Narrative
Full Description
Project narrative
On October 16, 2015, Apollo Solar Development Pakistan Limited (ASDPL) — a special purpose vehicle (SPV) that is legally incorporated in Pakistan and a wholly-owned subsidiary of Zonergy (a subsidiary of ZTE Corporation) -- signed two different syndicated term facility (loan) agreements (TFAs) with China Eximbank and China Development Bank (CDB) for the 100 MW Solar PV Power Plant in Quaid-e-Azam Solar Park. The first was a Sinosure-backed, RMB 400 million syndicated loan agreement that originally carried the following borrowing terms: a 2.65% interest rate, a 10-year maturity, and a 0.624-year (estimated) grace period. China Eximbank's contribution to the RMB-denominated loan is captured via Record ID#53985 and CDB's contribution to the RMB-denominated loan is captured via Record ID#92503. The second was a Sinosure-backed. $62.6 million syndicated loan agreement that originally carried the following borrowing terms: an interest rate of 3-month LIBOR plus a 4.2% margin, a 10-year maturity, and a 0.624-year (estimated) grace period. However, as of July 1, 2023, the $62.6 million loan's interest rate was reset to 3-month SOFR plus a 0.26161% credit adjustment spread (CAS) and a 4.2% margin. China Eximbank's contribution to the USD-denominated facility is captured via Record ID#54287 and CDB's contribution to the USD-denominated facility is captured via Record ID#92501. Under both loan agreements, the borrower was expected to make 48 consecutive, quarterly principal payments. The borrower was also expected to use the loan proceeds to partially finance two commercial (EPC) contracts that it signed on on June 27, 2015: an RMB 863.316 million offshore supply contract that it signed with China First Metallurgical Group Co. Ltd. and an RMB 135.683 million onshore construction contract with MCC Ruba International Construction Company (Pvt) Ltd. ASDPL achieved financial close on November 6, 2015, which is typically the date of the first loan disbursement. The project was implemented on a build-own-operate-transfer (BOOT) basis and it involved the construction of a 100 MW solar PV power plant located at Quaid-e-Azam Solar Park at Lal Sohanra in Cholistan within Bahawalpur District of the Province of Punjab. It was originally envisaged that the total cost of the project would be $151.431 million and it would be financed according to a debt-to-equity ratio of 75:25. However, the (final) total cost of the project was $149.154 million and it was financed according to a debt-to-equity ratio of 79:21. China First Metallurgical Group Co. Ltd and MCC Ruba International Construction Company (Pvt) Ltd were the EPC contractors responsible for project implementation. The project reached its commercial operations date (COD) on May 31, 2016. However, the project encountered debt repayment and financial management challenges after 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 Zonergy and its subsidiaries/SPVs. Total payment arrears, at that time, amounted to PKR 10.4 billion (approximately $52 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).
Staff comments
1. The project implementation start date is unknown. For the time being, AidData relies on the financial closure date (November 6, 2015) as a proxy for the project implementation start date, since this is typically the date of the first loan disbursement. 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. However, Pakistan's Ministry of Finance officially classifies all IPP debt as 'private debt'. 3. The individual contributions of China Eximbank and CDB to the $62.6 million syndicated loan are unknown. For the time being, AidData estimates that each of the two Chinese state-owned banks contributed equal amounts ($31.3 million). 4. The length of the grace periods that applied to the $62.6 million syndicated loan and the RMB 400 million syndicated loan are unknown. For the time being, AidData assumes that both loans carried grace periods of 0.624 years (equivalent to the number of days that elapsed between the loan commitment date and COD. 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 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. 6. This is one of ten solar power plants at Quaid-e-Azam Solar Park financed by CDB and China Eximbank (captured via Umbrella Record ID#50939).