Narrative
Full Description
Project narrative
On May 21, 2014, after submitting a performance guarantee and an application for the establishment of a special purpose vehicle (project company), a consortium consisting of Huaneng Shandong Power Generation Co., Ltd. (and its subsidiary in Hong Kong) and Shandong Ruyi Technology Group Co., Ltd. (and its subsidiary in Hong Kong) was granted a Letter of Intention (LOI) by the Government of Pakistan, thereby officially obtaining the right to develop the Sahiwal 2 x 660 MW Coal-Fired Power Plant Project. Then, on May 28, 2014, Huaneng Shandong Ruyi (Pakistan) Energy Ltd. — a special purpose vehicle (project company) and joint venture of Huaneng Shandong Power Generation Co. Ltd. (51% ownership stake) and Shandong Ruyi Science & Technology Group (49% ownership stake) — was officially incorporated and established to assume responsibility for the development, investment, and management the two 660 MW coal-fired units in Sahiwal. By July 23, 2014, a senior management team was in place at Huaneng Shandong Ruyi (Pakistan) Energy Ltd. Then, in November 2014, a project feasibility study report was approved after an assessment was made by experts from the Electric Power Planning & Engineering Institute (EPPEI) and the Government of Punjab. On November 21, 2014, SEPCO1 Electric Power Construction Corporation was selected as the EPC contractor through bidding. Given that Huaneng Shandong Ruyi (Pakistan) Energy Ltd. did not achieve financial close on a $1.44 billion syndicated buyer’s credit (facility) with Chinese banks until February 2017, it signed a series of bridge loan agreements — with the Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), and China Construction Bank (CCB) — to support the implementation of the 1320MW (2 x 660MW) Sahiwal Coal-Fired Power Plant Project between January 2016 and September 2016: a $70 million loan agreement with the Beijing Branch of ICBC on January 29, 2016 with a 1-year maturity and an annual interest rate of 3-month LIBOR plus a 1.15% margin (collateralized with a $70 million financing bond/standby letter of credit from Huaneng Shandong Power Generation Limited); a $210 million loan agreement with the Seoul Branch of CCB on April 7, 2016 with a 1-year maturity and a 1.45% interest rate (collateralized with a $210 million financing bond/standby letter of credit from Huaneng Shandong Power Generation Limited); a $100 million loan agreement with the Singapore Branch of BOC on August 30, 2016 with a 1-year maturity and a 1.6% interest rate (collateralized with a $100 million financing bond/standby letter of credit from Huaneng Shandong Power Generation Limited); a $200 million loan agreement with the Shandong Branch of ICBC in 2016 with a 0.5-year maturity and an annual interest rate of 6-month LIBOR plus a 0.6% margin; and a $100 million loan agreement with the Macau Branch of ICBC in 2016 with a 1-year maturity an a 1.6% interest rate. As of December 31, 2016, cumulative disbursements under the $70 million loan agreement with the Beijing Branch of ICBC, the $210 million loan agreement with the Seoul Branch of CCB, $100 million loan agreement with the Singapore Branch of BOC, the $200 million loan agreement with the Shandong Branch of ICBC, and the $100 million loan agreement with the Macau Branch of ICBC amounted to $68 million, $203.7 million, $99 million, $200 million, and $98 million, respectively. Then, in October 2015, four Chinese state-owned commercial banks — the Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB), and Agricultural Bank of China (ABC) — signed a $1.44 billion syndicated buyer’s credit (facility) agreement with Huaneng Shandong Ruyi (Pakistan) Energy Ltd. (HSR) for the 1320MW (2 x 660MW) Sahiwal Coal-Fired Power Plant Project. The original borrowing terms of the loan included a 14.5-year maturity (final maturity date: April 1, 2030), a 2.5-year grace period, an interest rate of 3-month LIBOR plus a 4.5% margin), and a 5.26% Sinosure insurance premium. The borrower was expected to make 48 unequal, quarterly principal payments. However, as of July 1, 2023, the loan's interest rate was reset to daily simple SOFR plus a 4.5% margin. The loan was collateralized against a pledge of shares in the project company [Huaneng Shandong Ruyi (Pakistan) Energy Ltd] by the equity holders. The Government of Pakistan also issued a sovereign guarantee in support of the loan and granted a 27.2% guaranteed return on equity to the project sponsors (investors). The loan's (principal) amount outstanding was $1,411,000,000 as of December 31, 2017, $1,198,760,000 as of December 31, 2019, and $660,000,000 as of June 30, 2024. The total cost of the Sahiwal 2 x 660 MW Coal-Fired Power Plant Project was $1.808 billion. It was implemented as an Independent Power Project (IPP) — as part of the China-Pakistan Economic Corridor (CPEC) Initiative — and financed according to a debt-to-equity