Kohala Hydropower Project: PPIB extends due financial close date by 2 years

ISLAMABAD: The Board of Private Power & Infrastructure Board (PPIB) has reportedly granted a two-year extension in financial close (FC) date to 1,124MW Kohala Hydropower Project.

Official sources told Business Recorder, PPIB, in its proposal requested the Board to allow extension in the FC date for an appropriate period to accommodate remaining pre-requisites of FC of Kohala Hydropower Project (a CPEC strategic project), on the basis of single Performance Guarantee (PG) as the reasons for the delay in achievement of FC were beyond the reasonable control of the project company.

According to the PPIB, there is no provision of waiver of exemption from Fee Payment against “extension in Financial Close under LoS (for each extension)” based on the reasons of extension, in the “Private Power and Infrastructure Board (Fee and Charges) Rules, 2018”; however, the board should consider the request of the project company for waiver of applicable LoS extension fee on merit basis.

The project company, which sought a three-year extension in FC date will submit monthly progress report that sets out in adequate detail, the additional actions taken by the project company in achieving the FC in the extended FC date.

The project company through a letter of July 14, 2022 stated that project activities, unfortunately, remained suspended for nearly three years due to various disruptions like Covid-19 pandemic, E-flow issue raised by the government of Azad Jammu and Kashmir and imposition of certain taxes on import of project equipment, etc. which were beyond the reasonable control of the company.

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After the execution of the project agreements with the government entities, the project company approached China Export & Credit Insurance Corporation (Sinosure) for issuance of the LOI, however, in spite of all the efforts of the Project Company and its Headquarters in China, the LOI has not yet been issued by Sinosure which is the requirement for arranging finance for the project.

In addition to the land acquisition activities and tariff modification of the Project by NEPRA due to inclusion of construction of Sewerage Treatment Plants (STPS) in light of ECC decision are still pending therefore the project company has requested that the term of extension in the FC date under the LoS may be extended from September 30, 2022 to September 23, 2025i.e. for three years on the basis of single Performance Guarantee as the reasons for delay in achievement of FC were beyond the reasonable control of the project company and waive the LoS extension fee. The project company in its letter further added that it will try to achieve FC at its earliest possible but to avoid multiple extensions it should be given an extension for three years.

In light of the project company’s views, PPIB argued that at present there are three critical aspects associated with further development of the Project: (i) land acquisition; (ii) Sinosure clearance which is a mandatory requirement of Chinese government for lenders and sponsors to invest abroad and lenders approval; and (iii) tariff modification of the Project by the Nepra due to inclusion of construction of Sewerage Treatment Plants to mitigate environmental impact in light of the ECC decision. Further, after clearance of activities, project company will require execution of direct agreements, financing documents and term sheets with the lenders under the project agreements which may also require a time of 6 to 9 months for completion.

The matter of Sinosure reluctance mainly surfaced due to delay in payments to commissioned CPEC IPPs and renegotiation on tariff with IPPs which is being handled at higher levels between the GoP and Chinese Government for amicable settlement/resolution and the same is also expected to be included in the agenda of upcoming 11thmeeting of the Joint Cooperation Committee (JCC) of the CPEC. Further, the matter of Sinosure cover for Kohala hydropower project was also discussed in a meeting held on July 7, 2022 under the chairmanship of Prime Minister of Pakistan wherein it was decided that the project shall be granted extension in Los and Sinosure will be requested for provision of insurance cover to the project to help achieve FC.

According to para 51 of Power Policy 2002, until Financial Closing, the LoS will govern the project and supersede all documents and agreements; thereafter the security agreements will supersede LoS.

Copyright Business Recorder, 2022