Investment under CPEC: KHCL still struggling for resolution of issues with AJ&K government

Kohala Hydro Company Limited (KHCL) is still struggling for resolution of outstanding issues with the government of Azad Jammu and Kashmir (AJ&K) to keep investment on track under CPEC, well-informed sources told Business Recorder.

Kohala Hydro Company (Pvt) LTD (KHCL) which will establish 1234MW hydropower project has already provided the draft Tripartite Agreement (TPA) in the light of ECC decision taken in a meeting on October 2, 2019. Subsequently, PPIB in a letter communicated ECC decision on November 8, 2019 in which it was stated that the government of AJ&K will make necessary amendments in the Arbitration Act 1940, in the manner to recognize, enforce and execute foreign arbitral awards by AJK courts. KHCL said that following language was agreed between the parties subject to approval by the Prime Minister AJ&K and the CTGI Board. "It was agreed by the government of AJ&K that AJK will enter into AJ&KIA with international arbitration to be conducted under London Court of International Arbitration (LCIA) rules as has been done in relaxation to other private sector hydropower projects in AJK and it will make necessary amendments in the Arbitration Act 1940 in the matter to recognise, enforce and execute the foreign arbitral awards by the AJ&K courts to afford similar protections as provided in the "The Recognition and Enforcement Arbitration Agreements and Foreign Arbitral Awards Act 2011" as is enforceable in Pakistan. The timelines for the approval of agreed provision by AJ&K was by or before December 3, 2019.

The minimum release below Kohala dam be made equivalent to 42cumecs by maintaining the E-flow of 30cumecs and releasing additional 12cumecs from the spillway/bottom outlet/E-flow generator as become available in Jhelum river due to the diversion of Neelum river at Kishanganga hydroelectric plant. KHCL agrees with the ECC decision related to E-flow.

The Sewage Treatment Plants (STPs) and Water Bodies (WBs) as required for environmental mitigation measures are integral part of the Kohala project. Therefore, the cost of STPs (including its study and detail engineering design) will be considered as part of the project cost to be approved by Nepra under the tariff determination. Accordingly, Kohala Hydro Company Limited will provide funds for feasibility study, detail engineering design, land and construction of STPs. However, operation and maintenance of STPs shall be responsibility of Government of AJ&K. Feasibility study for water bodies will be done by an international consultant and its cost will be borne by KHCPL. If construction of Water Bodies is found to be technically and economically feasible, the cost of construction and detailed engineering design of these WBs will be included in the project cost to be approved by Nepra under tariff determination. The operation and maintenance of WBs will be the responsibility of Government of AJ&K. However, KHCL clarifies that the language included in Tripartite Agreement (TPA) that if the cost related to sewage treatment plant and water bodies is not approved by Nepra then it will not be borne by the company will not be part of the project as per definition of Implementation Agreement(IA) and Tripartite Power Purchase Agreement(TPPA) and will be implemented under the Community Investment Plan (CIP) determined and approved by Nepra as part of the project cost.

The company has reiterated its position for inclusion of following language in TPA, TPPA and IA which was already communicated through its letters of October 15 and October 30, 2019 ;(i) any foreign exchange loss of gain in excess of 5 per cent incurred by the company, solely due to exchange rate variations from due date for payment of invoice upto the date of SBP allowing the company exchange of payment received from power purchaser into foreign currency will be trued up/ down under TPPA and ;(ii) delayed payment rate to be agreed under the TPPA and IA will be Kibor plus 2 per cent( without compounding), provided however, in case of delay in payment under TPPA beyond 90 days, the delayed payment rate for such further delay in payment will be Kibor plus 4.5 per cent ( without compounding) Regarding another proposal of the company, the ECC directed that the power projects being processed for power generation policy 2002 including Kohala project which are yet to achieve financial closing, Chinese Yuan/Renminbi(RMB) will be treated as specified foreign currency similar to other specified foreign currencies such as US dollar, Euro, Pound Sterling and Japanese Yen. Such treatment will permit the IPPs to arrange financing and make payments of principal and interest to foreign lenders in RMB. Further, indexation of tariff payment with RMB similar to indexation mechanism applicable with respect to US dollar will also be allowed. The company has appreciated Nepra and power purchaser for finalisation and issuance of indexation mechanism related to RMB for inclusion in TPPA.