ICBC agrees in principle to provide $319.54 million loan for 2x150 MW Coal Fired Power Plant in Gwadar, Balochistan

In December 2016, the CPEC Joint Cooperation Committee nominated China Communications Construction Company Limited (CCCC) as the main EPC contractor and project sponsor for the 2x150MW Imported Coal Based Power Project in Gwadar, Balochistan. The 300 MW (Gross) pulverized coal power plant with a net capacity of 272.1 MW will be located near Sur Bundar, over an area of 200 acres. CCCC subsequently filed a Letter of Interest application with the Private Power and Infrastructure Board (PPIB). CCCC was then issued a Notice to Proceed on April 12, 2017. In its EPC stage tariff petition to the National Electric Power Regulatory Authority (NEPRA) in January 2018, CCCC estimated the total cost for the project to be $542.36 million. At that time, it was envisaged that the independent power project (IPP) would be financed on a non-recourse basis with a debt-to-equity ratio of 80:20. The Industrial and Commercial Bank of China (ICBC) was initially identified as the lender responsible for financing the debt portion of the project equal to $433.88 million. ICBC reportedly agreed in principle to lend to CIHC Pak Power Company Limited (CPPCL)— a project company (special purpose vehicle) and subsidiary of CCCC Industrial Investment Holding Company Limited (CIHC) — on the following borrowing terms: a 15 year maturity, a 2.5 year grace period, an annual interest rate of 6-month LIBOR plus a 2.6% margin, and a 7% Sinosure credit insurance fee. The lender also reportedly asked the borrower to maintain a minimum cash balance in a debt service reserve account (DSRA) equivalent to 1.1 times the principal and interest of two installments (repayments). However, by 2022, the size of ICBC’s expected loan commitment to CPPCL had declined to $319.54 million. CCCC and Tianjin Energy Investment Group Company Ltd. agreed to cover the equity portion of the project cost. Minimum cash deposit in a debt service reserve account (DSRA) equivalent to 1.1 times the principal and interest of two installments (repayments). CPPCL was issued a Letter of Intent (LoI) on May 26, 2017 and a Letter of Support (LoS) on August 23, 2019. The NEPRA tariff was determined in September 2019. A formal groundbreaking ceremony took place on November 5, 2019. Land acquisition for the power plant took place in February 2020. However, CPPCL did not sign an Implementation Agreement (IA), Power Purchase Agreement (PPA) and Supplemental Agreement to IA (SIA) — known as the Security Package — until April 8, 2021. As per the LoS, the original Financial Closing (FC) deadline was January 31, 2022 and the Required Commercial Operations Date (RCOD) was fixed as June 30, 2023 in PPA. Subsequent to signing of the Security Package, CPPCL started construction activities at the project site prior to FC, in order to meet agreed RCOD of June 30, 2023. In 2021, Sinosure also decided that it was unwilling to cover governmental breach risk under the medium and long term buyer credit insurance policy, mainly due to delayed payments to CPEC IPPs, delays in opening of revolving account as per SIA for CPEC power projects and renegotiations of PPAs with existing IPPs. In view of the situation, ICBC and other lenders informed CPPCL that the project sponsors would be required to provide joint and several liability guarantees covering full loan repayment period, which would far exceed the industry practice of providing completion guarantees during construction period. The project sponsors took the position that they had already injected substantial equity in the project and were not willing to accept this requirement of lenders. As a result, construction at site was suspended until a financing arrangement was finalized by the lenders, Sinosure and the project sponsors. CPPCL subsequently requested that the Government of Pakistan (GoP) advocate on its behalf. GoP took up the issue of delays in FC of CPEC projects at the level of the Special Assistant to Prime Minister on CPEC Affairs and the Chinese Ambassador in Pakistan on September 9, 2021 and through a letter from Pakistan’s Minister of Planning Development and Reforms to the Vice Chairman of China’s NDRC on October 15, 2021. CPPCL eventually announced that it would not be able to achieve FC by the deadline of January 31, 2022, and it requested an extension in the FC date until February 28, 2023 and a change in RCOD from June 30, 2023 to 30 months after FC (December 31, 2025). PPIB convened a meeting with sponsors on October 26, 2021 wherein CPPCL highlighted its issues with Sinosure and lenders, which had stalled progress at the project site. Then, in November 2021, PPIB initiated a summary on the matter and forwarded it to Pakistan’s Ministry of Energy (Power Division) for onward submission to Pakistan’s Cabinet Committee on CPEC with a request to approach relevant agencies of the Chinese Government at appropriate level to resolve issues faced by Gwadar Power Project. The matter was discussed during the 8th Joint Working Group meeting on Gwadar held on December 30, 2021. Then, in January 2023, the Special Assistant to Pakistan’s Prime Minister (SAPM) on Power, Zafaruddin Mahmood, told the Chinese Ambassador to Pakistan that CPPCL would complete all necessary work at the earliest, including financial closure by December 31, 2023, to ensure that power plant started generating electricity by December 2025. He also assured the Chinese Ambassador that CPPCL would commence construction prior to completing financial closure. The Special Assistant to Pakistan’s Prime Minister on Coordination, Syed Tariq Fatemi, also reiterated Pakistan’s request for early confirmation of the two loans, one from ICBC and the other one from China Development Bank (CDB). In response, the Chinese Ambassador stated that the loan from ICBC was in an advanced stage and would be approved ‘very soon.’ He also stated that CDB's technical team was already in Islamabad and meeting Pakistani officials to prepare a due diligence report. It is envisaged that the power that is generated by the Gwadar power plant will eventually be sold to Pakistan’s Central Power Purchasing Agency (Guarantee) Limited under a 30 year Power Purchase Agreement (PPA).

Additional details

1. CCCC Industrial Investment Holding Company (CIHC) is the main sponsor and the majority shareholder of CIHC Pak Power Company Limited (CPPCL). CIHC is a wholly owned subsidiary of China Communications and Construction Group (CCCG). 2. AidData has not yet identify a precise official commitment (loan signature) dataet. However, several official sources suggest that ICBC has already issued the loan. This issue merits further investigation. 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 borrowing terms of the ICBC loan are drawn from https://nepra.org.pk/licensing/Licences/Licence%20Application/2017/CIHC%20Generation%20Licence%20Appliction%20of%20CIHC%20Pak%20Power.pdf

Number of official sources

13

Number of total sources

18