ICBC provides $78.8 million loan for Hydro China Dawood 49.5MW Wind Farm Project

ICBC provides $78.8 million loan for Hydro China Dawood 49.5MW Wind Farm Project On March 11, 2015, the Industrial and Commercial Bank of China (ICBC) and Dawood Power (Pvt.) Ltd. (DPPL or 中水顾问大沃电力有限公司) signed a $78.82 million loan agreement for the 49.5MW Wind Farm Project.

However, as of July 1, 2023, the loan's interest rate was reset to daily simple SOFR plus a 4.75% margin. On January 4, 2016, ICBC announced that it disbursed the first loan disbursement (worth $25 million) for this project.

Dawood Power (Pvt.) Ltd. (DPPL or 中水顾问大沃电力有限公司) is a project company (special purpose vehicle) established to finance, design, and implement the 49.5MW Wind Farm Project. HydroChina, a subsidiary of Chinese SOE PowerChina, has a 93.89% ownership stake in Dawood Power (Pvt.) Ltd. (DPPL).

The total cost of the independent power project (IPP) was $115 million. It was financed with a debt-to-equity ratio of approximately 70:30 and implemented on a Build-Own-Operate (BOO) basis.

DPPL signed a 20-year power purchase agreement with the Pakistan Power Grid Corporation that uses the 'cost + return' method to price the electricity. The project's estimated (ex ante) internal rate of return (IRR) range was 15-17%.

The project, which was designated as a priority infrastructure project for the Belt and Road Initiative (BRI), involved the installation of thirty three wind turbine generators (WTGs) from GoldWind, each of which generates 1.5MW of power.

The wind farm has a total installed capacity of 49.5MW, an annual on-grid electricity of 130,130,700 KWH, and the annual equivalent utilization hours of 2,629.

The scope of the project also included the construction of a 7-kilometer approach road, a 10-kilometer inside road, and a dam of more than 1,000 meters.

The project site is located on 1,720 acres of tidal flats near near Port Qasim-Bhambore, Gharo Creek in Thatta District and Sindh Province.

The project established an environmental management system, and invited a third-party professional organization to supervise, monitor, and implement Health, Safety, and Environmental (HSE) work in accordance with the requirements of the local environmental protection bureau.

In anticipation of climate change, the recurrence period of the flood standard for wind turbine tower foundation and the flood design standard for wind field monitoring center were both set to 30-years, and the seismic fortification for the design unit tower corresponded to Category C, while that for the substation and secondary buildings corresponded to Category D.

Northwest Engineering Corp.

Ltd. — a subsidiary of the Power Construction Corporation of China — was the EPC general contractor responsible for the project design, procurement and integration management of construction. It signed an EPC contract on January 5, 2015. Descon Engineering Limited, a company in Pakistan, was hired as a subcontractor.

A large number of local enterprises were chosen to provide services relating to the handling of construction materials (e.g., steel, cement, sand and stone, and finished concrete), equipment installation, hoisting equipment transportation during operation, and financial and legal support. The project commenced on March 30, 2015.

Then, on April 22, 2015, President Xi visited Pakistan to witness the project's formal groundbreaking ceremony alongside Prime Minister Nawaz Shariff via video display. The wind farm was put into commercial use on April 4, 2017. It reportedly provided 200 new jobs for local residents during its construction.

As of 2022, the wind farm had been operated safely and smoothly for five years without any accidents and it had produced 662 million KWH of green energy, sufficient to supply 100,000 Pakistani households with electricity each year. However, the project has encountered a number of challenges after the power plant went into operation.

As of May 2022, DPPL was seeking $13 million in compensation from the Pakistani authorities for the losses that it had sustained due to the transmission of electricity through a single transmission line. Its payment arrears reached PKR 2.7 billion ($13.5 million) in May 2022.

Several months later, on October 26, 2022, Sinosure informed the Government of Pakistan that it would not be able to provide credit insurance for any additional projects in Pakistan without ‘early resolution of [the] Revolving Account Agreement (RAA) pending between Central Power Purchasing Agency (CPPA) and Chinese IPPs since 2017’.

Under a November 8, 2014 CPEC Energy Project Cooperation Agreement, the CPPA and Chinese IPPs had agreed on the establishment of an RAA to facilitate the automatic payment of at least 22% payables to IPPs directly through the recovery of electricity bills of distribution companies (so-called ‘discos’).

However, ‘due to various technical and financial constraints’, the Government of Pakistan’s Power Division acknowledged that the RAA had not been implemented over the previous 5-year period.

In May 2022, an effort to establish an RAA was undertaken by the Government of Pakistan, but it was ultimately unsuccessful.

Then, on October 31, 2022, Pakistan’s Ministry of Finance came up with an interim arrangement for the Power Division to open ‘an assignment under the title of Pakistan Energy Revolving Fund (PERF) till such time matters pertaining to RAA are resolved’.

The escrow account was to be opened at the National Bank of Pakistan and operated by the CPPA and PKR 50 billion was to be allocated from the Ministry of Finance’s subsidy account to the PERF with a monthly withdrawal limit of PKR 4 billion (against invoices from IPPs).

The Government of Pakistan acknowledged, at the time, that this “[would] not fully fulfill the revolving account requirements under the RAA, but it [would] provide additional comfort to Chinese IPPs’.

Then, in November 2022, the Economic Coordination Committee (ECC) of the Cabinet turned down a proposal by the Ministry of Energy (Power Division) for the PERF (escrow) account to be operated by the National Bank of Pakistan.

It decided that the account would instead be operated by the country’s central bank: the State Bank of Pakistan (SBP).

A Services Agreement for End of Warranty Inspection was signed on Monday 28th February, 2022 by OLIVE Technical Services; a wholly owned subsidiary of Fauji Fertilizer Company (FFC) and Hydro China Dawood Power (Pvt) Ltd (HDPPL).