Mr. Khalid Faizi, CEO of Laraib Energy Limited from 2000 to 2010, led the development and financing of the 84 MW New Bong Escape HPP, the first hydropower IPP of Pakistan (the “Project”), located near Mangla in the Azad Jammu & Kashmir. He was engaged in optimization of project capacity from 45MW to 84MW by fully utilizing the water resource through design changes including additional dredging in the tailrace and raising the hydraulic head.

The process, starting in the late nineties, has been long and arduous, overcoming many obstacles; the most important being to gain acceptance of private hydropower development in a sector long accepted as the exclusive domain of the public sector.

Private hydropower developers faced multifaceted problems of permitting, licensing, land acquisition and resettlement.

Major risks include hydrology, geology and seismology; with difficult construction in remote locations that could have a significant impact on project cost and tariff.

A credible mitigation framework is necessary to allocate project “risks” to the parties most able to control them. This was successfully achieved, allowing the project to move towards financial closing and construction start.

The process has resulted in the development of a credible policy framework and template 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 this risk but there was reluctance to allow this to 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 AJ&K, 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 hydropower 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 financing was arranged in-house with finance documents were signed between the Asian Development Bank (ADB); the Islamic Development Bank (IDB), National Bank of Pakistan and Habib Bank Ltd. and Laraib Energy Ltd. in 2007. In June 2008, the Hub Power Company Limited (HUBCO) joined as co-sponsor by acquiring 75% interest in the Project Company while the Group retained 25% interest, the International Finance Corporation (IFC), Societe De Pour La Cooperation Economique (Proparco) France joined the consortium and amended and restated finance documents were executed on December 19, 2009 (all lenders) and financial close was achieved on December 20, 2009 after satisfaction of extensive lenders conditions precedent and achieving unconditional availability of funds. Construction start commenced immediately thereafter.

The Project commenced commercial operations on March 23, 2013 after all PPA tests were qualified and certified 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.

Reference Tariff based on the firm EPC price and financing as notified by NEPRA is PKR 6.84 (US ¢ 8.55) per kWh levelized over the 25-year term. Energy above 470 GWh will be paid by the power purchaser at a special rate of 10% of the prevailing tariff. Hydrological risk borne by the power purchaser through guaranteed payment for 470 GWh per annum

The first Pakistan hydropower project to be registered as a CDM project with the UNFCCC under Kyoto Protocol on January 31, 2009 entitles the Company to about 219,000 tons of CER’s per annum over a 21 year crediting period.

Several FIRSTS:

• 1st private hydropower project in Pakistan to achieve financial closing.
• 1st private hydropower project in Pakistan to start commercial operations.
• 1st private hydropower financing in Pakistan.
• 1st joint financing by ADB and IDB; mix of conventional and Islamic financing.
• 1st hydropower project to be registered with UNFCCC for CERs
• 1st Pakistan hydropower project to qualify for EUAs
• 1st recognition for any project in Pakistan by prestigious Euro Money with award for the middle-east renewable financing deal of the year for 2009

The Project now in its 7^th year of successful commercial operations has supplied over 3 billion units (kWh) of clean energy into the National Grid to date.

The project developers overcame significant barriers and acted to resolve many issues facing the nascent private hydropower sector in Pakistan and Azad Jammu & Kashmir thus creating a bankable template for the entire hydropower sector with a lead role in many areas including, but not limited to, the following:

• Development of a full take or pay regime effectively providing hydropower projects with a capacity payment regardless of hydrology; thus transferring hydrological risk to the off-taker and gaining eligibility for project finance
• Rationalizing BOOT structure (redemption of equity required) with IRR concept; and BOO structure with ROE (no redemption of equity)
• Rationalizing stamp duty structure
• Resolving double taxation anomaly between Pakistan and AJ&K
• Recognizing longer development period for hydropower agreed equity return to commence from 30 month prior to construction start
• Assisting international multilateral financiers to resolve their AJ&K/Pakistan taxation status
• Structuring GOP guarantee to address special status of the AJ&K and mitigate identified risks
• Development of hydropower specific PPA.
• Development of hydropower specific EPC Contract under license from FIDIC
• Resolved the issue of Project Transferee for AJ&K hydropower projects.
• Development of a workable structure of the Implementation Agreements with separate IAs for Pakistan and AJ&K
• Getting the Government of AJ&K status of provincial government under the Electricity Act and getting constitutional cover for AJ&K hydropower policies with retrospective effect
• Development of an AJ&K water use agreement- the first water use agreement in Pakistan
• 1st project to practically utilize NEPRA hydropower mechanism which was developed in consultation with the Group.

The NBE Project has been a trailblazer for Pakistan’s hydropower IPP sector and has catalyzed development of thousands of MW of new hydropower capacity with private sector investment.