Private Enterprise and Financial Markets > Infrastructure and Financial Markets
Directory of Innovative Financing: Pakistan
Pakistan
Project Title: Hub River Power Project
Project Title: Hub River Power Project
Country: Pakistan
Project Costs: $1.8 billion
Sector: Power generation
Status: Closed in January of 1995; scheduled to open spring of 1997
Sponsors/Adviser: Hub Power Co. (HubCo), a private sector consortium led by National Power of the UK and Xenel Industries of Saudi Arabia with other partners from Japan, Italy, Pakistan, France, and the US; Bank of Tokyo, Citibank, Credit Lyonnais, and Sakura Bank were lead arrangers of the commercial debt portion. Morgan Grenfell was global coordinator of the global equity offering, which was underwritten by its parent Deutsche Bank. The local equity offering was coordinated by Bear Stearns Jahangir Siddiqui.
Customer: The sole purchaser is the Water and Power Development Authority of Pakistan, under a 30-year power purchase agreement. Tariffs are designed to provide HubCo with sufficient revenue to meet all ongoing costs and provide a return to shareholders regardless of the actual level of electricity WAPDA purchases from this project.
Financing Package: The project was structured as a BOO with an approximately 80/20 debt-equity ratio, and required the equivalents of $1.7 billion in foreign exchange and about $100 million in local costs. The equity investors supplied about $372 million. Most came from the sponsors: $90 million from National Power, $50 million from Entergy Power Group of the US, $40 million from Xenel, $50 million from Pakistan Power of Singapore, $8 million from Commonwealth Development Corp. of the UK, and the balance from other foreign and local investors. An additional $175 million came via a GDR offering, and another $30 million in local equity was raised on the Karachi Stock Exchange.
The roughly $1.4 billion in debt was raised on a project finance basis. Of that amount, roughly $602 million was provided as subordinated debt with 23-year maturities by the Private Sector Energy Development Fund (PSEDF), a Pakistani government facility agented by the National Development Finance Corp. (NDFC) of Pakistan funded by the World Bank ($150 million), JEXIM ($150 million) and other official donors. Another $853 million in senior debt was provided by foreign and local commercial banks.
The $667 million foreign portion came at 12-year maturities covered by World Bank and JEXIM guarantees ($325 million, LIBOR/TIBOR plus 200bp for years 1-8, then plus 225 bp for years 9-12) and French, Italian and Japanese export credit agency political insurance ($335 million). The commitment fee for the World Bank guarantee was 75 bp per annum on undisbursed commitments. Another $37 million in long-term debt came from the CDC. NDFC managed a consortium to raise the local debt with authorization from the State Bank of Pakistan to extend maturities within World Bank-approved credit ceilings.
Innovation: The 1,292MW oil-fired plant is the largest private investment in Pakistan's history and the first independent power project in a global equity offering. Investor confidence allowed the offering to be heavily oversubscribed.
The World Bank and JEXIM facilities provided cover to the syndicate of 42 commercial banks against specific sovereign and political risks. Among them: failure of WAPDA to uphold its power purchase agreement, failure of state-owned Pakistan State Oil Co. to uphold its fuel supply agreements, unavailability of foreign exchange, imposition of restrictions on profit repatriation, failure to make payments because of war, civil strife or natural disasters, and other terms.
Brief: The project was originally planned to close in 1991, but was delayed for multiple reasons. During the delay total project costs rose by $272 million owing to inflation in the countries providing the equipment, appreciation of the Japanese yen, and depreciation of the Pakistani rupee. As a result, the sponsors increased their equity commitments by $49 million, and the amount of subordinated debt raised from the PSEDF was increased by $221 million. It then became possible to raise the commercial debt on the strength of the security structure dominated by the World Bank/JEXIM guarantee.
Country: Pakistan
Project Cost: $343 million
Sector: Power generation
Status: 360 MW oil-fired plant closed in May, 1995; currently under construction and expected to begin operations in the fourth quarter of 1997.
Sponsors/Lead Manager: Shahzad Qasim (Pakistan)/AES Corp. (USA); Bank of Tokyo and the IFC were joint advisers.
Customer: Pakistan Water and Development Authority (WAPDA) under a 30-year power purchase agreement.
Financing Package: The debt/equity ratio is 72:28. Of the equity, 90% is funded by AES and 10% by the IFC, with all denominated in dollars. The IFC also provided a $40 million loan; the remainder of which came from a 12-year unsecuritized, yen-denominated bank loan priced at 200 bp over LIBOR jointly arranged by BoT, Deutsche Bank and Sanwa Bank and carrying political risk insurance from JEXIM. The banking syndicate also includes Dresdner Bank, Credit Lyonnais, Daiichi Kangyo Bank, Mitsubishi Bank, Westdeutsche LandesBank Girozentrale, Sumitomo Bank and Bank of America. The government of Pakistan is guaranteeing currency convertibility and obligations of customer WAPDA and fuel supplier Pakistan State Oil Co.
Innovation: Project secured an untied guarantee from JEXIM Bank, the first ever granted in the world to a power project undertaken on a BOO or BOT basis. The PPA also provides for indexation of the Pakistan rupee to US dollars and Japanese yen. Despite the apparent country risk, the time from initial exploratory trips to financial close was only 2 years.
Brief: The Lal Pir project was financed through a strong consortium of banks and international financial institutions in a very short period of time. Less than two years expired from the signing of the initial letter of support from the government of Pakistan to financial close. The financing package includes an untied guarantee from JEXIM for up to 95% of the commercial loan. The fast-paced financing will hopefully allow the project to finish construction ahead of schedule, which will result in the receipt of an incentive bonus to AES.
Infrastructure
and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank
Last updated: 02/26/07
