Narrative
Full Description
Project narrative
During the APEC conference in November 2014, Premier Li Keqiang and then-Pakistani Prime Minister Nawaz Sharif witnessed the signing of an EPC framework agreement for the 99MW Jhimpir Wind Project. Then, on April 20, 2015, China Development Bank (CDB) and UEP Wind Power Pvt. Ltd [or UEP Wind Power (Private) Limited or UEP Wind Power (Pvt.) Ltd. or UEP Wind) --- a project company (special purpose vehicle) and a joint venture of Orient Group Investment Holdings Co. Ltd (99% ownership stake) and United Energy Group (1% ownership stake) -- signed a $252 million loan agreement for the 100MW Jhimpir Wind Farm Project. The loan was backed by a Sinosure credit insurance policy. The 99MW Jhimpir Wind Project was implemented as an independent power project (IPP) basis. It was reportedly financed with a debt-to-equity ratio of 75:25. Based on UEP Wind’s tariff application to Pakistan’s National Electric Power Regulatory Authority (NEPRA), the estimated borrowing terms of the CDB loan are as follows: a 10 year maturity, a 2 year grace period, and an interest rate of 3-month LIBOR plus a 4.75% margin. However, on July 1, 2023, the loan's interest rate was reset to 3-month SOFR plus a 0.26161% credit adjustment spread (CAS) and a 4.75% margin. The construction of the United Energy Pakistan (UEP) wind farm involved the installation of 66 wind turbine generators (WTGs) -- each of which generates 1.5 MW of electricity -- in the town of Jhimpir within Thatta district and Sindh province. The project site covers a land area of 3,325 acres spanning across two zones. The eastern zone lies in Thatta across a land area of 2,525 acres and is equipped with 44 wind turbines, whereas the western zone stretches across a land area of 800 acres in Jamshoro and is equipped with 22 wind turbines. The project scope also involved the construction of a 132KV substation and a control center. 3,325 acres of land were provided to the project company (UEP Wind) by the Government of Sindh. The wind farm design included a total installed capacity of 99MW, annual utilization hours of 2,737, and a capacity factor of 0.31. Upon completion, the wind farm was expected to be able to supply 260 million kWh power annually to the Pakistani power grid. China Gezhouba Group Company Limited was the Engineering, Procurement, Construction (EPC) contractor responsible for project implementation. Xinjiang Goldwind Science & Technology Co., Ltd, the largest manufacturer of wind turbines in China, supplied the WTGs. The groundbreaking ceremony for the project took place on April 20, 2015. President Xi Jinping and then-Pakistani Prime Minister Nawaz Sharif attended the ceremony in Islamabad via video call. However, construction did not begin until January 2016. The wind farm achieved its commercial operations date (COD) on June 16, 2017. Then, on August 13, 2017, then-Vice Premier Wang Yang and then-Pakistani Prime Minister Shahid Abbasi attended a project completion ceremony. After going into operation, the wind farm began supplying 260 million kWh of electricity to the power grid and benefiting 500,000 local households each year. The electricity from the UEP Wind Farm is supplied to the Hyderabad Electrical Supply Company grid station in Jhimpir. The per unit rate is fixed at USD 0.1352 and thus higher than the rate from the Dawood Wind Power Project, the first China-backed wind farm in Pakistan (USD 0.1187/kWh) but lower than the rate of the Sachal Wind Farm (USD 0.1486/kWh). The 99 MW Jhimpir Wind Project reportedly hired 850 local Pakistani staff and the EPC contractor paid RS. 152,598,971.00 tax to the Pakistan government, while also undertaking a series of corporate social responsibility (CSR) projects in the community, including the construction of a well for the local village as well as the donation of books to local schools. However, the project encountered a number of debt repayment and financial management challenges after the power plant went into operation. In May 2022, reports emerged that the Government of Pakistan’s Central Power Purchasing Agency (CPPA) had fallen behind on payments (for the purchase of electricity) to UEP Wind. Total payment arrears, at that time, amounted to PKR 4.3 billion (approximately $21.5 million). 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 a July 2023 letter to Pakistan's Minister for Power, Khurram Shahzad, the President of UEP Wind Power Pvt. Ltd, expressed deep concern over excessive curtailments of its wind power project during high wind season, fearing that this practice would push it towards default: '[I]n prevailing circumstances, we shall not be able to produce enough power to generate invoices, sufficient to discharge our mandatory financial obligation including the next debt servicing in December 2023. We; therefore, are raising the ‘Red Flag’ now for UEP Wind Power project and requesting [the Government of Pakistan] to intervene and take appropriate measures to stop this ongoing curtailment issues immediately.' In December 2023, CRE International Co., Limited -- a wholly owned subsidiary of CNNP Rich Energy Co. Ltd -- acquired a 100% ownership stake in a Mauritius-incorporated company known as Super Success Investments Limited (SSIL). At the time of the acquisition, UEP Wind Power Pvt. Ltd was a wholly-owned subsidiary of SSIL, thereby enabling CRE International Co., Limited to indirectly acquire UEP Wind Power Pvt. Ltd.
Staff comments
1. The project company — UEP Wind Power Pvt. Ltd — is sometimes also referred to as UEPWPPL. 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. 4. This project is also known as the UEP 100MW Power Plant Project. The Chinese project title is 巴基斯坦联合能源 JHIMPIR（99MW）风电场一期工程项目.