The government has decided to borrow Rs23 billion from domestic banks to finance the construction of the 425-megawatt Nandipur power project – a step taken after a consortium of foreign banks led by the Chinese backed out of its financing commitment.

According to a senior government official, the government will take Rs23 billion in loans from banks against sovereign guarantees compared to the total financing requirement of Rs57 billion.

In March 2009, the consortium, comprising BNP Paribas and Export-Import Bank of China, had signed a Buyer Credit Facility Agreement worth $150.151 million with Northern Power Generation Company Limited for the combined cycle power project at Nandipur, near Gujranwala.

“The Ministry of Water and Power will seek the approval of the Economic Coordination Committee (ECC) in its upcoming meeting for issuing government guarantees to the banks,” the official said.

Arrangements have also been finalised with the Chinese contractor to push ahead with the project. The main engineering, procurement and construction (EPC) contractor is a leading Chinese company, Dongfang Electric Corporation, with a sub-contractor GE France.

The ECC, in a meeting held in the first week of July 2012, had already approved an increase in sovereign guarantees from Rs5.3 billion to Rs19.1 billion in favour of local banks as a stopgap arrangement until foreign loans came.

The ECC has also waived demurrage and detention charges totalling Rs856.5 million on the machinery, imported for the project and stuck at the Karachi Port.

Earlier, the Chinese contractor had served a notice on the government, asking it to scrap the contract for the project because of delay in work. During negotiations, the Chinese company sought compensation for the losses it suffered during the two years when the machinery remained stuck at the port.

The machinery worth $85 million has been awaiting clearance for quite a long time. “Now, the issue with the Chinese contractor has been settled and it has agreed to carry out physical work if funds are released,” an official said.

The Supreme Court had also taken notice of the delay in executing the Nandipur project. A judicial commission, constituted by the Supreme Court, held the law ministry responsible for deferring work for long.

The Ministry of Water and Power had sought legal opinion on foreign guarantees from the Ministry of Law in the contract with the Chinese firm, but the summary remained pending with the law ministry for two years from March 2010 to March 2012. According to the original plan, the project had to be completed in April 2011.