Kohala power project hits snag over Chinese lenders condition

ISLAMABAD: The $2.4 billion Kohala hydropower project with the capacity to generate electricity of 1,124 MW has hit another snag as the Chinese lenders have asked the government to first clear the Rs350 billion backlog of outstanding payments of CPEC IPPs, only after which they will provide the required financing.

“This new condition of financing has virtually stalled the project,” a senior official of the Energy Ministry disclosed to The News. He said that the project’s average 30-year tariff is estimated at 7.85 cents per unit with a total project cost of $2.4 billion. “The Kohala project will be located on the Jhelum River in Azad Jammu and Kashmir (AJK). It is to be developed by the Kohala Hydropower Company with China Three Gorges Corporation (CTG), the International Finance Corporation of the World Bank and the Silk Road Fund.

“We have established a revolving fund of Rs50 billion to ensure smooth payments to Chinese IPPs instead under the umbrella of CPEC (China-Pakistan Economic Corridor), but Chinese feedback is still awaited whether they are satisfied with it or not,” the official maintained.

“The financial closure of the project has not yet been achieved. Against this backdrop, the completion of the project in June 2026 certainly does not seem possible. Pakistan is a cash-strapped country and is presently in a deep US dollar liquidity crunch, making it unable to clear the dues of CPEC IPPs.” To a question, the source said the Chinese power producers, however, have not yet invoked sovereign guarantees that the Government of Pakistan had extended.

The Private Power & Infrastructure Board (PPIB) is the supervising agency of this project. The PPIB’s Managing Director, Shah Jahan Mirza, confirmed that Chinese state-owned banks and Sinosure (China Export & Credit Insurance Corporation) had held back the decision to provide financing for the Kohala Hydropower project. However, he attributed the holding back to the risk factor of the country that has increased manifold after global rating agencies downgraded Pakistan’s credit rating given the difficult economic situation. When asked inside sources are insisting that Chinese banks and insurance corporations have linked the financing with clearance of dues of CPEC IPPs, Mirza did not respond. The ECC approved the project on June 28, 2020. A tripartite power purchase agreement was formally signed on June 25, 2020 by the Kohala Hydropower Company and the governments of Pakistan and AJK. Also, the Implementation Agreement, Sovereign Guarantee Agreement, and Water Use Agreement had been signed in April 2021. The ECC on April 8, 2020 also approved the foreign exchange loss/gain at the rate of 7pc to be absorbed by Kohala Hydropower Company and delayed payment at the rate of 2pc without compounding, which was accepted by the Chinese firms.