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  • Jul 20th, 2017
  • Comments Off on Hydropower project: PPIB likely to issue LoS to South Korean Company
Private Power Infrastructure Board (PPIB) is likely to issue a Letter of Support (LoS) to a South Korean company, M/s Daelim, for 500MW Chakothi-Hattian hydropower project as M/s Sohail Jute Mills Limited has failed to fulfil requirements, well-informed sources told Business Recorder. The Board was apprised that after approval of the feasibility study by a Panel of Experts on April 11, 2011, the sponsors (M/s Suhail Jute Mills, Ltd.) proposed a feasibility-level tariff of cents 9.727/kWh, while NTDC (after negotiation) accepted cents 7.896/kWh and forwarded it to Nepra for approval.

Nepra approved cents 6.52/kWh and this was subsequently revised to cents 6.57/kWh, in response to a review petition filed by the sponsors. At this stage, PPIB requested the sponsors to fulfil prerequisites for obtaining the LoS; however, the sponsors filed a writ petition against Nepra's tariff determination in the Islamabad High Court (IHC) MD PPIB explained that the sponsors have been reluctant to move ahead with the project, primarily due to lower tariff allowed by Nepra compared to other private sector hydropower projects which have an average tariff of around cents 8.0/kWh. Moreover, the construction period for the project was also reduced from 8 to 5 years.

Meanwhile, Nepra (through its letter of April 28, 2016) highlighted the inordinate delays in the development of hydropower projects including the Chokothi- Hattian project, and requested PPIB to explore other options for implementation of the project. The progress of the project and the sponsors' concerns regarding Nepra -determined feasibility-level tariff were also reviewed by the Board in its 106th meeting (held on June 9, 2016); and the Board had advised that a final notice be served to the sponsors to move ahead; and in case no progress is achieved within a specified time, the project may be cancelled and re-advertised under Power Policy 2015, while the audited cost of the feasibility study may be reimbursed by the new sponsors as per the policy.

Accordingly, PPIB served final notice to the Sponsors on July 20, 2016, providing three -month period (till October 20, 2016) for fulfilment of the pre-requisites for issuance of the LoS. In response, the project company revealed that despite difficulties, they are continuing to work with some prospective foreign investors (Chinese) who are keen to invest in the project. Subsequently, on October 13, 2016, the sponsors requested an extension in the PPIB's Notice period by 12 weeks for a physical site inspection, negotiations and preparation of legal documents and suitable time for completion of other formalities for obtaining the LoS. Accordingly, after due deliberations, PPIB extended the date of notice by eighteen weeks, ie up to February 23, 2017, to provide maximum facilitation to the sponsors for development of the project with an undertaking that they will not ask for any further extension.

It was further revealed that recently M/s Daelim Industrial Co., Ltd. Korea (which is currently the shareholder and EPC contractor of an under construction 102MW Gulpur hydropower project) has expressed an interest in development of the project and has requested PPIB for further extension in notice time up to mid-July 2017 for completion of their due diligence activities. The matter was thoroughly deliberated in the PPIB Board recently and some board members were of the opinion that based on the healthy credentials of the upcoming sponsor, they can be provided the opportunity to develop the project further if they can provide the relevant performance guarantee for obtaining the LoS immediately.

The Board also discussed that it would be very crucial for any investor to undertake due diligence before embarking upon any new initiative and, hence, it seems appropriate to provide them with a suitable timeframe to develop the Project. The point of view of the AJK Government was also shared with the Board members that the sponsors have already been given adequate time for the development of the project since its award in year 2007 and no further extension should be allowed.

The Board had discussed that time up to June 30, 2017 may be provided to the interested investor (M/s Daelim Industrial Co. Ltd Korea) for undertaking necessary due diligence and fulfilment of prerequisites for further development of the project.

After discussing the issue in detail, the PPIB Board, had further advised to provide time up to June 30, 2017 to M/s Daelim Industrial Co. Ltd. Korea for undertaking necessary due diligence and fulfilment of prerequisites for obtaining LoS for the project due to failure of the existing sponsors (M/s Suhail Jute Mills) to make any progress in development of the project within the allowed extension period.

When contacted, PPIB spokesperson Sami Siddiqui said " as required under the criteria maximum required net worth for a 500 MW project is about $ 450 million. Similarly, required technical experience is having completed at least one project of minimum 50 per cent capacity of 500 MW( 250 MW). Daelim has submitted the requisite information which PPIB will submit to the Board for consideration".



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