Chinese banks set another condition for Kohala power project

• Chinese banks held back decision to provide financing.
  
• New condition of financing virtually stalled project, says official. 
• Says project's average 30-year tariff estimated at 7.85 cents per unit.

ISLAMABAD: The Kohala Hydropower Project is facing another obstacle after Chinese lenders said to provide the required financing after the Rs350 billion backlog of outstanding payments of independent power producers (IPPs) under the China–Pakistan Economic Corridor (CPEC) is cleared, The News reported. 

“This new condition of financing has virtually stalled the project,” a senior official of the Energy Ministry disclosed, adding that the project’s average 30-year tariff is estimated at 7.85 cents per unit with a total project cost of $2.4 billion. 

“The Kohala project will be located on the Jhelum River in Azad Jammu and Kashmir (AJK). It is to be developed by the Kohala Hydropower Company with China Three Gorges Corporation (CTG), the International Finance Corporation of the World Bank and the Silk Road Fund.

The official said that a revolving fund of Rs50 billion is established to ensure smooth payments to Chinese IPPs instead under the umbrella of CPEC, but Chinese feedback is still awaited whether they are satisfied with it or not. 

“The financial closure of the project has not yet been achieved. Against this backdrop, the completion of the project in June 2026 certainly does not seem possible. Pakistan is a cash-strapped country and is presently in a deep US dollar liquidity crunch, making it unable to clear the dues of CPEC IPPs," he added. 

According to the source, the Chinese power producers, however, have not yet invoked sovereign guarantees that the Government of Pakistan had extended.

The Private Power & Infrastructure Board (PPIB) is the supervising agency of this project. The PPIB’s Managing Director, Shah Jahan Mirza, confirmed that Chinese state-owned banks and Sinosure (China Export & Credit Insurance Corporation) had held back the decision to provide financing for the Kohala Hydropower Project. 

However, he attributed the holding back to the risk factor of the country that has increased manifold after global rating agencies downgraded Pakistan’s credit rating given the difficult economic situation. 

Moreover, Mirza did not respond to the question regarding Chinese banks and insurance corporations linking the financing with the clearance of dues of CPEC IPPs. 

The Economic Coordination Committee (ECC) approved the project on June 28, 2020 and a tripartite power purchase agreement was formally signed on June 25, 2020, between the Kohala Hydropower Company and the governments of Pakistan and AJK. 

Also, the Implementation Agreement, Sovereign Guarantee Agreement, and Water Use Agreement had been signed in April 2021. 

The ECC on April 8, 2020, also approved the foreign exchange loss/gain at the rate of 7% to be absorbed by Kohala Hydropower Company and delayed payment at the rate of 2% without compounding, which was accepted by the Chinese firms.