Completed Mixed AidData Chinese Aid

[CPEC, IPP] CDB provides $84.1 million loan for the 49.5 MW Karot Three Gorges Second Wind Farm Project (Linked to Record ID#54317, 54012, 37233)

$84.1M USD

Funder	China Development Bank (CDB)
Recipient Organization	Three Gorges Second Wind Farm Pakistan Private Limited (TGSWFPL)
Country	Pakistan
Start Date	Dec 28, 2016
End Date	Apr 11, 2033
Duration	5,948 days
Number of Grantees	1
Roles	Recipient
Data Source	AidData Chinese Aid
Grant ID	`53675`

Grant Description

[CPEC, IPP] CDB provides $84.1 million loan for the 49.5 MW Karot Three Gorges Second Wind Farm Project On December 28, 2016, China Development Bank (CDB) signed an $84.1 million loan agreement with Three Gorges Second Wind Farm Pakistan Private Limited (TGSWFPL) for the 49.5 MW Karot Three Gorges Second Wind Farm Project.

📋 Loan / Grant Terms

📅 Maturity11.5 years

⏳ Grace Period1.5 years

The borrower was expected to make forty, consecutive, quarterly principal payments to the lender.

The borrower was also expected to use the proceeds of the loan to partially finance a commercial (EPC) contract worth $94,194,000.

As of July 1, 2023, the loan's interest rate was reset to 3-month SOFR plus a 0.26161% credit adjustment spread (CAS) and a 4.5% margin.

TGSWFPL is a project company (special purpose vehicle) established for the purpose of financing and implementing the 49.5 MW Karot Three Gorges Second Phase Wind Power Project.

It is a subsidiary of China Three Gorges South Asia Investment Ltd (CSAIL), which is an investment holding company formed by China Three Gorges Corporation on September 30, 2011, in the Cayman Islands, to acquire, develop, build, own and operate renewable power generation projects in Pakistan.

The project involved the installation of 33 units of Goldwind GW82/1500 turbine generators (WTGs), each with rated output of 1.5MW.

The main project construction activities includes the foundations of the 132kV substation, wind turbine generators (WTGs), an air insulated outdoor substation, and a 132 kV transmission line to transmit generated electricity to the Pakistani national electricity grid. The project sought to supply 189,901MWh/year of clean electricity to the Pakistani national electricity grid.

The project site is located in Jhimpir Village, Thatta District, and Sindh Province, which is 90 km west of Karachi city and 80 km north of the coast of Arabian Sea. The total cost of the independent power project (IPP) was $112,126,930. It was implemented on a Build-Own-Operate (BOO) basis and financed according to a debt-to-equity ratio of 75:25.

Project implementation officially commenced on September 1, 2016. The IPP achieved its commercial operation date (COD) on June 20, 2018.

However the project also encountered a number of debt repayment and financial management challenges after the power plant went into operation.

In May 2022, reports emerged that the Government of Pakistan’s Central Power Purchasing Agency (CPPA) had fallen behind on payments (for the purchase of electricity) to TGTWFPL. Total payment arrears, at that time, amounted to PKR 4.1 billion (approximately $20.5 million).

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).

