ISLAMABAD: The government plans to launch in October a ‘marketing initiative’ for $13 billion Diamer-Bhasha dam in the international market for attracting commercial financing of the project through a ‘special purpose vehicle’.
Sources told Dawn that multilateral institutions, primarily the Asian Development Bank, had been advising the government to adopt a professional approach towards the objective of building the big dam which no single institution, country or group could finance given its mammoth funding requirements and the risks involved.
About 80 per cent of the total financing required — more than $10 billion (Rs1.1 trillion) — has to be raised through external sources and the remaining through domestic arrangements. While a part of the external financing can be arranged by a few institutional lenders, the major financing has to be arranged through the international capital market as a specific infrastructure bond in the name of Diamer-Bhasha Dam Company (DBDC) — a special purpose vehicle.
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If things move as planned, the soft marketing of DBDC will be launched in the second week of October on the sidelines of annual meetings of the World Bank and the International Monetary Fund scheduled for Oct 6-12 in Washington. The United States Agency for International Development will be arranging an investor conference specifically for the largest Pakistani water project in more than four decades.
Multilateral financial institutions have been advising the government to adopt a professional approach to build the big dam
Based on the investors’ feedback and domestic circumstances, the DBDC will be offered to international investors before June next year with a targeted completion date of June 2024. To meet the deadlines, DBDC will be built on the pattern of Neelum-Jhelum hydropower project through transfer of cost of land of the dam and operating assets of 1,450MW Ghazi Barotha Hydropower Project (GBHP).
The Securities and Exchange Commission of Pakistan has been asked to issue a certificate of incorporation while the process has been set in motion for transfer of GBHP assets. Since the project involves dozens of international and domestic lenders, the government is consulting them to complete legal requirements.
The sources said that once the Economic Coordination Committee of the cabinet cleared the project structure, a special request would be sent to the National Electric Power Regulatory Authority (Nepra) for amendments to the generation licence of Wapda and for issuance of a separate generation licence to the DBDC for a fresh power purchase agreement with the National Transmission and Dispatch Company.
The sources said that GBHP’s revenue surplus of about Rs9 billion per annum and net worth of about $500 million was not enough to meet local financing requirements for the project. Therefore, a special cess on the pattern of Neelum-Jhelum surcharge on electricity tariff would be imposed on GBHP’s tariff which can range between Rs10 and Rs15 per unit to make the DBDC project attractive for investors.
There is a move to increase GBHP’s tariff to Rs23 per unit by loading on the project cost of DBDC because the combination of operation and development activities will not be attractive for short-term investors.
The sources said the government was confident after the recent launch of $2bn Eurobond that investor appetite for Pakistani papers was substantial and it should be tapped for specific infrastructure projects like the DBDC. Local investors are also likely to be chipped in for domestic financing to minimise reliance on the Public Sector Development Programme.
This approach is being adopted to sidestep an existing lengthy mechanism of involving private investors in bidding for such a mega infrastructure, involving many approvals, tariff setting and construction. Instead, the project development will be fast-tracked through public-private partnership during execution by completing an updated feasibility study, environmental impact assessment and land acquisition.
The government has already allocated more than Rs55bn this year for acquisition of land, construction and improvement of access roads to DBDC. A power purchase agreement (PPA), evacuation plan and determination of an upfront tariff for DBDC by Nepra will be completed before formally offering infrastructure bonds in the international market.
It will be followed by the appointment of an international panel of experts for selection of bidders through international competitive bidding, and the predetermined upfront tariff and PPA period and completion deadline will be set in the expressions of interest. Official estimates put return on equity at 17pc based on 30-year average tariff of about Rs7.75 per unit.
Published in Dawn, August 25th, 2014
