Project company: Star Hydro Power Limited (“SHPL”), a Special Purpose Vehicle incorporated in Pakistan for the purpose of developing the Project. SHPL is 100% owned by KDS Hydro, a Singapore special purpose vehicle formed by the Project’s Sponsors.

Sponsors: the Project’s lead Sponsor is Korea Water Resources Corporation (“K-Water”), a Korean state-owned company whose primary activity is the management of Republic of Korea’s water resources. The Project’s other Sponsors are: Daewoo Engineering & Construction Company (“Daewoo”), a leading Korean construction and engineering company and Sambu Construction Company Limited (“Sambu”) a Korean leading construction company. K-Water is expected to hold 80% of the shares in KDS Hydro while Daewoo and Sambu each holding 10% of the shares in KDS Hydro.

Total project cost is estimated at circa $ 380-400 million (including contingencies). The proposed IFC investment will consist of an IFC senior loan (A Loan) of up to $50 million.

60.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	60.0
Equity

* These investment figures are indicative

The design involves the construction of a weir across the Kunhar River, near the village of Patrind, about 12 km downstream of the Garhi Habibullah Bridge. The Project will divert a portion of the water of the Kunhar River through a tunnel to a powerhouse on the right bank of the Jhelum River near Muzaffarabad. Power will be delivered to a switchyard on the left bank of the Jhelum River which will be connected with the NTDC grid. Since the Project is run-of-the-river power project diverting water from the Kunhar River into the Jhelum River, approximately 13 km upstream of their confluence, the Project does not reduce water flows of the Jhelum River.

The Jhelum River is classified as an International Waterway and together with its tributaries, including the Kunhar River, subject to the Indus Waters Treaty of 1960. In accordance with IFC’s Policy on Social and Environmental Sustainability (April 30, 2006), IFC sent riparian notices to the IFC Executive Directors for both, India and Pakistan notifying them of IFC’s proposed investment in the Project and its location.

The Project is expected to have high economic and developmental impact, as it will:

- Provide a valuable positive signal to international lenders and investors as Pakistan plans to build ~10,000 MW of capacity between 2010 and 2015, most of which developed on an IPP basis;

- Provide a much needed capacity as the installed capacity in Pakistan fails to keep up with the rapid growth of peak demand (~7% p.a.), as a result, economic actors are expressing concerns over supply deficit and load shedding measures, which are likely to continue for some time;

- Contribute to reduce greenhouse gas emissions;

- Create a sustained economic activity by providing job opportunities and an adequate road infrastructure thus improving life conditions of neighboring rural populations;

- Reduce the fuel oil import burden by using a domestic source of energy which is a relief for the country's balance of trade.

Hydropower projects require long term debt funding (15-17 years) with relatively long grace periods, as fixed costs related to debt service are the largest on-going cost element for a hydropower project.

IFC's role and additionality will make an impact on the Project in the following ways:

- IFC's involvement will provide long term funding needed to improve the Project's sustainability from a tariff perspective. Without IFC's funding, the Company will not be able to raise the required long term funding, with comparable maturities to those of IFC, to fill the financing gap from the local commercial debt market;

- Commitment to operating the Project in accordance with IFC's new Performance Standards on Social and Environmental Sustainability is expected to assist the Project in strengthening environmental and social management systems, bringing risk and impact mitigation standards in line with good international industry practice in these areas, and implementing meaningful and effective community engagement programs.

- IFC's investments help to increase focus on climate change/renewable projects in MENA region.

Pending the outcome of ongoing technical studies IFC considers that this Project will result in a limited number of specific environmental and social impacts that can be avoided or mitigated by adhering to generally recognized performance standards, guidelines and design criteria. The Project has been assessed as a Category A project from the environmental perspective. This is consistent with the categorization approach of the Asian Development Bank (ADB), a co-lender to the Project.

Based on its review of project information, IFC identified potential environmental, social, health and safety risk in the following areas: environmental impacts of the Project during construction and operation, including increased silt load in the Jhelum River as a result of construction activities (the Kunhar River will be diverted to by-pass the construction area and will, thus, not be affected by construction activities at the weir site); construction materials stockpiling and disposal of construction wastes, including excavation muck; the influx of construction workers and their impacts on the surrounding communities; worker health and safety in the construction and operation of the project; the acquisition of land for Project works and the physical and economic displacement of occupants of that land; the impacts of reduced flows in the Kunhar River downstream of the diversion weir on fisheries and other aquatic life as well as downstream use for water supply and irrigation by local communities. A detailed description of IFC’s environmental and social due diligence of this investment can be found in the Environmental and Social Review Summary (ESRS) which is also available on IFC’s website at http://www.ifc.org/projects.