Concessions sought: DFC willing to revise PPAs of its sponsored wind power projects

ISLAMABAD: The US International Development Finance Corporation (DFC) has reportedly shown willingness to revise Power Purchase Agreements (PPAs) of its sponsored wind power projects subject to concessions from the government of Pakistan, well-informed sources told Business Recorder.

The World Bank has repeatedly urged Pakistan to also renegotiate PPAs with IPPs sponsored by DFC. The U.S embassy in Islamabad has also been involved with the Power Division on this issue.

Pakistan’s Trade Minister in Washington, Azmat Mahmud has informed Islamabad that he met with Millard Callear, VP & CFO of DFC and Gaia Self, Regional Policy lead for Europe and Central Asia to seek further clarity on the observations of the DFC pertaining to wind power projects (IPPs) sponsored by DFC.

CEO DFC Nathan was again apprised that the government of Pakistan has initiated the process to review PPAs of IPPs in pursuance of the World Bank’s sponsored Program for Affordable and Clean Energy (PACE), which requires prior action of revision of generation tariffs for IPP.

Azmat Mahmud in a letter stated that he further informed the DFC representatives that majority of IPPs have entered into an agreement with GoP to revisit the tariff. However, remaining IPPs including 5 wind power projects sponsored by DFC have yet to follow suit.

Gaia Self, in her response, stated that in the spirit of increased close cooperation on investments between DFC and Pakistan, her leadership trusts that a mutually beneficial solution to finalize the PPA renegotiations can be found, while at the same time preserving the conditions essential for future investments in this sector.

She further urged Government of Pakistan to continue discussing with the sponsors and offer any available concessions on operations, maintenance costs, and insurance costs, which DFC does not control.

As senior lender, she indicated, DFC retains consent rights on the final PPA renegotiation terms.

Millard Callear stated that in response to the Government of Pakistan’s call in 2020 to lower tariffs across all Independent Power Producers (IPPS), DFC had proposed a generous solution that would honor existing contracts and immediately reduce tariffs on DFC-supported wind projects by an estimated 20%-30%. Specifically, DFC proposed to assume additional risk by offering a longer tenor (+5 years) at reduced interest cost (50 basis points).

The purpose of these concessions, she suggested, is to help Pakistan achieve its energy sector reform milestones, while preserving the sanctity of contracts and avoiding a reduction of private shareholders’ return on equity. She indicated that DFC’s debt restructuring proposal, remains outstanding the part of GoP.

Copyright Business Recorder, 2022