According to The News, the Kohala Hydropower Project is now facing a new challenge after Chinese financiers promised to provide the necessary financing if the Rs350 billion backlog of independent power producers’ (IPPs’) unpaid bills under the China-Pakistan Economic Corridor (CPEC) is cleared.
According to a senior official of the Energy Ministry, “This new condition of funding has virtually frozen the project.” The project’s average 30-year tariff is anticipated to be 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.
The official said that a revolving fund of Rs50 billion is established to ensure smooth payments to Chinese IPPs instead under the umbrella of CPEC, but Chinese feedback is still awaited whether they are satisfied with it or not.
“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,” he added.
But, the source claims that the Chinese power producers have not yet used the sovereign assurances that the Pakistani government had offered.
The project is being overseen by the Private Power & Infrastructure Board (PPIB). Shah Jahan Mirza, the managing director of the PPIB, revealed that Sinosure (China Export & Credit Insurance Corporation) and Chinese state-owned banks have delayed the decision to offer finance for the Kohala Hydropower Project.
But, he explained that the country’s risk factor has increased significantly as a result of international rating agencies downgrading Pakistan’s credit rating due to its precarious economic circumstances.
Also, Mirza did not react to the query on Chinese insurance companies and banks’ links between funding and the payment of CPEC IPPs’ debts.
A tripartite power purchase agreement was formally signed between the Kohala Hydropower Company and the governments of Pakistan and AJK on June 25, 2020, following the Economic Coordination Committee’s (ECC) approval of the project on June 28, 2020.
Also, in April 2021, the Implementation Agreement, Sovereign Guarantee Agreement, and Water Use Agreement were all signed.
On April 8, 2020, the ECC also authorised the Kohala Hydropower Company to bear a 7% foreign exchange loss or gain and a 2% without compounding delay in payment, all of which were accepted by the Chinese companies.
