Decision to revive Kohala Hydropower Project after 3 years

Pakistan has agreed in principle to revive the 1,124MW Kohala Hydropower Project (KHPP) and extend the completion deadline by three years.

The project had been stalled for three years as China Export and Credit Insurance Cor­poration (Sino­sure) was reluctant to provide insurance cover to the project as Pakistani power companies had not paid the dues of over Rs550bn owed to Chinese independent power producers (IPPs).

Moreover, there were also concerns over the changes in land acquisition law and environmental regulations by the Azad Kashmir government. Earlier this year, China Three Gorges Dam Corporation (CTG) — the Chinese sponsor of the project — had demanded the revival of the $2.5 billion hydropower station.

According to the sources, at present, legal and procedural formalities are being worked out by the Private Power and Infrastructure Board (PPIB) — a one-window investment facilitation arm of the Power Division — and CTG to extend the letter of support (LoS) and deadline for financial closing by September 30 2027, instead of October 1 2024.

Pakistan has also agreed to waive potential penalties that normally accrue on LoS extensions on the understanding that the delays were beyond the control of the sponsor, CTG.

The project remained under discussion for quite some time, particularly since Prime Minister Shehbaz Sharif’s visit to Beijing in June. Ministerial delegations, including the one led by the finance minister, have also visited China since then.

On the eve of the PM’s June visit, CTG had raised a series of demands to revive the 1,124MW project.

Pakistan has been seeking its revival, along with the 700mw Azad Pattan Hydropower project because the renewable projects are a key part of the multi-billion dollar China-Pakistan Economic Corridor (CPEC) and Islamabad’s long-term Indicative Generation Capacity Expansion Plan (IGCEP).

Following the hectic engagements by Planning Minister Ahsan Iqbal and the PM Office during and on the sidelines of the Joint Coordination Committee (JCC) of the CPEC in May, Pakistan got a positive response from the Chinese leadership on resuming the project.

Following the engagements, Sinosure is reported to have asked the sponsors of these two projects to file fresh letters of intent (LOIs) for investment and related insurance cover.

On the sidelines of the PM’s visit, CTG had demanded that the previous bank guarantee be kept unchanged instead of doubling it as required under the power policy and waiving the extension fee.

CTG had reported that the KHPP Company was “fully geared” to achieve financial closing in December 2018 when the work was “unexpectedly halted” by the AJK government over environmental concerns.

The company reported that it had already executed an EPC Contract and an Employer Engineer’s Contract and mobilized heavy equipment to start the construction when the concerns were raised.

Subsequently, it took more than three years to address the issues, leading to significant delays in the project.