Govt successfully signs TPPA on 1,124MW Kohala hydropower project

A Tripartite Power Purchase Agreement (TPPA) for 1124 MW Kohala Hydropower Project was signed on Thursday between Government of Pakistan (GoP), Government of Azad and Jammu and Kashmir (AJ&K) and Chinese company M/s Three Gorges Corporation.

However, dispute on concessions, being demanded by the Chinese company and State Bank of Pakistan (SBP) are still unresolved and officials confirmed that dispute still exists and will be sorted out in future.

“The remaining issues will be resolved in the coming days,” the official added. Informed sources told Business Recorder that signing of Power Purchase Agreement (PPA) of 1124 Kohala Hydropower Project was necessary prior to June 30, 2020 for competitive power market.

Prime Minister Imran Khan, Federal Ministers, Chinese Ambassador Yao Jing and others witnessed the ceremony. Addressing the ceremony, the Prime Minister said the government is focused on providing clean and affordable energy to the people, and this project will largely contribute to this objective.

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The much talked about 1124 MW Kohala Hydropower Project located on river Jhelum in Azad Jammu & Kashmir is being developed by Kohala Hydropower Company Limited (KHCL) with China South Asia Investment Limited (CSAIL)(the main sponsor), China Three Gorges Corporation, IFC and Silk Road Fund as sponsors of the project under policy for Power Generation Projects 2002 on Build, Own, Operate and Transfer (BOOT) basis.

The project is included in China Pakistan Economic Corridor (CPEC). The project was at advanced stage towards achieving financial closing in 2018, when the GoAJ&K raised various issues including release of additional flows, construction of sewerage treatment places and water bodies etc.

Welcoming $ 2.4 billion dollars investment project, the Prime Minister said the project will generate job opportunities in Azad Jammu and Kashmir. He said electricity produced through imported fuel made electricity costly besides negatively impacting on the environment.

Earlier, Chairman CPEC Authority Lt-Gen Asim Saleem Bajwa (retired) in a tweet said that major milestone towards the successful implementation of 1,124 MW Kohala hydropower project in Azad Jammu and Kashmir under CPEC framework is achieved with the Tripartite Agreement signing ceremony between M/s Three Gorges, Government of Pakistan and Government of AJ&K.

He further stated that it is the largest power sector investment of $ 2.4 billion in a single Independent Power Producer (IPP). Prime Minister’s commitment to expedite work on CPEC projects and hard work of all stakeholders has played a significant role in achieving this milestone.

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Former Minister for Planning, Development and Reforms, Ahsan Iqbal, said that Kohala Hydropower Project was approved under CPEC for implementation under PML(N) government in 2016. He further stated that there were some land acquisition issues, adding “happy that finally issues are resolved and project is starting.”

Kohala project is significantly large and biggest ever foreign direct investment in single project under CPEC or otherwise in IPP sector of Pakistan / AJ&K. Further due to geo-political and security situation of AJ&K territory, Kohala project merits special consideration of the GoP to be declared as a strategic project to be given certain comforts with respect to foreign exchange risks and ease in conversion and repatriation of foreign currency whereas delay in payment rate under IA and TPPA needs to be rationalized.

The sources said, the company has significantly improved the earlier proposal (considered by ECC) by offering to pick up risk upto 7 per cent (instead of 5 per cent) of any exchange loss/ gain which will significantly reduce the exposure of power purchaser. Besides, such exposure will be subject to control of power purchaser by making early payments and any gain over 7 per cent will also be passed on to the power purchaser. Moreover, it will be applicable to FCY components on which Nepra has allowed indexation with foreign currency.

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As to delayed payment rate proposal, committee considered that the major risk to the company as to loss on account of foreign exchange fluctuation is being addressed as a quid pro quo. Delayed Payment Rate under the TPPA and IA should be uniform at Kibor plus 2 per cent without compounding. The committee also noted that standard PPA for hydropower projects under 2002 Power Policy provided for a flat Kibor plus 2 per cent Delayed Payment Rate which is fairly win-win for both.

PPIB argued that as to the proposal of the company that SBP should allow immediate conversion of Pak rupees into US dollars it was explained to the company that SBP is an independent regulator and makes autonomous policies and laws to regulate financial sector and it has not endorsed the proposal of the company; however, SBP has assured that FCY obligations of IPPs are being discharged in a timely manner in accordance with prevalent laws and regulations.

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