South Asia Investment Limited (the “C-SAIL” or “CSAIL”) is a newly formed investment holding company that will acquire, develop, build, own and operate renewable power generation projects in Pakistan and other territories duly approved by the board of the directors of CSAIL. The company’s current multi-stage project pipeline is about US$5.5 billion, comprising of solar, wind and hydro projects with a cumulative capacity of over 2,000 MW, including 1820MW in two large hydro projects. CSAIL aims to become the largest renewable power company in Pakistan. The project marks the entry of a large and experienced sponsor with a significant investment program in Pakistan''s electricity market that needs an investment of around US$15-20 billion to develop 10,000MW of additional generation capacity in the next 5 years to overcome the supply shortfall. CSAIL, a wholly owned subsidiary of CWE Investment Corporation (“CWEI”) through CWEI Hongkong Investment Company Limited is a holding company for investment in Pakistan under which single purpose vehicles will be formed for the project financing of each of the projects. CWEI is the overseas investment subsidiary of state-owned China Three Gorges Corporation (“CTGC”). CTGC is one of the largest power companies in the world that owns and operates several multi-stage hydro, solar and wind generation projects in China and globally, with a cumulative capacity of over 50,000 MW. Founded in August 2011, CWEI is a wholly owned subsidiary of CTGC and serves as the dedicated overseas investment platform, responsible for investment, construction, operation and management of the international businesses of CTGC. Leveraging on the financial strength and technical capabilities of CTGC, CWEI is pursuing the development of hydro, wind and solar generation projects across South Asia, Southeast Asia, Europe, America and Africa. CWEI is also the largest shareholder in Energias de Portugal (“EDP”), which is an integrated utility company that generates, distributes, and supplies electricity in Portugal and through EDP Renovaives, it is one of the largest wind power producers in the world. CWEI will maintain a majority 51% equity stake in CSAIL until a Qualified Public Offering and in addition to IFC, other regional and international institutional investors, including development financial institutions, sovereign wealth funds and private equity funds are expected to take minority shareholding in CSAIL. 10. In addition to the syndicated buyer's credit for the 720MW Karot Hydropower Project, China Development Bank (CDB) supported two separate loans for the Karot Wind Power Projects (captured via Project ID#53675 and #54317).

Number of official sources

45

Number of total sources

69

Download the dataset

Details

Cofinanced

Yes

Cofinancing agencies [Type]

Export-Import Bank of China (China Eximbank) [State-owned Policy Bank]

Silk Road Fund [State-owned Fund]

International Finance Corporation (IFC) [Intergovernmental Organization]

Direct receiving agencies [Type]

Karot Power Company Limited (KPCL) [Joint Venture/Special Purpose Vehicle]

Implementing agencies [Type]

China Three Gorges Corporation (CTG) [State-owned Company]

China International Water and Electrical Corporation (CWE) [State-owned Company]

China Three Gorges South Asia Investment Limited (CSAIL) [State-owned Company]

Yangtze Three Gorges Technology & Economy Development Co., Ltd (TGDC) [State-owned Company]

China Machinery Engineering Corporation (CMEC) [State-owned Company]

Guarantee provider [Type]

Government of Pakistan [Government Agency]

Insurance provider [Type]

China Export & Credit Insurance Corporation (Sinosure) [State-owned Company]

Collateral provider [Type]

Karot Power Company Limited (KPCL) [Joint Venture/Special Purpose Vehicle]

Collateral

Pledge of fixed (project) assets, future rights to electricity charges, and Sinosure credit insurance policy

Loan Details

Maturity

17 years

Interest rate

5.11%

Grace period

6 years

Grant element (OECD Grant-Equiv)

13.6202%

Syndicated loan

Export buyer's credit

Investment project loan