ISLAMABAD: Ministry of Finance (MoF) is reportedly weighing the impact of a joint letter written by eight Development Finance Institutions (DFIs) on treatment with the sponsors of renewable energy projects, as part of strategy to reduce electricity tariff in line with other Independent Power Producers (IPPs), well informed sources told Business Recorder.
On February 18, 2025, eight DFIs, i.e., Asian Development Bank, British International Investment plc, DEG – Deutsche Investitions-und Entwicklungsgesellschaft mbH, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V, IFC, Islamic Corporation for the Development of the Private Sector, Islamic Development Bank, and Société De Promotion Et De Participation pour La Coopération Économique SA sent a joint letter in which they expressed their serious concerns on the way the sponsors of wind power projects are being pressurised to get the PPAs revised.
A few days ago, Finance Division, in a letter to Power Division noted that the former is in the process of securing a loan facility backed by a Policy-Based Guarantee (PGB) to be issued by the Asian Development Bank (ADB).
“As part of this process, participating banks are conducting due diligence on the Government of Pakistan,” the sources added.
In this regard, banks have approached Finance Division to obtain responses to their due diligence queries. The specific queries related to Power Division are as follows: provide background information on the news regarding the joint DFI letter to Pakistan, which warned against renegotiating PPAs without consulting DFIs. Additional, is there an expectation that this could negatively impact Pakistan’s relationship with DFIs?
British High Commissioner to Pakistan Jane Marriott had also held a meeting with the Minister for Power Sardar Awais Leghari two weeks ago and expressed her concerns on the government’s move with respect to wind power projects. Subsequently, World Bank’s Country Director Najy Benhassine also arranged a meeting between the IFIs, embassies and Power Minister wherein the Power Ministry stated: “All negotiations with IPPs are being held in a free fair and transparent manner with right to walk away from these negotiations or resort to arbitration or opt for forensic audit as per the terms of their agreements.”
DFIs, in their joint letter argued that renegotiating Power Purchase Agreements with wind and solar Independent Power Producers in a non-consultative manner could severely impact the long-term development of the sector. This would undermine investor confidence and discourage much-needed future private investment.
DFIs had referred to the proposed terms issued on January 10, 2025, by the Energy Taskforce, representing the Government of Pakistan. These terms relate to the renegotiation of PPAs with wind and solar IPPs financed by their group of development finance institutions.
According to the DFIs, they have a long-standing commitment to Pakistan’s power sector, both as lenders and equity investors. Over more than 25 years, they have invested approximately $2.7 billion in the sector, with the aim of supporting its development and fostering a conducive environment for private sector investment.
“While we fully acknowledge the difficulties currently faced by the power sector and appreciate the steps the government of Pakistan is taking to address long-term structural challenges, we believe that renegotiating PPAs in a non-consultative manner will be harmful to the sector’s long-term development. It will undermine investor confidence and discourage much-needed future private investment. Investor confidence has been critical in attracting significant local and foreign investment in Pakistan’s renewable energy sector, and further investments are urgently needed,” the DFIs stated. They further emphasised that preserving the sanctity of contracts signed by the government and honouring its contractual commitments are fundamental to building investor confidence, which is essential in any country including Pakistan.
The DFIs also made it clear that under the terms of their financing and investment agreements, the IPPs they have financed are not permitted to agree to changes to any major project documents, including the PPA, without prior written approval from the lenders.
“We hope the government will reconsider its approach to PPA renegotiations and explore alternative ways to address the energy sector’s structural challenges. We remain committed to supporting Pakistan’s power sector and look forward to collaborating with the government in this regard,” the DFIs concluded.
The government has already terminated contracts of 5 IPPs, whereas pacts of eight bagasse-fired IPPs and 15 IPPs of 1994 and 2002 Policies have also been revised.
Copyright Business Recorder, 2025
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