ratio of 75:25. The purpose of the project was to construct 1320 MW coal-fired power plant — with two 660 MW supercritical coal-fired units (Unit 1 and Unit 2) — with synchronous installation of high-efficiency electrostatic precipitator and flue gas desulfurization facilities. The project site is located about 12 miles from Sahiwal and 9.3 miles from Okara cantonment, just north of the road which connects the two towns, in Pakistan's Punjab Province. Its exact locational coordinates are 30°42′55″N 73°14′20″E. The 690 hectare project site was given to the Chinese side by the Pakistani government free of charge. PowerChina Nuclear Engineering Company and SEPCO1 Electric Power Construction Corporation (a subsidiary of PowerChina) were the general EPC contractors responsible for implementation. A groundbreaking ceremony was held on May 30, 2014. Foundation soil replacement and pile foundation tests commenced on February 6, 2015. Construction began on July 31, 2015. Unit 1 passed a 168-hour full-load trial operation and was put into operation on May 24. 2017. Unit 2 passed a 168-hour full-load trial operation and was put into operation on June 8. 2017. A project completion ceremony took place on July 3, 2017. All network-related tests were completed on October 12, 2017. The project was originally scheduled to achieve its Commercial Operations Date (COD) in June 2017. It ultimately achieved its COD on October 28, 2017. The power plant was connected to the national grid on the same day. As part of a build, operate, transfer (BOT) agreement, the power plant's ownership was to be transferred from the project company to the Government of Punjab after 30 years of operation. The 1320MW (2 x 660MW) Sahiwal Coal-Fired Power Plant has encountered a number of revenue generation, debt repayment, and financial management challenges since it went into operation. In April 2018, reports emerged that the Government of Pakistan’s Central Power Purchasing Agency (CPPA) had fallen behind on payments (for the purchase of electricity) to Huaneng Shandong Ruyi (Pakistan) Energy Ltd. Total payment arrears, at that time, amounted to PKR 20 billion (approximately $172 million), which reportedly brought the Sahiwal 2 x 660 MW Coal-Fired Power Plant Project to ‘to the brink of closure’. It also made it more difficult for Huaneng Shandong Ruyi (Pakistan) Energy Ltd. to source the coal needed to power the plant (since Pakistan Railway demands advance payment for coal transportation). Then, in a letter dated August 7, 2022, Huaneng Shandong Ruyi (Pakistan) Energy Ltd. acknowledged that more than 0.5 million tons of South African coal were being stored in Port Qasim and awaiting clearance because it was unable to pay the coal supplier. 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’. 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 July 2024, the Government of Pakistan reportedly requested that BOC, ICBC, ABC, and CCB grant a 5-year maturity extension to Huaneng Shandong Ruyi (Pakistan) Energy Ltd.. However, as of November 2024, a debt reprofiling agreement had not yet been finalized.
Staff comments
1. The Chinese project title is 萨希瓦尔燃煤电站 or 巴基斯坦萨希瓦尔电站项目. The Urdu project title is ساہیوال کول پاور پروجیکٹ. 2. Some sources identify the total project cost as $1.912 billion. 3. 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. However, Pakistan's Ministry of Finance officially classifies all IPP debt as 'private debt'. 4. The individual contributions of the Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China to the $1.44 billion syndicated loan are unknown. For the time being, AidData assumes that all four lenders contributed equal amounts ($360 million). ICBC's contribution to the $1.44 billion syndicated loan is captured via Record ID#52659. The contributions of BOC, CCB, and ABC to the $1.44 billion syndicated loan are captured via Record ID#92302, Record ID#92303, and Record ID#92304, respectively. 5. 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 date 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. 6. The Sinosure insurance premium is identified here: https://www.dropbox.com/s/bmx3w2b38o7guxm/Debt%20Pricing%20of%20IPPs%20%28002%29.pdf?dl=0 7. The loan's (principal) amount outstanding (as of July 2024) was provided to AidData by the same confidential source. 8. One source (https://www.pacra.com/summary_report/RR_2426_13294_19-Jul-24.pdf) indicates that the borrower is responsible for making 34 unequal quarterly principal payments, while another (https://www.dropbox.com/scl/fi/9hl552x3wrkyfmsv2n0e8/458736979-IPP-Report-Pakistan.pdf?rlkey=06bqn57jtyahuyr58am8ya2am&dl=0) indicate that the borrower is responsible for making 48 unequal quarterly principal payments. This suggests the possibility of a debt rescheduling via grace period extension. This issue warrants further investigation. 9. Record ID#54134 captures the project's equity financing component.