Pakistan is set to fund what will be its fourth-largest hydropower project with Islamic bonds.

When completed, the plant is expected to generate 969 MW and to add around 5 per cent to Pakistan’s installed power capacity.

Commercial operation is planned for mid-2017.

Islamic bonds, or sukuk, have to date been largely used for smaller projects with shorter lifetimes. Developer Neelum Jhelum Hydropower Company Ltd’s  $955m, 10-year sukuk, backed by the government, will represent one of the largest such infrastructure deals.

Around three-quarters of the PKR404bn ($3.9bn) project is expected to be funded through debt.

Sukuk comply with Islamic law by being structured to avoid paying interest, rather paying returns on tangible assets.