[CPEC, IPP] Chinese bank syndicate pledges $1.6 billion buyer’s credit loan for 1124 MW Kohala Hydropower Project (Linked to Project ID#54014)

In 2017, a group of Chinese banks including China Development Bank (CDB) agreed in principle to issue a $1,642,300,000 syndicated buyer’s credit loan to Kohala Hydro Company (Private) Limited (KHCL) for the 1124 MW Kohala Hydropower Project. Kohala Hydro Company (Private) Limited (KHCL) is a project company (or special purpose vehicle) responsible for financing, designing, implementation, and maintaining the 1124 MW Kohala Hydropower Project. KHCL has a single shareholder: China Three Gorges South Asia Investment Ltd (CSAIL), 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. The 1124 MW Kohala Hydropower Project is a part of China–Pakistan Economic Corridor (CPEC) initiative and it is to be implemented on a Build-Own-Operate-Transfer (BOOT) basis and financed according to a 70:30 debt-to-equity ratio. The total project cost is $2,760,170,000. A syndicate of Chinese banks has agreed in principle to provide 85% ($1,642,300,000 USD) of the total cost of the project ($1,932,120,000). The estimated borrowing terms of the loan from China Development Bank and other Chinese banks are as follows: a maturity period of 18.5 years, a grace period of 6.5 years, and an interest rate of 6-month LIBOR (0.6%) plus a 4.60% margin. Sinosure has reportedly offered to provide buyer’s credit insurance to the borrower (at a cost of $191.91 million). A syndicate of Pakistani banks has agreed in principle to cover the remaining 15% of the total cost of the debt financing for the project. The remaining cost of the project is to be covered through an $828.05 million equity contribution from CSAIL. To date, a $31.03 million equity contribution has been injected in KHCL by CSAIL (as captured via Project ID#54014). The 1124 MW Kohala Hydropower Project consisted of a dam on River Jhelum, with twin 17.4 km long headrace tunnels which will end in the power house downstream on the River Jhelum. The curved concrete gravity dam with a crest elevation of 910 m, will have a maximum height of 69 meters and a top length of 270 meters. The main power station will be equipped with 4 vertical Francis turbine generator units, each of which has a capacity of 275 MW. An additional 24 MW will run on the ecological flow of the river downstream of the dam. The dam site was located in Siran Village on the Jhelum River, about 3 km downstream of the Kohala Bridge. The power plant was located in Barsala in District Muzafarabad. The catchment area of the dam site is 14,060 km2, with an average annual discharge of 302 m3/s and average annual runoff is 9.52 billion m3. The total installed capacity of the hydropower station will be 1,124 MW, comprising 1,100 MW of installed capacity for the main power station and 24 MW (2 x 12 MW) of installed capacity for the ecological flow power station. Power generated by the main power station will be transferred to the national grid through interconnections with the 500kV Neelum Jehlum hydropower plant (HPP) - Gujranwala transmission line and the 500kV Suki Kinari HPP - Azad Pattan HPP transmission line. The generated power from the ecological power station will be transmitted to the 132kV circuit between Hattian and Muzaffarabad-II grid station. KHCL signed an Engineering Procurement & Construction (EPC) contract with a consortium consisting of Yangtze Three Gorges Technology & Economy Development Co. Ltd, & China Three Gorges Project Development Co. Ltd on January 21¸ 2017. Construction began on September 6, 2018 and the project was originally expected to reach its commercial operation date (COD) on December 31, 2025. The project company will eventually sell all of the power that it generates to a Pakistani state-owned enterprise — called Central Power Purchasing Agency (Guarantee) Limited — under a 30-year power purchase agreement (PPA). Pakistan’s Board of Private Power & Infrastructure Board (PPIB) originally established a financial close deadline for KHCL of June 30, 2022. However, in July 2022, it reportedly granted KHCL a two-year extension on the financial close deadline. In a July 14, 2022 letter, KHCL told the PPIB that project activities remained suspended for nearly three years due to various disruptions like Covid-19 pandemic, an E-flow issue raised by the Government of Azad Jammu and Kashmir, and the imposition of certain taxes on import of project equipment, etc. which were beyond the reasonable control of the project company. After the execution of the project agreements with the Government of Pakistan entities, KHCL approached China Export & Credit Insurance Corporation (Sinosure) for issuance of the letter of intent (LOI); however, in spite of the efforts of KHCL, the LOI had still not been issued by Sinosure as of July 2022 (a requirement for arranging financing for the project). PPIB noted at the time that there were three critical obstacles standing in the way of further development of the project: (i) land acquisition; (ii) Sinosure clearance which is a mandatory requirement of Chinese Government for lenders and sponsors to invest abroad and lenders approval; and (iii) tariff modification of the project by Nepra due to inclusion of construction of Sewerage Treatment Plants to mitigate environmental impacts.

Additional details

1. For the time being, the 'commitment' year has been coded as 2017 as the involvement of CDB was confirmed in a EPC Stage Tariff Proposal submitted to NEPRA on June 23, 2017. 2. The Chinese name of this project is 巴基斯坦科哈拉水电项目 (1100MW). As the identity of the other Chinese banks is unclear, the transaction amount has been removed to avoid capturing unofficial financing. 3. According to multiple, official sources, the Government of Pakistan issues 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. Information on borrowing terms can be found at https://nepra.org.pk/tariff/Tariff/Petitions/2017/Kohala%20Submitted%20Proposal%20-%20June%2023%202017.pdf

Number of official sources

21

Number of total sources

29