China Bohai Bank provides $56.1 million loan for 100 MW Crest Energy Pakistan Limited Solar Power Plant at Quaid-e Azam Solar Park (Linked to Project ID#53988, #54283 and #50939) (CPEC, IPP)

Crest Energy Pakistan Limited (CEPL) is a special purpose vehicle designed to facilitate the construction of a 100 MW Solar PV Power Plant located at Quaid-e-Azam Solar Park at Lal Sohanra in Cholistan, District Bahawalpur in the Province of Punjab. It is a subsidiary of Zonergy, itself a subsidiary of ZTE Corporation. On December 21, 2015, China Eximbank, China Bohai Bank, and CEPL signed a term facility agreement with three tranches. China Eximbank provided two different loan tranches to CEPL: (1) an RMB 100 million loan tranche with a 2.65% interest rate and a 10-year maturity (captured via Project ID#54283) and (2) a $40.81 million loan with an interest rate of LIBOR plus a 4.2% margin and a 10-year maturity (captured via Project ID#53988). China Bohai Bank Co Limited provided a loan worth $56.19 million with an interest rate of LIBOR plus a 4.35% margin and a 10-year maturity (captured via Project ID#54284). The $149,457,000 project was financed with a debt:equity ratio of 75:25. These three loans from China Eximbank and China Bohai Bank constitute the debt component. It is unclear how the equity portion was financed. On June 27, 2015, CEPL signed EPC contracts with China First Metallurgical Group Co. Ltd. and MCC Ruba International Construction Company Pvt. Ltd. to build, own, and operate a 100 MW AC Solar powered electric generation facility in the Solar Park. The cumulative EPC contract value is RMB 984 million. The plant began commercial operations on July 31, 2016. However, this project appears to have encountered debt repayment and financial management challenges since the power plant went into operation. 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. 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. 2. 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. 3. This is one of ten solar power plants at Quaid-e-Azam Solar Park financed by CDB and China Eximbank (captured via Umbrella Project ID#50939). 4. AidData has estimated the all-in interest rate for the $40.81 million loan by adding 4.2% to average 6-month LIBOR in December 2015 (0.764%). AidData has estimated the all-in interest rate for the $56.19 million loan by adding 4.35% to average 6-month LIBOR in December 2015 (0.764%).

Number of official sources

9

Number of total sources

15