[IPP] China Eximbank asked to provide overseas investment loan for 640 MW Mahl Hydroelectric Power Plant Construction Project

On 21 October 2014, China Three Gorges South Asia Investment Limited (CSAIL) was issued a letter of interest for the 640 MW Mahl Hydroelectric Power Construction Project in Pakistan. A feasibility study was subsequently carried out in 2016 and then approved on 24 January 2017 by the Private Power & Infrastructure Board’s (“PPIB”) panel of experts. The study estimates that the total project cost would be USD 1,281,460,000 with a debt:equity ratio of 80:20--meaning debt would be USD 1,025,180,000 and equity would be USD 256,280,000. The 2016 feasibility study assumed that 100% of the debt would come from a foreign lender, but there was still a possibility for local lenders as well. The initial financing plan is based on the assumption that the project will be supported by an overseas investment loan from China Eximbank to CSAIL or its subsidiary. The Chinese Government requires all overseas investment loans from Chinese banks to be insured by Sinosure. Prospective lenders at the time of the feasibility study said the interest rate would be 5.41% (6-month USD LIBOR of 0.91% plus 450 basis points) and interest payments would be made on a semi-annual basis. The proposed borrowing terms would include a 12-year repayment period starting from the commercial operation date (COD) as well as a 6-year grace period. On 23 January 2019, Pakistan's National Electric Power Regulatory Authority (NERPA) approved of the 18-year maturity but wanted the interest rate lowered to 6-month LIBOR plus 410 basis points. It is unclear whether China Eximbank ever signed a final financing agreement with these terms for the Mahl Hydroelectric Power Plant Construction Project. In order to implement the proposed 640 MW Mahl Hydropower Project, CSAIL (97% stakeholder) and Trans Tech Pakistan (3% stakeholder) established a new subsidiary and special purpose vehicle (SPV) named Mahl Power Company (Private) Limited. It is incorporated in Pakistan and was registered with SECP on May 25, 2015. This SPV will implement the project on a BOOT (Build, Own, Operate, Transfer) basis until the expiry of the 30-year term of the Power Purchase Agreement (PPA). Thereafter the Complex will be handed over to the Government of Azad Jammu & Kashmir. The 640 MW Mahl Hydropower Plant is located 5km upstream of intersection between the Mahl River and the Jhelum River on the boundary between the State of Azad Jammu & Kashmir (AJ&K) and the province of Punjab with some portion of the dam in Khyber Pakhtunkhwa (KPK). It will add an additional 640 MW generation capacity to the National Grid. Construction is supposed to last 72 months. According to a Dawn article, in June 2020, Pakistan's Economic Coordination Committee (ECC) was asked to approve three implementation agreements, including this 640 MW Mahl Hydroelectric Power Plant Construction Project. It approved of the other two power projects, but not this one. The same article says that the other two power projects are processed under the China-Pakistan Economic Corridor (CPEC), but not the Mahl Plant. In May 2021, China Three Gorges (CTG) signed four concession agreements with Pakistani authorities for the Kohala Hydropower Plant, a priority CPEC project. CTG is most likely focusing on one hydropower plant at a time and will move onto the Mahl Hydropower Plant in the coming years.

Additional details

This project is also called the Mahal Hydropower Plant or the Mahl HPP. The Chinese project title is 玛尔水力发电厂. No sources explicitly state that China Eximbank is financing this project. However, it is the only Chinese state-owned policy bank that provides overseas investment loans. Therefore, AidData assumes the funding agency is China Eximbank. Official sources left the door open to both local and foreign lenders to finance the debt component of this project equal to USD 1,025,180,000. Therefore, AidData does not code this as the transaction amount since some of it might come from non-Chinese banks. China Three Gorges South Asia Investments Limited (CSAIL) is a consortium between the International Finance Corporation (IFC; part of the World Bank Group) (15% of shares), China Silk Road Fund (SRF; owned by Government of China) (15%), and China Three Gorges Corporation (CTG; a wholly-owned state-owned enterprise) (70%). 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.

Number of official sources

12

Number of total sources

18