New Bong Escape HPP - Introduction

Khalid Faizi, CEO of Laraib Energy Limited from 2000 to 2010, led the development and financing of the 84 MW New Bong Escape HPP project (“Project”), near Mangla in the Azad Jammu & Kashmir. 
The process, starting in the late nineties, has been long and arduous with many obstacles to overcome alongwith the way; the most important of which was gaining acceptance of the concept of private hydropower projects in an area long considered the exclusive domain of the public sector.
Private hydropower developers face multifaceted problems of permitting, licensing, land acquisition and resettlement.
Major risks include hydrology, geology, construction and the environment and pose major challenges that could have a significant impact on project cost and tariff.
A credible mitigation framework is necessary to allocate risk to the parties able to control it. This was successfully achieved, allowing the project to move towards financial closing and construction.
The process has resulted in the development of a credible policy framework that has enabled hydropower development in the private sector in Pakistan.
The key issue for private hydropower projects is hydrological risk. The public sector has traditionally carried such risk for its projects but this was refused for private projects. Several years of negotiations led to the acceptance of a “take or pay” tariff mechanism. This important step opened the way for financing of private sector hydropower projects.
Other structural issues including, but not limited to, constitutional status of the AJK, double taxation, special powers to AJ&K under the Electricity Act, tripartite AJ&K Implementation Agreement and others were resolved benefiting not only the Project but the whole sector.
Financing documents were executed with the Asian Development Bank, Islamic Development Bank and local commercial banks National Bank of Pakistan and Habib Bank Limited in June 2007.
The finance documents were signed between the ADD, IDB, NBP and HBL and Laraib Energy Ltd. (the “Company”) in 2007. In June 2008, the Group invited the Hub Power Company Limited (Hubco) to take a 75% interest in the Company, retaining 25% as co-sponsor through its wholly owned Coate & Co. Pvt. Ltd.  The International Finance Corporation and Proparco joined the consortium in early 2009 leading to Financial Closing in December 2009 and construction start immediately thereafter.
The Project commenced commercial operations on March 23, 2013 after all PPA testes were qualified on March 22, 2013 and certification by independent engineer URS, USA. Thereafter production of ecologically friendly and renewable energy was dispatched by NPCC into the National Grid - the first time ever by the private sector.
The Project supplied 435 million clean units into National Grid in its 1st year of operation completed on March 22, 2014.


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