China Eximbank provides $3.618 billion preferential buyer’s credit for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project (Linked to Record ID#41916, #41917, #92413)

China Eximbank provides $3.618 billion preferential buyer’s credit for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project On January 14, 2014, China Eximbank approved a ‘mixed credit’ worth approximately $6.5 billion for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project.

China Eximbank agreed to cover 82% of the total project cost, with the Government of Pakistan covering the remaining 18%.

This 'mixed credit' arrangement produced four different financial commitments: two preferential buyer's credits (PBC), one government concessional loan (GCL), and one buyer's credit loan (BCL).

On January 14, 2014, the Government of Pakistan and China Eximbank signed a $382,848,800 preferential buyer’s credit (PBC) agreement [CHINA EXIMBANK PBC NO. (2013) 50 TOTAL NO. (294)]. Its borrowing terms are unknown (captured via Record ID#92413).

On December 15, 2015, the Government of Pakistan and China Eximbank signed a $3,618,151,200 preferential buyer’s credit (PBC) agreement [CHINA EXIMBANK PBC NO. (15) 18 TOTAL NO. (360) and Government of Pakistan loan ID# PBC-2015-18-360] for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project.

This agreement was amended on October 8, 2019 [CHINA EXIMBANK PBC NO. (15) 18 TOTAL NO. (360) (A)], but the purpose of the amendment is unknown.

The Government of Pakistan on-lent some or all of the proceeds of the China Eximbank loans to Pakistan Atomic Energy Commission (PAEC) -- a federally funded independent governmental agency -- at a 15% interest rate.

The Government of Pakistan also reportedly issued sovereign guarantees for all four China Eximbank loans that supported the project.

In December 2015, the amounts outstanding under all four China Eximbank loans (worth $5.668 billion) were reportedly transferred by the Government of Pakistan to PAEC (as the direct borrower).

The purpose of the project was to construct units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP), which is located in Paradise Point in Karachi within Sindh Province. China National Nuclear Corporation (CNNC) was the contractor responsible for project implementation.

It is using Hualon One technology (the CNNC's third-generation nuclear reactor design) to construct Units 2 and 3 of the Karachi Nuclear Power Plant. A groundbreaking ceremony was held on November 26, 2013.

Then, a major milestone was reached at the K-2 reactor when so-called ‘cold functional tests’ began on November 26, 2019.

Cold functional tests are carried out to confirm whether the main system and its supporting facilities are properly installed and ready to operate under high-pressure conditions. K-2 was ultimately connected to the national grid on March 18, 2021. It was officially inaugurated on May 21, 2021 and put into operation on May 24, 2021.

The K-3 reactor came online on March 4, 2022. The project was originally expected to reach completion by the end of 2020.

There are some indications that the $3.618 billion China Eximbank preferential buyer's credit for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project financially underperformed vis-a-vis the original expectations of the lender.

In May 2019, PAEC sought the Prime Minister's approval to have the interest rates of the China Eximbank loans for Units 2 and 3 of the KANUPP Project reset to their original levels (when they were first issued by China Eximbank).

Local sources reported at the time that the electricity tariff determined by the National Electric Power Regulatory Authority (NEPRA) was set on the basis of actual electricity generation costs and on-lending at a 15% rate increased actual electricity generation costs by PKR 108 billion (necessitating an PKR 1.8/kWh increase in the tariff rate).

However, it is unclear if the Prime Minister approved PAEC’s request. Then, on or around July 1, 2020, China Eximbank and the Government of Pakistan signed a debt suspension agreement.

Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between July 1, 2020 and December 31, 2020 under the $3.618 billion preferential buyer's credit agreement for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project. Then, on November 19, 2020, China Eximbank and the Government of Pakistan signed another debt suspension agreement [No.

DSSI2021PHASE1-031].

Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between January 1, 2021 and June 30, 2021 under the $3.618 billion preferential buyer's credit agreement for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project.

Then, on or around July 1, 2021, China Eximbank and the Government of Pakistan signed another debt suspension agreement.

Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between July 1, 2021 and December 31, 2021 under the $3.618 billion preferential buyer's credit agreement for Units 2 and 3 of the Karachi Nuclear Power Plant (KANUPP) Project.

Then, in April 2022, local media reported that the operation of the Karachi Nuclear Power Plant and the repayment of the China Eximbank loans that supported its construction had become a challenge due the absence of requisite payments from the Government of Pakistan's Central Power Purchasing Agency–Guaranteed (CPPA-G).

The debt service suspension (rescheduling) from July 2020-December 2020 is captured via Record ID#96254. The debt service suspension (rescheduling) from January 2021-June 2021 is captured via Record ID#96257. The debt service suspension (rescheduling) from July 2021-December 2021 is captured via Record ID#96253.