[CPEC, IPP] CDB contributes $262 million to syndicated buyer's credit loan for Phase 2 of 330 MW Thar Block 2 (TEL 2) Coal-Fired Power Plant Construction Project (Linked to Record ID#54314)

Project narrative

In April 2016, ThalNova Power Thar Private Limited (TNPTL) — a special purpose vehicle and joint venture of Hub Power Company (HUBCO) [38% ownership stake], Thal Limited (a flagship company of HOH) [26% ownership stake], Novatex Limited [25% ownership stake], China Machinery Engineering Corporation (CMEC) [10% ownership stake] and Descon Engineering Limited [1% ownership stake] — was incorporated in Pakistan in order to finance, construct, and operate a 330MW mine-mouth lignite-fired power plant to utilize the local lignite at Thar Coal Block II. This is an independent power project (IPP) under the China-Pakistan Economic Corridor (CPEC) and the Belt and Road Initiative (BRI). In August 2016, Pakistan’s Private Power & Infrastructure Board (PPIB) awarded TNPTL a letter of intent (LOI) for the Phase 2 of the 330 MW Thar Block 2 (TEL 2) Coal-Fired Power Plant Construction Project. In August 2016 an Environmental and Social Impact Assessment was also completed by Hagler Bailly Consulting. Then, in December 2016, PPIB issued a Letter of Support (LOS) to TNPTL, which was late amended in August 2017. It required TNPTL to achieve Financial Close (FC) for the project and enter an Implementation Agreement (IA), Power Purchase Agreement (PPA), Water Use Agreement, Coal Supply Agreement, and Land Lease Deed. TNPTL executed an Implementation Agreement with PPIB in November 2017 and Power Purchase Agreement (PPA) with Pakistan’s Central Power Purchase Authority (Guarantee) Limited (CPPA-G) — the power plant’s off-taker — in July 2017. It also signed a Water Use Agreement with Government of Sindh, a Coal Supply Agreement with Sindh Engro Coal Mining Company Limited (SECMC), and a Land Lease Deed for the purchase of 244 acres of land. On April 27, 2019, a consortium of banks and TNPTL signed two syndicated loan agreements worth $373 million for Phase 2 of the 330 MW Thar Block 2 (TEL 2) Coal-Fired Power Plant Construction Project: 1) a USD-denominated syndicated export buyer's credit loan facility agreement with China Development Bank (CDB), China Minsheng Bank, China Zheshang Bank; and 2) a PKR-denominated loan facility with Habib Bank Limited, the lead arranger for local financing, and other Pakistani banks. CDB, the lead arranger for foreign financing, contributed $262 million to the USD-denominated syndicated loan facility. The estimated (original) borrowing terms of the foreign loan facility included a 13.33-year maturity, a 3.33-year grace period, an interest rate of 6-month LIBOR plus a 4.05% margin, and a 5% Sinosure insurance premium. However, as of July 1, 2023, the loan's interest rate was reset to 6-month SOFR plus a 0.42826% credit adjustment spread (CAS) and a 4.5% margin. As a source of security (collateral) for the syndicated loan from CDB, China Minsheng Bank, and China Zheshang Bank, the owners of TNPTL pledged their shares (equity stakes) in the project company. The borrower was also required to maintain a minimum cash balance in a debt service reserve account (DSRA). The aggregate (principal) amount outstanding under the two (USD-denominated and PKR-denominted) syndicated loan agreements was $340 million as of July 2024. The total cost of Phase 2 of the 330 MW Thar Block 2 (TEL 2) Coal-Fired Power Plant Construction Project is USD 497 million and it is financed according to a debt-to-equity ratio of 75:25. Therefore, the remaining project cost (USD 124 million) was provided by the project sponsors — HUBCO, Thal Limited, Novatex, CMEC, and Descon Engineering Limited — via equity infusions. On July 22, 2019, TNPTL executed additional financing documents with its foreign and local lenders. Then, on September 30, 2020, the project achieved financial closure. The proceeds of the loans were to be used by the borrower to finance an Engineering, Procurement, Construction (EPC) contract between TNPTL and CMEC, which was signed on April 10, 2017. The purpose of Phase 2 was to construct a 330MW mine-mouth lignite-fired power plant in the energy park within Thar Block-II in Sindh Province. CMEC was one of the EPC contractors responsible for implementation. TNPTL gave Limited Notice to Proceed (LNTP) to its EPC Contractors on March 12, 2019. However, construction did not begin until May 2019. The originally expected Commercial Operations Date (COD) was March 31, 2021. However, on January 31, 2020, CMEC notified TNPTL of a Force Majeure Event (FME) due to outbreak of Coronavirus (COVID–19) in China and across the globe. The expected COD for Phase 2 was revised to January 12, 2022. By the end of 2020, Phase 2 had only achieved a 34% completion rate. As of July 2022, the project had achieved a 51% completion rate. The project was completed and officially inaugurated on October 10, 2022. There are some indications that the syndicated loans for the Phase 2 of 330 MW Thar Block 2 (TEL 2) Coal-Fired Power Plant Construction Project have financially underperformed vis-a-vis the original expectations of lenders. In July 2024, the Government of Pakistan reportedly requested that CDB, China Minsheng Bank, and China Zheshang Bank grant a 5-year maturity extension to TNPTL. However, as of October 2024, a debt reprofiling agreement had not yet been finalized.