KP drops 215MW Madyan hydropower project from World Bank-backed energy plan

The Khyber Pakhtunkhwa government has decided to exclude the 215-megawatt Madyan Hydropower Project from the World Bank-financed Khyber Pakhtunkhwa Hydropower and Renewable Energy Development Project after a major financing shortfall made the original plan financially unviable, Business Recorder reported. 

According to World Bank documents, the provincial government sought restructuring of the $727 million project after a $452.5 million financing gap emerged. The gap includes $267.5 million in cost overruns and $185 million in commercial financing that is unlikely to materialise.

The World Bank has agreed in principle to restructure the project by cancelling all activities linked to the Madyan Hydropower Project, extending the project closing date by three years and revising the financing structure, implementation schedule and results framework.

The project was approved by the World Bank in September 2020 and became effective in January 2021. It originally included the 88MW GabralKalam Hydropower Project, the 215MW Madyan Hydropower Project and solar photovoltaic investments in Khyber Pakhtunkhwa.

After restructuring, the overall project size will fall to about $480.6 million from $727 million.

Out of the World Bank’s $450 million financing envelope, around $277.7 million will be allocated to the GabralKalam project, including civil works, environmental and social measures and implementation support.

Another $25 million will be used for institutional strengthening and capacity building, while $147.3 million will be kept for possible new renewable energy investments, including hydropower, solar projects and contingency financing.

The World Bank’s share in the remaining project cost will rise to about 93.7%, while the Khyber Pakhtunkhwa government will contribute 6.3%. The planned commercial borrowing component will be removed.

The project closing date will be extended from November 30, 2027, to November 30, 2030. The World Bank said the GabralKalam project alone will require nearly 56 months to complete, including contingency provisions.

The documents noted that project disbursements stand at only 4%, more than five years after effectiveness, due to procurement delays and the redesign of the Madyan project after the August 2022 floods raised dam safety concerns.

However, the implementation of GabralKalam has recently picked up. Key contracts have been awarded, land acquisition has been completed, around 70% work on the project colony has been executed, and procurement for major electro-mechanical and civil works packages has advanced.

The Khyber Pakhtunkhwa government has been advised to stop land acquisition for the Madyan project, allowing the identified land to remain with existing owners.

Environmental and social safeguards for GabralKalam will remain in place. The project will continue to be classified as a Category-A operation with substantial environmental and social risks, requiring approved resettlement, biodiversity and community development plans.

The World Bank said complaints had been received over the environmental and social impacts of the Madyan project and that efforts were under way to address concerns raised by affected stakeholders.

Despite the downsizing, the World Bank said the restructured project remains aligned with Pakistan’s clean energy agenda and is expected to support renewable energy generation, institutional capacity building and lower greenhouse gas emissions.

The project’s overall risk rating remains “Substantial” because of technical complexity, implementation capacity issues, environmental and social risks, fiduciary concerns and uncertainty over its inclusion in future national power generation expansion plans.