[CPEC, IPP] CDB contributes to $1.54 billion syndicated loan for 700.7 MW Azad Pattan Hydropower Plant Construction Project (Linked to Record ID#54233, 92635, 92636, 92637)

Official sector PRC bank contributions to $1.54 billion syndicated loan for 700.7 MW Azad Pattan Hydropower Plant Construction Project On January 24, 2012, a Panel of Experts (PoE) constituted by the Government of Pakistan’s Private Power and Infrastructure Board (PPIB) approved a Feasibility Study for the Azad Pattan Hydropower Plant Construction Project.

Then, in November 2012, an Environmental and Social Impact Assessment (EIA) was issued for the project. A Letter of Support (LOS) for the project was issued by PPIB on June 30, 2016.

Then, on December 14, 2016, a bidding consortium (joint venture) consisting of China Gezhouba Group Company Limited and China Gezhouba Group International Engineering Co. Ltd was identified as providing the most advantageous bid for the Azad Pattan Hydropower Plant Construction Project. An award was made to this bidding consortium on December 27, 2016.

Approximately six months later, on June 11, 2017, the Government of Pakistan, China Gezhouba Group Company Limited, and China Gezhouba Group International Engineering Co. Ltd signed a commercial (EPC) contract for the Azad Pattan Hydropower Plant Construction Project.

The EPC contract was structured as an onshore civil works contract and an offshore supply contract covering imported M&E plant and equipment for permanent installation in the power generating complex.

It included provisions for adjusting the contract price for changes in costs for cement, fuel, steel reinforcement and labour due to variation in applicable prices/indices published by Pakistan Bureau of Statistics from the specified base date (November 2016) through construction to commercial operations date (COD).

On June 23, 2017, Azad Pattan Power (Private) Limited — a special purpose vehicle and joint venture of China Gezhouba Group Company Limited (80% ownership stake) and Laraib Group (20%) ownership stake — submitted a tariff proposal to the Government of Pakistan’s National Electric Power Regulatory Authority (NEPRA) for the Azad Pattan Hydropower Plant Construction Project.

At that time, the estimated cost of the project was $1,516,170,000 and it was expected to be financed according to a 75:25 debt-to-equity ratio.

China Gezhouba Group Company Ltd. (CGGC) agreed to partially finance the equity portion equal to $379.04 million (as captured via Record ID#54233).

At the time that the tariff proposal was submitted to NEPRA, Azad Pattan Power (Private) Limited expected that a consortium of Chinese state-owned banks — consisting of China Development Bank (CDB), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC) — would provide a $1,137,130,000 syndicated overseas investment loan in support of the project.

Repayments would be made in 24 equal semi-annual installments (over 12-years). Sinosure was also expected to provide overseas investment loan insurance for this project. Then, on November 10, 2017, a grid interconnection study for the project was approved by NTDC.

A Panel of Experts (POE) constituted by PPIB approved an optimized design of the project with installed capacity of 700.7 MW on December 6, 2017. The project secured approvals from the relevant Environmental Protection Agencies (EPAs) in March 2018.

The EPC stage tariff was determined by NEPRA on May 17, 2018, and amended through a review determination on October 11, 2018.

On July 6, 2020, China Gezhouba Group Company Ltd. (CGGC) and the Government of Pakistan signed 30-year concession (‘project implementation’) agreement and agreed to implement the project on a Build, Own, Operate, Transfer (BOOT) basis.

At the end of a 30-year concession period, the project owner (Azad Pattan Power Private Limited) will hand over the power plant to the Government of Pakistan.

Azad Pattan Power Private Limited also signed a Water Use Agreement with the Government of Punjab and a Tripartite Power Purchase Agreement on July 6, 2020.

Then, on December 1, 2020, Azad Pattan Power (Private) Limited and Government of Azad Jammu & Kashmir signed the GoAJ&K Implementation Agreement (GoAJ&K IA) and GoAJ&K Water Use Agreement (GoAJ&K WUA).

A Term Sheet defining key terms and conditions agreed between Azad Pattan Power (Private) Limited (borrower) and the consortium of Chinese state-owned banks was executed on January 5, 2021.

Roughly one year later, on December 31, 2021, Azad Pattan Power (Private) Limited signed a $1.540 billion syndicated loan agreement (‘finance facility agreement’) with China Development Bank (Record ID#54234), China Construction Bank (Record ID#92636), Industrial and Commercial Bank of China (Record ID#92635), and Bank of China (Record ID#92637).

The loan was supported by a security package, which included a pledge on the shares of the project company in favor of the lenders. At that time, the project was expected to achieve a ‘financial close’ and start construction on December 31, 2022. Construction was originally expected to last 69 months (October 1, 2028).

However, in January 2022, reports emerged that Sinosure was reluctant to issue a credit insurance policy to the borrower (due to rising circular debt and the generally negative outlook for Pakistan’s power sector), which threatened to delay the achievement of financial close.

It was reported that since January 2022, Sinosure created a task force to assist in pushing the Thar Block-1, Azad Pattan, Kohala, and Gwadar power projects forward toward completion.

The purpose of the project is to construct a 700.7 MW hydroelectric power plant that is located about 90 km from Islamabad located on River Jhelum comprising (from upstream to downstream) Chakoti Hattian, Kohala, Mahl, Azad Pattan and Karot. Once commissioned, the power plant is expected to generate about 3.3 billion units of clean energy every year.