KARACHI: Nishat Energy Limited (NEL) has found a foreign partner to go ahead with its plan of setting up a 660-megawatt power plant on “imported coal” by December 2020.
“TBEA Xinjiang Sun Oasis Company Limited (a Chinese firm) has shown interest in participating in the project as a co-sponsor to provide technical and project financing proficiencies,” NEL Chief Financial Officer Norez Abdullah said in an application seeking power generation licence from the regulator.
A couple of months ago, the government placed a ban on firms with 100% local ownership to set up power plants to be operated on imported coal. The ban was not applicable on local firms that had arranged financing for their projects till October 14, 2016.
The government gave an option to those local firms that introduced their projects on imported coal, but did not meet financial close by October, to either arrange foreign financing or convert their projects on local (Thar) coal.
Lucky Cement Limited’s 660-megawatt project was among those that opted to convert on local coal.
NEL is setting up the 660-megawatt coal fired power plant at Rahim Yar Khan, Punjab, at a cost of $956 million. The cost is a mix of 25% equity ($239 million) and 75% debt ($717 million), documents said.
“The sheer size of debt financing (greater than $600 million) required to fund the project was not possible to manage from local banking channels. Therefore, there was a need for induction of a capable Chinese partner to drive the financing process forward. It is strongly believed that the current sponsor’s experience and balance sheet strength will make the new consortium more formidable and capable,” Abdullah said.
The application documents said TBEA would hold 70% stakes in the power project. Nishat Power Limited and Nishat Mills Limited would hold remaining 25% and 5% stakes, respectively.
Earlier, Nishat Power Limited, Lalpir Power Limited, Pakgen Power Limited and Nishat Mills Limited; each of them had 25% stakes in the project.
“The change of consortium was necessitated after engaging with multiple large banks that emphasised the need for a Chinese sponsor in order to prioritise and fast track the financial close process with Chinese financial institutes,” the application said.
The project is intended to be financed by Chinese banks under the China-Pakistan Economic Corridor (CPEC) government-to-government agreed framework as provided in the CPEC Agreement.
“The sponsor intends to procure 100% of project debt ($717 million) from Chinese banks with support from a reputable Chinese equity partner as an Overseas Investment Loan or an ECA tied financing package or any other financing program which the sponsor deem fit,” it said.
After having secured the approval from Punjab Power Development Board on the induction of the Chinese equity partner, significant progress has been made in completing the feasibility study, securing Letter of Intent from Chinese Development Bank and finalisation of a detailed Joint Venture Agreement between Nishat Group companies and TBEA, it said.
TBEA, as per the consortium agreement, has taken a lead role in procuring Chinese financing, which will also ease the burden on Nishat from seeking project financing from local banking channel with visible foreign exchange liquidity constraints imposed by the State Bank of Pakistan, stated the application.
“The sponsor has undertaken to provide foreign non-existent man power and expertise in coal plant operation, which is lacked by Nishat for large coal-fired operations,” it said.
The main sponsor has entered into agreement with ENERGEN Infra (Mauritius) Limited for the latter to act as an advisor in negotiating the EPC contract with potential EPC contractor from China.
A preliminary EPC proposal was also gathered by Nishat from SEPCO to set up 600-megawatt project to assess the interests of EPC players and budgeted EPC costs, timelines and financing support from the Chinese banks before entering into a consortium agreement with TBEA.
Published in The Express Tribune, December 11th, 2016.