The Silk Road fund will provide capital to build the Karot hydropower project on the Jhelum river in the north east of Pakistan, through China Three Gorges Corp and the Pakistan Private Power and Infrastructure Board, the People's Bank of China said in a statement.
The fund will inject capital into the project and will become a major shareholder in China Three Gorges South Asia Investment, a subsidiary of China Three Gorges Corp.
The fund will also provide loans to the project in a consortium led by EXIM, the Export-Import Bank of China.
The Karot hydropower station is one project within a larger China-Pakistan economic corridor initiative, which plans to build a $46bn, 3,000 kilometer route from the Xinjiang Uygur autonomous region, through the Karakoram mountain range and Pakistan's Balochistan, to the Gwadar Port, connecting China, Pakistan and the Arab world, the statement said.
Karot will have an installed capacity of 720,000 kilowatts, and an annual power generation capacity of 3.2bn kilowatt-hours. It requires a total investment of $1.65bn, and forms the fourth stage of a five-stage development plan for the Jhelum river.
Chinese companies will develop a total capacity of 3,350 megawatts along the river through new developments and mergers, the People's Bank of China statement said.
"The investment structure includes global investors and follows international standards, which means the project is feasible and can achieve mutual benefit and win-win results for partners," Jin Qi, chairwoman of the Silk Road fund told China Daily in an interview.
The project is expected to ease electricity shortages in Pakistan and support its economic development, said Jin.
Construction will begin by the end of 2015, and the project is expected to be operational by 2020. It will be operated by the Chinese for 30 years and then transferred to the government of Pakistan, the People's Bank said.