Five DFC wind power projects: US says no new investment till tariff settlement

ISLAMABAD: The United States has categorically conveyed to Islamabad not to expect any investment from US International Development Finance Corporation (DFC), until tariff issues of existing five wind power projects are settled, well informed sources told Business Recorder.

DFC, sources said, has already made an offer to the Pakistani government to revise Power Purchase Agreements (PPAs) of its sponsored wind projects subject to some concession from the GoP.

The sources said US Ambassador to Pakistan Donald Blome met the Minister of State Hina Rabbani Khar last month. While discussing a wide range of diplomatic matters, he particularly took the issue of the resolution of the five wind power DFC projects.

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“Being quite categorical in his assertion, Ambassador Blome stated that until this issue was resolved, Pakistan may not expect DFC investment leading to considerable economic costs,” the sources added.

Minister of State for Foreign Affairs, sources said, underlined that the issue of tariffs was quite technical and needed a degree of equity of all stockholders.

While, she was not fully aware of the technical issue surrounding DFC projects, she suspected that some concessions affecting contractual obligations.

Hina Rabbani Khar assured the US Ambassador that she will convey his concerns to the Energy Ministry hoping that a mutually acceptable solution can be found to resolve this matter.

“It is imperative that this issue does not become an irritant in our bilateral relationship. Ministry of Energy may engage with the US side to amicably resolve this matter expeditiously to avoid any negative outcome,” the sources quoted Ministry of Foreign Affairs as suggesting to Power Division.

Islamabad 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 IPPs.

“US has conveyed that in the spirit of increased close cooperation on investments between DFC and Pakistan, 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,” the sources added.

According to the United States 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 honour 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 US has repeatedly raised its concerns regarding the outstanding issues that include: (i) resolution of 5 wind-power projects financed by DFC (Energy Division); (ii) clearance of Soybean containers; and (iii) data protection and privacy laws (MoITT). The US side has maintained that the resolution of these issues is crucial to have a meaningful outcome of 9th TIFA held in February this year in Washington, adding that if these issues remain unaddressed, private sector will find it hard to explore Pakistan’s market.

Copyright Business Recorder, 2023