The Kholongchhu Hydro Energy Limited (KHEL) signed a Memorandum of Understanding (MoU) with Power Finance Corporation of India Limited (PFC) and Rural Electrification of India Limited (REC) for the financing of Kholongchhu Hydro Electric Project (KHEP) in Trashiyangtse on March 9.
The state-owned PFC and REC are power sector financers under Ministry of Power. KHEL signed the MoU in the presence of top officials from KHEL, SJVN, DGPC, PFC, and REC.
REC and PFC will each finance INR 20.29 billion (B) at a negotiable interest rate of 9.75 percent per annum.
The two governments have a formal understanding exchanged for determining tariff for sale of power which will enable payment of loan besides meeting all other costs and earning adequate profit margin for the joint venture company.
The repayment is expected to be 18 years six months from the commercial operation date. The financing of the Nu 54.82B KHEP will be a mix of debt: equity ratio of 70:30. The National Pension and Provident Fund (NPPF) and Bank of Bhutan (BoB) will finance the remaining Nu 4B in equal proportion.
KHEL Joint Managing Director, Kencho Dorji, said that KHEL and the consortium of PFC and RFC would now take up the process towards finalisation of the loan. Negotiation on the rates, terms and conditions of lending will now begin to complete the loan agreement by end of April.
“With a total contract value of over Nu 20.27 billion of main civil works recently awarded along with a few other contracts, the payment burden of mobilisation and equipment advances now spikes. So far, pre-constructions expenses were met through the funds injected by shareholders,” he said.
“Till the financial closure is achieved, we will have to chamfer down the fund gap of the mobilisation advances of over Nu 1 billion by shareholders’ infusion of equity and the debt sources from the local financial institutions.”
The debt volume of about BTN 44.6 Billion is so far the single largest financing arrangement undertaken outside sovereign borrowings. The debt comprising 70 percent of the cost will be collateralised pari passu on the project assets.
The project is expected to start full throttle by May 2021.