Kohala Hydropower Project hits snags

Chinese firm refuses to accept dispute resolution plan approved by govt

Zafar Bhutta February 04, 2020

ISLAMABAD: The Kohala Hydropower Project has hit a snag after the Chinese firm refused to accept a dispute resolution plan approved by the government.

Kohala Project is part of the China-Pakistan Economic Corridor (CPEC). The 1,124 MW project is being developed by Kohala Hydropower Company Private Limited. China Three Gorges Cooperation, IFC and Silk Road Fund are sponsors of the project under the Policy for Power Generation Projects 2002 on a built, own, operate and transfer (BOOT) basis.

The company was issued a Letter of Support on December 31, 2015, which was amended subsequently pursuant to which it is required to achieve financial closing by December 31, 2019.

The project was at an advanced stage towards achieving financial close when the Azad Jammu and Kashmir (AJK) government stopped its due facilitation for land acquisition and related matters in July 2018 demanding a substantial increase in environmental flow of the project from the already approved level of 30 cumecs in the river Jhelum.

Along with a host of issues with the Chinese developer of this project, water flows had been a major issue in completing the Kohala project. The government had approved a revised plan of water flows to resume work on the project.

In a meeting held on October 2, the Economic Coordination Committee (ECC) had approved additional e-flow releases in Jhelum river below Kohala dam; construction for sewage treatment plans and water bodies as environmental mitigation measures; exclusion of the project from application of commercial code and market rules; inclusion of Chinese Yuan as foreign specified currency for borrowing and repayment of loans as well as its use for tariff indexation.

However, the ECC did not agree with the company's proposal regarding true up/down for foreign exchange loss or gain in excess of 5% due to delayed payment by power purchaser and delayed payment rate of Kibor plus 4.5% under power purchase agreement.

Officials told The Express Tribune that this decision of the ECC was conveyed to the company. The sponsor company had informed the government of Pakistan that the matter of true up-down of foreign exchange loss or gain due to delayed payment was presented to the board of China South Asia Investment Limited-CSAIL, as the main sponsor, and it had conveyed the new proposal to the government.

It said that any foreign exchange loss or gain in excess of 7% incurred by the company solely due to exchange rate variations from due date for payment of invoice up to the date of the State Bank of Pakistan (SBP) allowing the company to exchange the payment received from power purchaser into foreign currency will be trued up/down under Tripartite Power Purchase Agreement (TPPA).

The Chinese firm had further proposed the government that the delayed payment rate (DPR) to be agreed under the TPPA and Implementation Agreement will be Kibor plus 2% 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% without compounding.

Sources said that the Pakistani authorities had tried to convince the company to accept the decision of the economic decision making body taken earlier but the company had emphasised on position approved by its board after consideration of the matter twice due to incurring actual losses on this account in their other three wind projects.

Officials of the Private Power Infrastructure Board (PPIB) said that the China Three Gorges South Asia Investment Ltd (CSAIL) is the lead sponsor in the upcoming three hydropower projects (HPPs) namely 1,124MW Kohala Hydropower Project, 720MW Karot Hydropower Project and 640MW Mahl Hydropower Project.

"The subject statement most probably relates to Kohala Hydropower Project, which is in the advance stages of achieving financial closure. It is not only a priority project of CPEC, but also one of the largest amongst the IPPs with a $2.4-billion investment. There are various proposals under discussion with CSAIL for fast track completion of the project and the same are under finalisation," said the official.

This demand to address water issue was made amid concerns raised by people of Muzaffarabad after the 969MW Neelum-Jhelum Hydropower Project reduced the environmental flow in river Neelum to mere nine cumecs due to which sewage discharge and social environmental issues erupted in and around Muzaffarabad city. 

Published in The Express Tribune, February 4th, 2020.

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