Infrastructure Financing through Islamic
Finance in the Islamic Countries
63
Case Study: Neelum Jhelum Sukuk, Pakistan17
The government-owned public utility agency of Pakistan Water and Power Development
Authority (WAPDA), responsible for power and water production and distribution in the
country, planned to raise funds for the construction of a 969MW Neelum Jhelum Hydropower
project and decided to issue a sukuk to partially finance costs. Accordingly, it established the
Neelum Jhelum Hydropower Company (Private) Limited (NJHPC) as a Project Company that
issued sukuk certificates worth PKR100 billion making it the largest fund mobilization for a
public sector entity. Pak Brunei Investment Company Limited (PBICL) acted as the investment
agent for the investors composed of a consortium of 16 banks led by the National Bank of
Pakistan. The sukuk had a maturity of 8 years with an additional 2 year grace period. Chart
3.16 provides an overview of the Neelum Jhelum Sukuk.
NJHPC and PBICL formed a musharakah whereby 75% of the share of the musharakah assets
were sold to the investors and the obligor contributed the remaining 25% in kind. The
investors’ share of musharakah assets worth PKR 100 billion was sold as the beneficial interest
of the project in two pools A and B. The projects assets were held in a trust by PBICL which
acted as a trustee for the benefit of the investors. An ijarah contract leased the investors’ share
of the assets to NJHPC and accordingly the semi-annual variable rental payments. The sukuk
was structured as a diminishing musharakah with a lag, with the principal redemption starting
from the third year. The investment agent was responsible for taking out takaful to cover the
risks related to ownership assets. The sukuk was rated AAA by JCR-VIS, a local credit rating
agency.
Chart 3.16: Neelum Jhelum Sukuk Structure
Source: Adapted from Ahmed (2017)
17 This case study is taken from Ahmed (2017).
Islamic Financiers
(16 Banks)
WAPDA
Investment Agent (Pak
Brunei Invest. Co. Ltd.)
Project Company
(NJHPC)
Musharakah
Pool A
PKR 86.67 billion
Issuer: 25%
Investment Agent: 75%
In kind (assets) PKR 100 billion
GoP
Guarantee
Pool B
PKR 46.67 billion
Issuer: 25%
Investment Agent: 75%