In 1985, the Government of Pakistan, with the help of the World Bank, developed a long-term energy strategy which envisaged the involvement of private investors in power generation. The objective was to meet the increasing demand for power in the country, in the most efficient and effective way to achieve the levels of growth the Government had set for the economy. A year later, the development of the Hub Power Project began.
The Government requested the sponsors led by Xenel Industries of Saudi Arabia to present proposals for a 1292 MW plant. The World Bank shortly thereafter became involved with the sponsors in the development process and set about establishing the support of a number of governments as co-financiers in the Private Sector Energy Development Fund for Pakistan.
An appropriate location was identified in an area near the estuary of the Hub river in Balochistan, about 40kms north-west of Karachi. At the conclusion of a full feasibility study in 1988, a construction consortium led by Mitsui of Japan was selected on the basis of a minimum functional specification for the plant, two members of which were later replaced following tender procedures.
British Electricity International which later became a wholly owned subsidiary of National Power of the United Kingdom, entered into a contract for the operation and maintenance of the plant.
The plant was designed to meet the World Bank’s environmental requirements.
In 1991, Hubco was incorporated in Pakistan as a limited liability company for the purpose of implementing the project.
During the three years that followed, a series of agreements were negotiated between Hubco and the Government of Pakistan and certain of its institutions, the construction consortium and National Power.
It was on the basis of these agreements that long-term finance was raised without direct guarantees from the Government. In addition to support from the World Bank and other governmental and multilateral sources, including the governments of France, Italy, Japan, the United Kingdom and the United States under the Pakistan Energy Development Fund, the World Bank and the Import/Export Bank of Japan jointly developed an Expanded Co-financing Operations Programme to assist the international commercial debt funding by the provision of a partial guarantee. A significant portion of the offshore debt was also guaranteed by certain export credit agencies. Rupee debt was provided by a group of local banks led by the National Development Finance Corporation of Pakistan.
Debt syndication was completed during the last quarter of 1994 and by the end of the year, the full financing, including equity was in place. This was the single largest issue of domestic shares at one time.
Financial closure was finally achieved in January 1995, when all consents and conditions precedent had been secured and the first tranche of the senior debt was draw down.