Investment under CPEC: KHCL still struggling for resolution of issues with AJ&K government

Mushtaq Ghumman/Business Recorder/06-02-2020

ISLAMABAD: Kohala Hydro Company Limited (KHCL) is still struggling for resolution of outstanding issues with the government of Azad Jammu and Kashmir (AJ&K) to keep investment on track under CPEC, well-informed sources told Business Recorder. Kohala Hydro Company (Pvt) LTD (KHCL), which will establish 1234MW hydropower project, has already provided the draft Tripartite Agreement (TPA) in the light of ECC decision taken in a meeting on October 2, 2019. Subsequently, PPIB in a letter communicated ECC decision on November 8, 2019 in which it was stated that the government of AJ&K would make necessary amendments in the Arbitration Act 1940, in the manner to recognize, enforce and execute foreign arbitral awards by AJK courts. KHCL said that following language was agreed between the parties subject to approval by the Prime Minister AJ&K and the CTGI Board. “It was agreed by the government of AJ&K that AJK will enter into AJ&KIA with international arbitration to be conducted under London Court of International Arbitration (LCIA) rules as has been done in relaxation to other private sector hydropower projects in AJK and it will make necessary amendments in the Arbitration Act 1940 in the matter to recognize, enforce and execute the foreign arbitral awards by the AJ&K courts to afford similar protections as provided in the “The Recognition and Enforcement Arbitration Agreements and Foreign Arbitral Awards Act 2011″ as is enforceable in Pakistan. The timelines for the approval of agreed provision by AJ&K was by or before December 3, 2019.The company has reiterated its position for inclusion of following language in TPA, TPPA and IA which was already communicated through its letters of October 15 and October 30, 2019 ;(i) any foreign exchange loss of gain in excess of 5 per cent incurred by the company, solely due to exchange rate variations from due date for payment of invoice upto the date of SBP allowing the company exchange of payment received from power purchaser into foreign currency will be trued up/ down under TPPA and ;(ii) delayed payment rate to be agreed under the TPPA and IA will be Kibor plus 2 per cent( 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 per cent ( without compounding) Regarding another proposal of the company, the ECC directed that the power projects being processed for power generation policy 2002 including Kohala project which are yet to achieve financial closing, Chinese Yuan/Renminbi(RMB) will be treated as specified foreign currency similar to other specified foreign currencies such as US dollar, Euro, Pound Sterling and Japanese Yen. Such treatment will permit the IPPs to arrange financing and make payments of principal and interest to foreign lenders in RMB. Further, indexation of tariff payment with RMB similar to indexation mechanism applicable with respect to US dollar will also be allowed. The company has appreciated NEPRA and power purchaser for finalization and issuance of indexation mechanism related to RMB for inclusion in TPPA.