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Pakistan project is Silk Road’s debut

Chen Jia Updated: Apr 21,2015 8:06 AM     China Daily

Karot Hydropower Project to be run by China for 30 years before handover

China’s $40 billion Silk Road Fund for investment, part of the nation’s commitment to the Belt and Road initiative, announced its first project on April 20 during President Xi Jinping’s visit to Islamabad.

Silk Road Fund Co, the management arm of the fund, has signed a memorandum of understanding with China Three Gorges Corp and the Pakistan Private Power and Infrastructure Board to provide capital to build the Karot Hydropower Project on the Jhelum River in northeast Pakistan.

It is the fund’s first investment project since being established in Beijing in December.

According to the agreement, the fund will provide capital and serve as a major shareholder in China Three Gorges South Asia Investment Ltd, a subsidiary of China Three Gorges Corp, to support clean-energy development projects in Pakistan.

The fund also will provide loans to the project by joining in a consortium led by the Export-Import Bank of China.

Karot Hydropower Station is a priority project within the broader China-Pakistan Economic Corridor initiative, proposed by Premier Li Keqiang in May 2013. The initiative aims to build a $46 billion, 3,000-km-long route from China’s Xinjiang Uygur autonomous region through the Karakoram mountain range and Pakistan’s Balochistan, to the Gwadar Port, connecting China, Pakistan and the Arab world.

The project is in the fourth stage of the river’s five-stage development plan, with an installed capacity of 720,000 kilowatts, and an annual power generation capacity of 3.2 billion kilowatt-hours. It requires a total investment of about $1.65 billion.

Chinese companies plan to develop a total capacity of 3,350 megawatts along the Jhelum River through new developments, mergers and acquisitions, according to a statement from the fund.

Construction on the project “is to start by the end of this year” and commence operations in 2020, the statement said. “The station will be operated by the Chinese side for 30 years and then transferred to the government of Pakistan.”

As a market-oriented investment fund targeting medium-and long-term projects, the Silk Road Fund will focus on key projects along the Silk Road Economic Belt and the 21st Century Maritime Silk Road while continuing to find potential targets, the company said.

In November, Xi announced during the Beijing Asia-Pacific Economic Cooperation meetings that China would contribute $40 billion to set up the Silk Road Fund. He emphasized that the fund will be used to provide investment and financing support for infrastructure, resources, industrial cooperation, financial cooperation and other projects in countries involved in the Belt and Road initiative.

Zhou Xiaochuan, the Chinese central bank governor, has described the fund as a “private equity” investor with a longer investment return.

Jin Qi, chairwoman of the fund management company, said the projects will also support the development of Chinese high-tech and equipment manufacturing industries by helping enterprises go overseas.

Q&A

On April 20, during President Xi Jinping’s visit to Pakistan, representatives of the Silk Road Fund signed a memorandum of understanding with China Three Gorges Corp and Pakistan’s Private Power and Infrastructure Board to jointly develop the Karot Hydropower project.

It is the first investment by the SRF since it was established in December. The fund published a statement to address questions about its recent development.

Why was Pakistan’s hydropower project chosen by the SRF as its first project?

The SRF operate as a market-oriented commercial institution, aiming to achieve mutual benefits for investment partners. “Professional, prudent, consistent” are the main principles for selecting projects.

We select projects that can benefit local development and also be feasible. Both the economic and social benefits should be considered, and our project partners should all meet international standards. It only took a short time to make an investment decision on the hydropower project in Pakistan as the first project, as it dovetails with our investment principles perfectly.

Can you explain how they dovetail?

First, the project resonates with the two countries’ development targets and reflects the SRF’s investment philosophy to achieve win-win outcomes.

As a long-term development and investment fund, the SRF targets investment opportunities associated with the implementation of China’s Belt and Road initiative and aims to provide financing services and promote economic ties and connectivity between China and other countries.

Second, cooperation with international and domestic institutions is a testimony to the SRF’s attitude of openness and inclusiveness.

In this project, the SRF and the International Finance Corp, a member of the World Bank Group, are shareholders of Three Gorges South Asia Investment, which is the China Three Gorges Corp’s subsidiary and will be used to invest in clean energy. At the same time, we joined the consortium made up of the Export-Import Bank of China, China Development Bank and the International Finance Corp to provide loans.

Third, the project has sound risk management and is expected to achieve reasonable long-term returns.

The Pakistan government promised a sound return after recovering construction and operation costs. Pakistan’s power sector has huge market potential, and the risk is relatively low.

What steps has the SRF taken to accelerate its outbound investment?

The SRF has established and improved its investment decision-making process, as well as expanded business by contacting relevant government departments and enterprises. We also strengthened the project evaluation and selection processes. So far there are a number of key projects involved in the Belt and Road initiative that we have plans to invest in.

What is the next step for the SRF?

The SRF will continue to look for opportunities involved in the Belt and Road initiative. It will steadily carry out investment projects while maintaining the standard of being market-oriented, internationalized and specialized.

We will enhance mutual understanding and trust with partners through the projects, to avoid impulsive investment, and bolster communication with the public. We will also respect local laws and international standards, while taking into account both the economic and social benefits.

The Silk Road Fund was established on Dec 29, 2014. Its headquarters is in Beijing.

The fund will be used to provide investment and financing support for infrastructure, resources, industrial cooperation, financial cooperation and other projects in countries involved in the Belt and Road initiative. Chinese central bank Governor Zhou Xiaochuan described the fund as a “private equity investor with a longer investment return”.