[CPEC, IPP] ICBC contributes to $1.54 billion syndicated loan for 700.7 MW Azad Pattan Hydropower Plant Construction Project (Linked to Project ID#54233, 54234, 92636, 92637)

On January 24, 2012, a Panel of Experts (PoE) constituted by the Government of Pakistan’s Private Power and Infrastructure Board (PPIB) approved a Feasibility Study for the Azad Pattan Hydropower Plant Construction Project. Then, in November 2012, an Environmental and Social Impact Assessment (EIA) was issued for the project. A Letter of Support (LOS) for the project was issued by PPIB on June 30, 2016. Then, on December 14, 2016, a bidding consortium (joint venture) consisting of China Gezhouba Group Company Limited and China Gezhouba Group International Engineering Co. Ltd was identified as providing the most advantageous bid for the Azad Pattan Hydropower Plant Construction Project. An award was made to this bidding consortium on December 27, 2016. Approximately six months later, on June 11, 2017, the Government of Pakistan, China Gezhouba Group Company Limited, and China Gezhouba Group International Engineering Co. Ltd signed a commercial (EPC) contract for the Azad Pattan Hydropower Plant Construction Project. The EPC contract was structured as an onshore civil works contract and an offshore supply contract covering imported M&E plant and equipment for permanent installation in the power generating complex. It included provisions for adjusting the contract price for changes in costs for cement, fuel, steel reinforcement and labour due to variation in applicable prices/indices published by Pakistan Bureau of Statistics from the specified base date (November 2016) through construction to commercial operations date (COD). On June 23, 2017, Azad Pattan Power (Private) Limited — a special purpose vehicle and joint venture of China Gezhouba Group Company Limited (80% ownership stake) and Laraib Group (20%) ownership stake — submitted a tariff proposal to the Government of Pakistan’s National Electric Power Regulatory Authority (NEPRA) for the Azad Pattan Hydropower Plant Construction Project. At that time, the estimated cost of the project was $1,516,170,000 and it was expected to be financed according to a 75:25 debt:equity ratio. China Gezhouba Group Company Ltd. (CGGC) agreed to partially finance the equity portion equal to $379.04 million (as captured via Project ID#54233). At the time that the tariff proposal was submitted to NEPRA, Azad Pattan Power (Private) Limited expected that a consortium of Chinese state-owned banks — consisting of China Development Bank (CDB), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC) — would provide a $1,137,130,000 syndicated overseas investment loan in support of the project. The proposed borrowing terms included an 18-year maturity, a 6-year grace period, an interest rate of LIBOR plus a margin of 1.3% to 4.2%, a 0.8% commitment fee, and a 1% management fee. Repayments would be made in 24 equal semi-annual installments (over 12 years). Sinosure was also expected to provide overseas investment loan insurance for this project. Then, on November 10, 2017, a grid interconnection study for the project was approved by NTDC. A Panel of Experts (POE) constituted by PPIB approved an optimized design of the project with installed capacity of 700.7 MW on December 6, 2017. The project secured approvals from the relevant Environmental Protection Agencies (EPAs) in March 2018. The EPC stage tariff was determined by NEPRA on May 17, 2018 and amended through a review determination on October 11, 2018. On July 6, 2020, China Gezhouba Group Company Ltd. (CGGC) and the Government of Pakistan signed 30-year concession (‘project implementation’) agreement and agreed to implement the project on a Build, Own, Operate, Transfer (BOOT) basis. At the end of a 30-year concession period, the project owner (Azad Pattan Power Private Limited) will handed over the power plant to the Government of Pakistan. Azad Pattan Power Private Limited also signed a Water Use Agreement with the Government of Punjab and a Tripartite Power Purchase Agreement on July 6, 2020. Then, on December 1, 2020, Azad Pattan Power (Private) Limited and Government of Azad Jammu & Kashmir signed the GoAJ&K Implementation Agreement (GoAJ&K IA) and GoAJ&K Water Use Agreement (GoAJ&K WUA). A Term Sheet defining key terms and conditions agreed between Azad Pattan Power (Private) Limited (borrower) and the consortium of Chinese state-owned banks was executed on January 5, 2021. Roughly one year later, on December 31, 2021, Azad Pattan Power (Private) Limited signed a $1.540 billion syndicated loan agreement (‘finance facility agreement’) with China Development Bank (Project ID#54234), China Construction Bank (Project ID#92636), Industrial and Commercial Bank of China (Project ID#92635), and Bank of China (Project ID#92637). At that time, the project was expected to achieve a ‘financial close’ and start construction on December 31, 2022. Construction was expected to last 69 months (October 1, 2028). In January 2022, reports emerged that Sinosure was reluctant to issue a credit insurance policy to the borrower (due to rising circular debt and the generally negative outlook for Pakistan’s power sector), which threatened to delay the achievement of financial close. The purpose of the project is to construct a 700.7 MW hydroelectric power plant that is located about 90 km from Islamabad located on River Jhelum comprising (from upstream to downstream) Chakoti Hattian, Kohala, Mahl, Azad Pattan and Karot. Once commissioned, the power plant is expected to generate about 3.3 billion units of clean energy every year.

Additional details

1. The Chinese project title is 巴基斯坦阿扎德帕坦水电站项目 or 帕坦投资项目 or 阿扎德帕坦水电站BOOT项目. 2. Project ID#54234 captures the debt financing and Project ID#54233 captures the equity financing for the project. 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. 4. In December 2019, the China-Pakistan Economic Corridor Energy Joint Working Group decided to include the 700.7 MW Azad Pattan Hydropower Plant Construction Project in their list of energy projects. 5. AidData has estimated the borrowing terms of the loan based upon the indicative terms that were recorded in the June 23, 2017 tariff proposal to NEPRA. The 6-year grace period was estimated by taking the difference between the expected maturity (18 years) and the expected duration of the repayment period (12 years). The all-in interest rate was estimated by adding 2.75% (the midpoint between 1.3% and 4.2%) to the average 6-month LIBOR rate in December 2021 (0.306%). 6. Several sources refer to a security agreement. Therefore, AidData assumes that this loan is collateralized for the time being. This issue warrants further investigation. 5. The size of the contributions from CDB, ICBC, PBC, and CCB are unknown. For the time being, AidData assumes that CDB, ICBC, PBC, and CCB each contributed $385 million (i.e. equally sized contributions to the lending syndicate).

Number of official sources

16

Number of total sources

27