KAPCO - GDR

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27066
Company name	Kot Addu Power Company Ltd.
Country	Pakistan
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pend PDS-IR

Date SPI disclosed	July 7, 2008
Projected board date	August 7, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The Kot Addu Power Company Limited (KAPCO or the company) is the largest independent power producer (IPP) in Pakistan, with an installed capacity of 1,600 MW at its power generation facility at Kot Addu, in Punjab Province. After a competitive bidding process, the Government of Pakistan (GOP) sold an initial 26% stake in the company to International Power PLC (IP) of the United Kingdom in June 1996. Subsequently, IP increased its shareholding to 36%. In April 2005, the GOP sold a further 18% on the Pakistani stock market. The GOP is now considering divesting an additional 15% (from its remaining 46% stake) though an international offering of Global Depository Receipts (GDRs) listed on the London Stock Exchange (LSE). IFC is considering a potential investment in the GDRs.

Anticipated development impact of the project

The project would be one of the first GDR issues by the new government of Pakistan. As such, its success would set an important precedent while also facilitating future privatizations which the GOP plans to undertake in the sector. The success of such a high profile transaction in the international markets would send an important message to international investors considering possible projects in Pakistan, encouraging them to take a more positive view of the country following recent political uncertainties. In particular, it might encourage international investors to participate in other IPPs in the country which is facing a growing power shortage. Finally, completion of the deal would result in a more stable equity structure for the company which would facilitate the financing of an expansion which we understand the company is currently considering.

IFC's expected development contribution

The current political uncertainty in Pakistan has raised risk perceptions for international investment in the country. IFC’s presence as an investor in the offering would be a positive step for the investment climate in Pakistan and would facilitate the marketing and distribution of the transaction. Additionally, given its long track record in Pakistan, IFC’s presence would provide comfort to foreign investors considering the deal. This is particularly important given the transaction would be the first GDR of a Pakistani power company and would thus set an important precedent for future transactions in the sector.

Environmental and social issues - Category B

IFC's review of this investment has identified environmental, social, health and safety (ESHS) management systems, labor relations, water supply, air and water emissions and ambient air quality, and fuel handling and storage as key items for appraisal. IFC has relied on publicly available information on the Company’s performance for consistency with the requirements of its Performance Standards (available at www.ifc.org/enviro). Because this is a corporate investment involving a subscription for shares in a privatized company, IFC considers this is a Category B project.

IFC PROJECTS