[CPEC, IPP] CDB provides $84.4 million loan for the 49.5 MW Karot Three Gorges Third Wind Farm Project (Linked to Project ID#53675, #37233, #54012)

On December 28, 2016, China Development Bank (CDB) signed an $84.4 million loan agreement with Three Gorges Third Wind Farm Pakistan Private Limited (TGTWFPL) -- a special purpose vehicle -- for the 49.5 MW Karot Three Gorges Third Wind Farm Project. The borrowing terms were as follows: a 10 year maturity, a 1.5 year (18 month) grace period, and an interest rate of 3-month LIBOR (0.2706%) plus a 4.5% margin. The total cost of the independent power project (IPP) was $112,527,040 and it was implemented on a Build-Own-Operate (BOO) basis. The value of the EPC contract was $94,579,200. TGTWFPL is a project company (special purpose vehicle) established for the purpose of financing and implementing the 49.5 MW Karot Three Gorges Third Wind Farm Project. It is a subsidiary of China Three Gorges South Asia Investment Ltd (CSAIL), which is an investment holding company formed by China Three Gorges Corporation on September 30, 2011, in the Cayman Islands, to acquire, develop, build, own and operate renewable power generation projects in Pakistan. This independent power project (IPP) involved the installation of 49.5 MW of power generation capacity with 33 wind turbine generators of 1.5 MW each. The project also involved a 132 kV substation, which dispatches electricity to Hyderabad Electric Supply Company Limited Grid at Jhimpir Station, which is to the southeast of the project site (or a station in Nooriabad, which is 22 km away to the northwest of the project site). The project site covers an area of 2.95 square kilometers and it is located in Jhimpir Village, Thatta District, and Sindh Province, which is 90 km west of Karachi city and 80 km north of the coast of Arabian Sea. Its exact locational coordinates are 25.07.43°N 67.55.23°E. The project formally commenced on September 1, 2016. It achieved its commercial operation date (COD) on July 9, 2018. However, this project has encountered a number of debt repayment and financial management challenges since 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 TGTWFPL. Total payment arrears, at that time, amounted to PKR 4.1 billion (approximately $20.5 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).

Additional details

1. This $84.4 million CDB loan to TGTWFPL is closely related to another $84.1 million CDB loan that was provided to Three Gorges Second Wind Farm Pakistan Private Limited (TGSWFPL) for a sister project (captured via Project ID#53675). These two projects — the 49.5 MW Karot Three Gorges Second Wind Farm Project And the 49.5 MW Karot Three Gorges Third Wind Farm Project — are part of a broader set of Karot power projects worth $2 billion that focusing on hydroelectric and wind power generated under the China-Pakistan Economic Corridor (CPEC) (captured via Project ID#37233). 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

13

Number of total sources

20