Narrative
Full Description
Project narrative
On October 24, 2017, China Power Hub Generation Company (Pvt.) Ltd. (CPHGC) signed a $1,496,000,000 syndicated loan agreement with a consortium of Chinese state-owned banks — including China Development Bank (CDB, lead arranger), the Export-Import Bank of China (China Eximbank, co-lead arranger), the Industrial and Commercial Bank of China (ICBC), China Construction Bank Corporation (CCB), and Bank of Communications Co. Limited (BOCOM) — for the 2×660MW Imported Coal Based Independent Power Generation Project at Hub. The original borrowing terms of the Sinosure-backed loan included a maturity of 12.445 years (final maturity date: April 2030), a grace period of 2.44 years (first principal payment date: April 2020), and an interest rate of 3-month LIBOR plus 380 basis points (3.8%). The borrower was expected to make 20 consecutive, semi-annual principal payments. As of July 1, 2023, the loan's interest rate was reset to 3-month SOFR plus a 0.26161% credit adjustment spread (CAS) and a 4.5% margin. The loan was collateralized against (1) a pledge of shares in the project company [CPHGC] by the equity holders; (2) project assets, accounts, and electricity payment receivables; (3) a Sinosure insurance policy; and (4) a cash deposit worth PKR 50 billion from the Government of Pakistan in an escrow account known as the Pakistan Energy Revolving Fund (PERF) at the State Bank of Pakistan. The loan's (principal) amount outstanding was $870 million as of July 2024. CDB's contribution is captured via Record ID#52423. China Eximbank's contribution is captured via Record ID#92387. ICBC's contribution is captured via Record ID#92388. CCB's contribution is captured via Record ID#92390. BOCOM's contribution is captured via Record ID#92391. The total cost of the independent power project (IPP) was $1.995 billion and it was financed according to a 75:25 debt-to-equity ratio. CPHGC is a project company and joint venture of China Power International Holding Ltd (CPIH) and the Hub Power Company Limited (HUBCO) that was established to finance, design, and implement this 1320 MW imported coal based power project. CPIH has a 74% ownership stake and HUBCO has a 26% ownership stake in CPHGC. CPHGC was granted a generation license by Pakistan’s National Electric Power Regulatory Authority (NEPRA) on September 8, 2016. The term of the license is 30 years from the date of the commencement of commercial operations. CPHGC also submitted an application for an upfront tariff determination with NEPRA, which was approved on February 12, 2016. Then, on January 25, 2017, the Implementation Agreement (IA) and Power Purchase Agreement (PPA) were signed. The purpose of the project was to construct 2×660 MW coal fired units and a dedicated jetty terminal to import coal at Hub, Mouza Kund, Tehsil Gadani, Lasbela District, and Balochistan Province. Northwest Electric Power Design Institute Co. Ltd. (NWEPDI) and Tianjin Electric Power Construction Company Limited were the EPC contractors responsible for project design and implementation. A groundbreaking ceremony took place on March 21, 2017, and on April 10, 2018, CPHGC entered into Operation and Maintenance (O&M) contract with a consortium that consists of CEEC Tianjin (Pakistan) Electric Power Construction (Private) Limited, China Energy Engineering Group, Tianjin Electric Power Construction Company Limited, and China Energy Engineering Group Science and Technology Development Company Limited to provide operation and maintenance service for the coal-fired electric power generation plant. The project reached its commercial operation date (COD) on August 17, 2019. Its originally expected commercial operation date was August 31, 2018. It is expected that this power plant will provide 9 billion kWh electricity to Pakistan’s national grid each year, thereby meeting the electricity needs of 4 million Pakistani households. However, this project has encountered a number of revenue generation, debt repayment, and financial management challenges since the power plant went into operation. The Government of Pakistan fell behind on payments (for the purchase of electricity) to CPHGC. Total payment arrears, as of May 2022, amounted to PKR 71.6 billion (approximately $379,480,000), which reportedly brought the power plant to the brink of closure and CPHGC to the brink of default. It also became more difficult for CPHGC to source the coal needed to power the plant (due to the inability of a supplier to provide coal from Afghanistan and skyrocketing international coal prices). Then, in July 2022, CPHGC) revealed that the country’s central bank — the State Bank of Pakistan (SBP) — had stopped making various payments relating to coal suppliers due to the limited availability of foreign exchange in the country, which resulted in a major accumulation of payment arrears. In a letter dated July 20, 2022, the CEO of CPHGC, Ren Lihui, wrote to Pakistan’s Secretary of Power and warned that ‘any further delay in […] payments [from the State Bank of Pakistan] can adversely affect the ability of CPHGC to operate smoothly.’ He also warned that ‘If the Government of Pakistan fails to fulfill its responsibilities or does not respond in a timely manner, any loss, damages or [liquidated damages] should be borne by the Government of Pakistan.’ Several months later, on October 26, 2022, Sinosure informed the Government of Pakistan that it would not be able to provide credit insurance for any additional projects in Pakistan without ‘early resolution of [the] Revolving Account Agreement (RAA) pending between Central Power Purchasing Agency (CPPA) and Chinese IPPs since 2017’. Under a November 8, 2014 CPEC Energy Project Cooperation Agreement, the CPPA and Chinese IPPs had agreed on the establishment of an RAA to facilitate the automatic payment of at least 22% payables to IPPs directly through the recovery of electricity bills of distribution companies (so-called ‘discos’). However, ‘due to various technical and financial constraints’, the Government of Pakistan’s Power Division acknowledged that the RAA had not been implemented over the previous 5-year period. In May 2022, an effort to establish an RAA was undertaken by the Government of Pakistan, but it was ultimately unsuccessful. Then, on October 31, 2022, Pakistan’s Ministry of Finance came up with an interim arrangement for the Power Division to open ‘an assignment under the title of Pakistan Energy Revolving Fund (PERF) till such time matters pertaining to RAA are resolved’. The escrow account was to be opened at the National Bank of Pakistan and operated by the CPPA and PKR 50 billion was to be allocated from the Ministry of Finance’s subsidy account to the PERF with a monthly withdrawal limit of PKR 4 billion (against invoices from IPPs). The Government of Pakistan acknowledged, at the time, that this '[would] not fully fulfill the revolving account requirements under the RAA, but it [would] provide additional comfort to Chinese IPPs’. Then, in November 2022, the Economic Coordination Committee (ECC) of the Cabinet turned down a proposal by the Ministry of Energy (Power Division) for the PERF (escrow) account to be operated by the National Bank of Pakistan. It decided that the account would instead be operated by the country’s central bank: the State Bank of Pakistan (SBP). Then, in March 2023, CPHGC warned that it was at risk of defaulting on its loan repayment obligations due to overdue power purchase payments from the Central Power Purchasing Agency-Guaranteed (CPPA-G). In July 2024, the Government of Pakistan reportedly requested that CDB, China Eximbank, CCB, ICBC, and BOCOM grant a 5-year maturity extension to CPHGC. However, as of November 2024, a debt reprofiling agreement had not yet been finalized.
Staff comments
1. The Chinese name of this project is 巴基斯坦中电胡布燃煤发电项目（1320MW). 2. CPIH is a wholly-owned subsidiary of State Power Investment Corporation (SPIC), which is one of the top five electricity producers in China. CPIH mainly engages in the development, construction, operation, overseas investment and financing, and capital operation of power generation projects. HUBCO is the largest Independent Power Producer (IPP) in Pakistan, with total power generation capacity of over 1600 MW. The company’s assets include a residual fuel oil-fired thermal plant situated at Mouza Kund, Hub, which supplies the national grid. 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. However, Pakistan's Ministry of Finance officially classifies all IPP debt as 'private debt'. 4. This project did not achieve financial close until January 2018. 5. This project is officially designated as being part of the China Pakistan Economic Corridor (CPEC). 6. The individual contributions of China Eximbank, Industrial and Commercial Bank of China, China Development Bank, Bank of Communications, and China Construction Bank to the $1.496 billion syndicated loan are unknown. For the time being, AidData assumes that the five Chinese state-owned banks contributed equal amounts ($299,200,000). 7. On November 8, 2014, the Chinese Government and the Government of Pakistan signed a CPEC Energy Project Cooperation Agreement. According to Article 5 of the Agreement, ‘the Pakistani Party agrees that a revolving account shall be opened with 30 days of commercial operation of the respective project, into which the money, no less than the 22 per cent of the monthly payments for the respective power project under the agreement shall be deposited to provide cover for the shortfall in power bill recoveries from the date of power generation of the said projects agreements subject to the condition that the additional direct and indirect expenses incurred in maintaining the revolving account would be compensated by the producers through a discount arrangement to be mutually agreed.’ Subsequently, the Finance Division, in consultation with the Power Division, finalized a mechanism for the Revolving Account (RA) with the approval of The Minister of Finance in a letter date June 22, 2015. Then, in September 2017, the Power Division forwarded a draft Revolving Account Agreement (RAA) to be signed between Central Power Purchasing Agency-Guaranteed (CPPA-G) and power producer(s) to the Finance Division. CPPA-G subsequently executed the finalized draft of RAA with multiple CPEC IPPs. The Government of Pakistan also guaranteed the funding obligations of the CPPA with respect to the RAA, through Supplemental Implementation Agreements signed between the Government of Pakistan — through the Private Power and Infrastructure Board (PPIB) — and the respective IPPs. 9. The loan's (principal) amount outstandingas of July 2024) was provided to AidData by a confidential source.