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The Silk Road Fund Co. Ltd was established in China last December to extend investment and financing support to CPEC projects and to promote industrial cooperation with Pakistan. ─ Photo credit: Planning Commission of Pakistan
The Silk Road Fund Co. Ltd was established in China last December to extend investment and financing support to CPEC projects and to promote industrial cooperation with Pakistan. ─ Photo credit: Planning Commission of Pakistan

The implementation of the energy and infrastructure projects identified under the China-Pakistan Economic Corridor is being done on a fast-track basis on both sides to translate the plans into reality.

The Silk Road Fund Co. Ltd was established in China last December to extend investment and financing support to CPEC projects and to promote industrial cooperation with Pakistan.

The fund management company — set up as a consortium of leading Chinese banks, including the China Exim Bank and the China Development Bank — had initial funds of $10bn, which have now been raised to $40bn.

Read: Pakistan will continue implementation of CPEC project: FO

The pioneering project to be implemented under the programme is the 720MW Karot hydropower project, for which $1.65bn has been earmarked by the Silk Road Fund, and the down payment is under release.

The Fund has already signed an MoU with China’s Three Gorges Corporation and the Private Power and Infrastructure Board (PPIB) to develop a number of private hydropower projects, including Karot, which was approved last month by the PPIB’s board of directors. The PPIB has already issued the letter of support (LoS), and land acquisition is in process.

The ambitious CPEC programme has two main components. It plans to develop a new trade and transport route from Kashgar in China to the Gwadar Port. The other component envisages developing special economic zones along the route, including power projects. The first-phase projects will receive $45.69bn in concessionary and commercial loans, for which financial facilitation to the Chinese companies is being arranged by the Silk Road Fund.

These include $33.79bn for energy projects, $5.9bn for roads, $3.69bn for railway network, $1.6bn for Lahore Mass Transit, $66m for Gwadar Port and a fibre optic project worth $4m.

The prioritised, short-term projects involve over $17bn in investment. Apart from Karot, they include the upgrading of the 1,681km Peshawar-Lahore-Karachi railway line ($3.7bn); Thar coal-fired power plants worth 1,980MW ($2.8bn); development of two Thar coal mining blocks ($2.2bn); the Gwadar-Nawabshah natural gas pipeline ($2bn); imported coal-based power plants at Port Qasim worth 1,320MW ($2bn); a solar park in Bahawalpur worth 900MW ($1.3bn); the Havelian-Islamabad link of the Karakoram Highway ($930m); a wind farm at Jhimpir for 260MW ($260m); and the Gwadar International Airport ($230m).

The Sindh Engro Coal Mining Company, a joint venture of Engro Powergen Ltd and the Sindh government, holds the lease of Thar Block-II coalfields, while it’s Thar Power Company will construct a series of mine-mouth power plants.


Given the timeline for completion, these power projects could possibly add reasonable generation capacity by 2017-18, but they would hardly provide any relief to the nation in terms of the fast-growing demand for electricity


In May, the PPIB concluded the implementation and the power purchase agreements for two 330MW projects, which are scheduled to begin commercial operations by December 2017. And the China Development Bank has finalised the terms and conditions for financing a 3.8m tonnes per annum coal-mining project as well as a power project.

On June 25, the PPIB approved another Thar coal-based mine-mouth power project of 1,320MW capacity, which is being developed by the Shanghai Electric (Group) Corporation in partnership with Sino-Sindh Resources, a subsidiary of Global Mining (China) Ltd.

Sino-Sindh Resources will receive $1bn from the Industrial and Commercial Bank of China. The mine-mouth power project, originally planned to start power generation in 2016, has been rescheduled for commissioning by 2017-18. A letter of interest from the Chinese banks was issued in March for 75pc financing of the $2.6bn project, 25pc of which will be equity.

In addition, Chinese banks will provide financing for two 660MW imported coal-fired power plants at Port Qasim.

A financing cooperation agreement was recently signed by the China Exim Bank and the Port Qasim Electric Power Company for the under-construction project. The National Electric Power Regulatory Authority approved the upfront tariff on February 13.

The other 660MW project at Port Qasim is being developed by the Lucky Electric Power Company. The two projects are scheduled to begin commercial operations within four years. But they are likely to be delayed as a dedicated jetty for each project has to be constructed for unloading the imported coal, and the contracts for them have not yet been awarded.

Meanwhile, the Punjab government has leased 4,500 acres of land to Chinese investors for the development of the second phase of the Quaid-e-Azam Solar Park of 900MW, to be commissioned in 21 months. The China Development Bank, Exim Bank of China and Zonergy Co Ltd will be involved in it.

Likewise, the draw-down agreement for the Jhimpir wind project between UEP Wind Power (the borrower) and the China Development Bank Corporation (the lender) has been concluded. The project, having achieved financial close, is scheduled to begin commercial operations in 2016.

