Welcome to Laraib Energy

Laraib Energy Limited (Laraib) was formed in August 1995 by a group of private investors with a keen interest in hydropower development.

Laraib applied for and received a Letter of Interest (LOI) to carry out feasibility study to develop the hydropower potential at the New Bong Escape, under Build-Own-Operate-Transfer (BOOT), whereby the complex would be transferred to the Government free of cost at the end of a 25-year term.

After completion and approval of feasibility study for the site, Laraib was issued a Letter of Support (LOS) on 18 May 1996 allowing it to develop the Project, negotiate a tariff with WAPDA and proceed to finance, build and operate the Project.

MOU was signed with WAPDA in December 2001, concession documents with the GOP, the GOAJK and NTDC were signed in April 2004. In April 2006 the GOP restored the 1995 Policy tariff. In October 2007 the 12-year old Policy Reference Tariff of US ¢ 4.7 per kWh was revised by the Government to US ¢ 5.89 per kWh.

On April 19, 2008 agreement was reached between the PPIB, power purchaser and the Company that project under the 1995 Hydel Policy should be allowed to avail the tariff methodology, rules and concessions allowed to projects under the Power Policy 2002. This major concession allowed the Company to get:

• tariff determination on a cost plus basis,
• adjustment in tariff for changes in interest rates,
• adjustment in tariff for change in EPC Cost caused by exchange difference for specified currencies; and
• adjustment in tariff change in cost of specified construction materials during the construction.

The project involves construction and operation of an 84MW low head, run-of-the-river hydro electric power generating complex at the New Bong Escape (some 7.5 km downstream of the existing Mangla Dam in Azad Jammu & Kashmir (AJ&K) and some 120 km from Islamabad (the “Project”).

The generating complex will comprise of a powerhouse, headrace, power intake, tailrace, substation, switchyard and a road bridge. The scheme has no storage, new dam or reservoir; there is no other adverse effect on the ecology, hydrology or local environment. The Project has the distinction of being the first independent hydropower producer (IPP) in Pakistan; construction is expected to commence in end 2008 and completion/commercial operations are expected end 2011 with first electricity generation commencing in end 2010 following sectional completion of turbines.

The project development activities are carried out by Laraib’s in-house team assisted by a strong team of legal, technical, and insurance advisors. With a strong professional base, the Company has some of the most experienced and talented project development expertise in Pakistan and is recognized as a leader in hydropower development.

In June 2004 after issuance of ADB Mandate Letter a process of due diligence was started by the ADB. The lenders legal counsel undertook due diligence of concession documents signed with the Governmental authorities in April 2004 and found these not to be bankable due to legal and constitutional anomalies with regard to the AJ&K and other hydropower specific issues including, hydrological risk, tariff etc.

It took some 2 ½ years to develop a comprehensive set of bankable documents acceptable to the lenders for financing of the Project, mainly due to absence of a robust framework to deal with the special legal and constitutional status of the AJ&K, lack of hydropower specific concession documents and lack of precedent. After execution of the finance documents with the banks consortia on June 30, 2007, the Company has been engaged with the following essential matters necessary to fulfill lenders conditions precedent for disbursement of funds and further strengthen the Project fundamentals:

• Execution of the GOP Implementation Agreement on August 31,2007;
• Increase of Hydel Policy 1995 tariff (US ¢ 4.7/kWh) to US ¢ 5.89/kWh on October 31,2007;
• Authorization by GOP vide decision dated January 22, 2008 for NEPRA to issue Mechanism to determine tariff for hydropower projects;
• Agreement by Governmental entities vide minutes dated April 19,2008 to extend the tariff methodology, rules and concessions allowed to projects under the Power Policy 2002 to projects under the Hydel Policy 1995;
• Execution of agreement on June 03,2008 between the PPIB and the AJ&K Council allowing the AJ&K Council to become signatory to the AJ&K Implementation Agreement;
• Issuance by NEPRA of the Mechanism for determination of Tariff for Hydropower Projects on July 18, 2008.

In August 2008 The Hub Power Company Limited (Hubco), the first and one of the largest IPP’s of Pakistan acquired a major controlling interest in the Project Company. The substantial resources, management skills and project development experience brought in by Hubco are highly valuable and will act as a catalyst to contribute to early and successful completion of the Project.

The key project development fundamentals are:

• Concession Documents implementation agreement(s), power purchase agreement and water use agreement are signed whilst amended and restated agreements are substantially agreed and will be signed on or before financial closing;
• EPC contract (lender approved) is due to be awarded to a consortia selected through a transparent bidding and evaluation process; the civil works will be carried out by an experienced hydropower power capable company; supply of bulb-turbines, generators, electrical equipment, power house equipment, switchyard, interconnection and hydro-mechanical works will be carried out by an internationally experienced and renowned company already pre-qualified;
• The O&M arrangements are substantially in place;
• The project construction insurance arrangements are substantially in place;
• The Project land is leased and possession taken ready for handing over to the contractor;
• All consents and approvals are substantially in place

The financing of the Project is largely in place with Asian Development Bank and Islamic Development Bank leading the financing along with strong participation of local commercial banks including National Bank of Pakistan and Habib Bank Limited.

The Project will represent IDB’s first private sector project financing in Pakistan. It will be the first private sector co-financing venture between ADB and IDB and the first hydropower project funded by commercial banks NBP/HBL.

Though the commercial banks have shown their willingness to take up any additional financing; resulting from project cost increase arising from finalization of EPC construction arrangements, however, the HBL has introduced a new lender to join the consortium and finalization of arrangements is well advanced. The required equity contributions and sponsors equity support is committed. Financial Closing and construction start is expected in November/December 2008.