[IPP, BRI] ICBC provides $78.8 million loan for Hydro China Dawood 49.5MW Wind Farm Project

On March 11, 2015, the Industrial and Commercial Bank of China (ICBC) and Dawood Power (Pvt.) Ltd. (DPPL) signed a $78.82 million loan for the 49.5 MW Wind Farm Project. Based on DPPL’s tariff petition to Pakistan’s National Electric Power Regulatory Authority (NEPRA,) the estimated terms of the ICBC loan are as follows: an 11 year maturity, a 1 year grace period, and an interest rate of 6-month LIBOR (5.4%) plus a 3% margin (or 8.4%). On January 4, 2016, ICBC announced that it disbursed the first loan disbursement (worth $25 million) for this project. On April 22, 2015, President Xi visited Pakistan to witness the groundbreaking ceremony alongside Prime Minister Nawaz Shariff via video display. Dawood Power (Pvt.) Ltd. (DPPL), the borrower of this loan, is a project company (special purpose vehicle) established to finance, design, and implement this 49.5 MW Wind Farm Project. HydroChina, a subsidiary of Chinese SOE PowerChina, has a 93.89% ownership stake in Dawood Power (Pvt.) Ltd. (DPPL). This independent power project (IPP) was financed with a debt-to-equity ratio of 70:30. It was implemented on a Build-Own-Operate (BOO) basis. DPPL signed a 20-year power purchase agreement with the Pakistan Power Grid Corporation that uses the “cost + return” method to price the electricity. This project, which was designated as a priority infrastructure project for the Belt and Road Initiative (BRI), involved the installation of thirty three wind turbine generators (WTGs) from GoldWind, each of which generates 1.50 MW of power. The project site is located on 1,720 acres of tidal flats near near Port Qasim-Bhambore, Gharo Creek in Thatta District and Sindh Province. Northwest Institute of PowerChina — a subsidiary of the Power Construction Corporation of China — is the EPC general contractor, responsible for the project design, procurement and integration management of construction. The project was eventually put into commercial use on April 5, 2017 and it is currently operational. It reportedly provided 200 new jobs for local residents during its construction, and since completion, it is reportedly generating 130 million kilowatt-hours of electricity per year, which can meet 100,000 Pakistani homes’ needs and ease the country’s electricity shortages. However, this project has also encountered a number of challenges since the power plant went into operation. As of May 2022, DPPL was seeking $13 million in compensation from the Pakistani authorities for the losses that it had sustained due to the transmission of electricity through a single transmission line. Its payment arrears reached PKR 2.7 billion ($13.5 million) in May 2022. 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).

Additional details

1. Dawood Power (Pvt.) Ltd. (DPPL) is sometimes also referred to Hydrochina Dawood Power (Private) Limited (HCDPPL) or Hydrochina Dawood Power (Pvt.) Limited. Also, some sources indicates that the wind turbines were not purchases from GoldWind, but from from Guangdong's China Ming Yang Wind Power Group in association with Aerodyn Energiesysteme (a German wind-power group. 2. 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. 3. 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 dated 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.

Number of official sources

19

Number of total sources

30