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• Ahead of PM’s visit, company wants financial close deadline extended till Sept 2027
• Seeks clarity about law for land procurement in AJK
• $2.5bn Kohala project has been delayed by three years
ISLAMABAD: Days before Prime Minister Shehbaz Sharif is scheduled to arrive in Beijing for a key visit, a Chinese company has demanded the revival of a hydropower project that has been delayed for around three years.
The Chinese sponsors of the $2.5bn Kohala Hydropower Project (KHPP) have raised a series of demands regarding the 1,124MW project planned to be built on River Jhelum in Azad Kashmir.
Pakistan has been trying to revive the project, along with the 700MW Azad Pattan Hydropower project — also planned to be built in Azad Kashmir — as renewable energy projects were a key part of the China-Pakistan Economic Corridor (CPEC) and Islamabad’s long term plan to use indigenous resources for power generation.
The projects were delayed as China Export and Credit Insurance Corporation (Sinosure) was reluctant to provide insurance cover to the project amid dues of over Rs550bn, to be paid by Pakistani power companies to Chinese independent power producers (IPPs).
Recently, Planning Minister Ahsan Iqbal and the PM Office intensified efforts to revive the project. During and on the sidelines of CPEC Joint Coordination Committee’s meeting, Pakistan got a positive response from the Chinese leadership, and Sinosure reportedly asked the two project sponsors to file fresh letters of intent for investment and insurance coverage.
Fresh demands
However, ahead of the PM’s visit, China Three Gorges Corporation (CTG) demanded that the letter of support (LoS) and financial close deadline be extended by three years to September 30, 2027, instead of 2024.
Liu Yonggangm, the CEO of Kohala Hydro Company — a subsidiary of CTG — has written to the managing director of Private Power Infrastructure Board demanding the previous bank guarantee be kept unchanged, instead of doubling it as required under the power policy and, waive the extension fee.
The letter issued on Friday said CTG welcomed the efforts to address critical issues relating to KHPP.
It claimed that KHPP was “fully geared to achieve financial closing in December 2018” and had executed the Engineering, Procurement, and Construction (EPC) Contract and the Engineer’s Contract and mobilised machinery to start the construction.
Chinese and local workers and engineers were on-site, and preliminary construction activities had commenced when the project was “unexpectedly halted by the Government of AJ&K due to environmental concerns wrongly associated with the Neelum-Jhelum Hydro Power Project,” the letter added.
Subsequently, it took more than three years to address the issues raised by the Azad Kashmir government, resulting in significant delays.
Most of the project’s key issues have been resolved and a series of agreements, like the tripartite power purchase agreement, implementation agreement and water use agreements, were signed in 2020 and 2021, the Chinese official said in the letter.
Due to the disruptions, “lender interest in the Kohala HPP waned, and China Export & Credit Insurance Corporation’s (Sinosure) interest in providing insurance to the lenders diminished”.
The letter disclosed that some previous potential investors had backed out, forcing the sponsors to seek new financing options.
Given that the project is situated in AJK, where there is “a notable disinterest among lenders”, the company required additional time to secure alternative funding sources.
Currently, the CTG is tasked with securing $2.5 billion in financing and obtaining insurance coverage from Sinosure, hence the push for a three-year extension.
Moreover, the Chinese side has also raised “several outstanding key issues, with technical, financial, and environmental implications,” which must be addressed before achieving financial closure.
It said the company needed 8,600 kanals of land for the project, of which 4,607 kanals had already been acquired under the Land Acquisition Act, 1894.
Since the AJK government notified a new Land Acquisition Act in 2020 and new rules in 2021, the letter sought confirmation that the remaining land for the project would be purchased under the old law.
It also complained that the Nepra had “not honoured ECC decisions related to Sewage Treatment Plants and foreign exchange Losses/Gains in excess of 7pc on delayed payment”.
The company said despite adverse macroeconomic conditions, it remained “steadfastly committed to advancing the project”. Therefore, it demanded an extension in LoS and a financial closing deadline of Sept 2027.
Published in Dawn, June 1st, 2024