Given the timeline for completion, these power projects could possibly add reasonable generation capacity to the national grid by 2017-18, but they would hardly provide any relief to the nation in terms of the fast-growing demand for electricity. And there is no silver lining for consumers as far as the cost of the electricity is concerned.

All the Chinese loans will be insured by the China Export and Credit Insurance Corporation (Sinosure) against non-payment risks, and the security of the loans is guaranteed by the state.

A framework agreement for energy projects under CPEC was recently signed between Sinosure and the water and power ministry to provide sovereign guarantees.

Sinosure is charging a fee of 7pc for debt servicing, which will be added to the capital cost of a project. For instance, the capital cost of a 660MW project at Port Qasim is $767.9m. But it goes up to $956.1m by adding Sinosure’s fee of $63.9m, its financing fee and charges of $21m, and interest during construction of $72.8m; a 27.2pc return on equity is guaranteed.

Ironically, interest during construction is allowed at the rate of 33.33pc for the first year; 33.33pc for the second; 13.33pc for the third; and 20pc for the fourth year. The scenario presents a bleak picture, as the availability of affordable energy will likely remain a pipedream.

The writer is a retired chairman of the State Engineering Corporation, Ministry of Industries and Production

Published in Dawn, Economic & Business ,July 13th, 2015

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Comments (9) Closed



Wasim Jul 13, 2015 09:26am

Can anyone explain why is Lahore Mass transit under CPEC, worth 1.6bn $?

ukz Jul 13, 2015 09:38am

I hope these project also benefits nation along with benefiting shareef family's business and will not be a waste of resources like failed nandipur and marala power projects

M.Islam Jul 13, 2015 09:51am

A very nice and detailed article which provide ample knowledge to those who are interesred in the project, it is also an eye-opening piece for the people of pakistan other than that of punjab where threre seems nothing for KPK and Baluchistan,they should raise their due concerns and the centre should listen to them otherwise this project of national importance can become controvertial and lead to the rise of mistrust among the units of federation.

muhammad Jul 13, 2015 10:52am

"Interest during construction is allowed at the rate of 33.33pc for the first year; 33.33pc for the second; 13.33pc for the third; and 20pc for the fourth year. The scenario presents a bleak picture, as the availability of affordable energy will likely remain a pipedream. "

Circular debt will keep going up..

Mahmood Sherazi Jul 13, 2015 11:27am

This is a valid concern raised by a knowledgeable and experienced gentleman,however the reasons for the higher electricity cost is aptly discussed by Mr Ishrat Hussain's article 'After the IMF'.Secondly given the rapid decline in industry due to power outages and the resulting unemployment and loss of exports can we afford to say no and renegotiate with the Chinese the 'only' friend who has the willingness and capacity to help us.

In addition the road network being built will not only generate substantial employment in the supply chain industry by the passage of Chinese exports but also allow Pakistani industry a chance to deliver to the Chinese(the second larges t economy in the world) market.

Armagan Akram Jul 13, 2015 01:14pm

interest during construction is allowed at the rate of 33.33pc for the first year; 33.33pc for the second; 13.33pc for the third; and 20pc for the fourth year.

why so much? that is a huge mark up we should look to get these reduced.

Prof. Kumaraguru Jul 13, 2015 02:12pm

As per the details given by the Subject Matter Expert, the cost per Mega Watt is getting close to being 1.5 Mn USD with an added burden of a guaranteed 27.2pc return on equity! This is just too expensive and is rendered unviable from the very inception.

The cost per unit thus produced being over 16 Pakistani Rupees, it wouls compel the State to heavily subsidisethe same to make it within the reach of the end user. This would enhance the 'Circular Debt' to over a Trillion Pak Rupees...one should shudder even to think!

In India the cost per Mega Watt all inclusive is about One Mn USD. Hence the average per unit cost is just about Six Indian Rs; net realisation per unit being one rupee. Most power producers are hence making decent profits and are on expansion sprees. The only lagging factor being the distribution linkages... But the way things are going , India is well enroute to being self sufficient in power production, with all the relevant distribution networks in place, by 2020.

amirsaleem24@yahoo.com Jul 13, 2015 02:25pm

dear we wish best of luck, but to complete all these projects Pakistanis need to be honest and hard worker, to complete is the first step and then to keep the projects in working condition is another step. i hope these projects will not be operated like PIA, WAPDA, K ELECTRIC, JUDIARY, POLICE ETC.

Woz Ahmed Jul 13, 2015 10:05pm

These figures are shocking.

So rs16 per unit, then you have transmission loss, theft and subsidies.

Also the fuel needs to be imported. Our industry wants cheap local gas, or they claim they will go bankrupt, who will pay for this ?

Also what competitive bidding has been done ?

We are desperate for investment, but without reform first, this will only lead to a deeper hole for the country to dig out of.