KARACHI: The Hub Power Company Ltd (Hubco) said on Friday its joint-venture (JV) partner in a coal-based 1,320-megawatt power plant has withdrawn the encashment notice it served on Hubco’s bank last month.

The announcement removes the analysts’ earlier apprehensions that the notice — served on the bank that issued a $150 million standby letter of credit (SBLC) on behalf of Hubco — would lead to increased financial costs for the country’s largest independent power producer.

The SBLC is a guarantee through which lenders ensure that equity partners cover any cost overruns or funding shortfalls that may occur before the project completion date (PCD).

Even though the plant has been producing electricity for many years, its PCD was still pending because the lenders were waiting for the fulfilment of their last condition: the establishment of a revolving fund by the Central Power Purchasing Authority-Guarantee (CPPA-G) to help independent power producers overcome their liquidity shortfalls.

The government recently set up the revolving fund, which has eliminated the need for the JV partner, China Power Hub Generation Company Ltd (CPHGC), to call the SBLC.

Hubco and CPHGC informed investors on Friday that the SBLC has been extended on “mutually agreed terms.” They didn’t state any details.

The JV partner called the SBLC on Nov 23, which was the day the facility was going to mature. Hubco didn’t renew it, which meant its JV partner would be out of opti­ons in the case of any funding shortfalls in the future.

As for the reluctance shown by Hubco in renewing the facility, analysts referred to the fact that SBLCs constitute a liability and use up the available credit lines. That’s because the issuing bank must make immediate payment on behalf of its client — Hubco, in this case — as soon as the SBLC is called upon.

Published in Dawn, December 24th, 2022