📋 Staff Comments

This $84.1 million CDB loan to TGSWFPL is closely related to another $84.4 million CDB loan that was provided to Three Gorges Third Wind Farm Pakistan Private Limited (TGTWFPL) for a sister project (captured via Record ID#54317). These two projects — the 49.5 MW Karot Three Gorges Second Wind Farm Project And the 49.5 MW Karot Three Gorges Third Wind Farm Project — are part of a broader set of Karot power projects worth $2 billion that focusing on hydroelectric and wind power generated under the China-Pakistan Economic Corridor (CPEC) (captured via Record ID#37233).
According to multiple, official sources, the Government of Pakistan has issued sovereign guarantees in support of all loans issued by Chinese state-owned banks for independent power projects (IPPs) in Pakistan (see https://www.fmprc.gov.cn/ce/cepk/chn/zbgx/t1735166.htm and http://pk.chineseembassy.org/eng/zbgx/202110/t20211010_9558510.htm and https://www.dropbox.com/s/bmx3w2b38o7guxm/Debt%20Pricing%20of%20IPPs%20%28002%29.pdf?dl=0). As such, AidData assumes that the loan captured in this record is backed by a sovereign guarantee from the Government of Pakistan. However, Pakistan's Ministry of Finance officially classifies all IPP debt as 'private debt'.
On November 8, 2014, the Chinese Government and the Government of Pakistan signed a CPEC Energy Project Cooperation Agreement. According to Article 5 of the Agreement, ‘the Pakistani Party agrees that a revolving account shall be opened with 30 days of commercial operation of the respective project, into which the money, no less than the 22 per cent of the monthly payments for the respective power project under the agreement shall be deposited to provide cover for the shortfall in power bill recoveries from the date of power generation of the said projects agreements subject to the condition that the additional direct and indirect expenses incurred in maintaining the revolving account would be compensated by the producers through a discount arrangement to be mutually agreed.’ Subsequently, the Finance Division, in consultation with the Power Division, finalized a mechanism for the Revolving Account (RA) with the approval of The Minister of Finance in a letter dated June 22, 2015. Then, in September 2017, the Power Division forwarded a draft Revolving Account Agreement (RAA) to be signed between Central Power Purchasing Agency-Guaranteed (CPPA-G) and power producer(s) to the Finance Division. CPPA-G subsequently executed the finalized draft of RAA with multiple CPEC IPPs. The Government of Pakistan also guaranteed the funding obligations of the CPPA with respect to the RAA, through Supplemental Implementation Agreements signed between the Government of Pakistan — through the Private Power and Infrastructure Board (PPIB) — and the respective IPPs.
For loan and debt rescheduling records with variable interest rates, AidData calculates the all-in interest rate at T0 based on the reference rate (such as LIBOR or EURIBOR) on the loan start date, plus any known margin. Please see the methodology for additional details.

📚 Sources & References

Three Gorges Second Wind Power Project Three Gorges Third Wind Power Project
Duke University - ENVIRONMENTAL AND ECONOMIC IMPACTS OF THE BELT AND ROAD INITIATIVE ON PAKISTAN’S ENERGY SECTOR, 99 MW THREE GORGES 2ND AND 3RD WIND FARM
Decision of National Electric Power Regulatory Authority in the matter of Tariff Adjustments at Commercial Operations Date (COD) of Three Gorges Second Wind Farm Pakistan (Private) Ltd. (TGSWFPL)
Chinese company secures funds for Karot, wind power projects
Project design document form for CDM project activities
Tariff Adjustments of Three Gorges Second Wind Farm Pakistan
Tariff for Three Gorges Second Wind Farm Pakistan (Private) Ltd.
About CSAIL, 99 MW THREE GORGES 2ND AND 3RD WIND FARM, 2016 Government of Pakistan Bond Prospectus
China Development Bank - 2017 Green Bond
We do not have China debt problem: Umar
中国驻巴基斯坦使馆发言人就美方涉中巴经济走廊言论答记者问
Debt Pricing of IPPs (002)
Chinese IPPs face default risk
All Chinese CPEC workers to move in bullet-proof cars
Rs50b PERF account to be opened to resolve liquidity issue of Chinese IPPs, allowed amendment in Power Purchase Agreement (PPA) for commissioning of designated project – CPEC – TCB – I (On Thar Coal) without financial close; approved opening of an assignment account under the title of Pakistan Energy Revolving Fund (PERF) to be opened with SBP.
Chinese firm calls on $150m standby LC
PR No. 268
Overdue receivables, rising coal rates: IPPs under CPEC may default, warns CPECA
Gazette of Pakistan March 9, 2020 Statutory Notifications
NEPRA okays new financing mechanism for 59 IPPs of different technologies Loan applications and disbursements are still being received and processed as the projects continue to evolve. Ongoing monitoring and evaluation are in place to ensure project continuity.