Hurdles to solar project: Norwegian co may raise its concerns during Hina’s visit

ISLAMABAD: Norwegian power company M/s Scatec Solar is likely to raise its concerns with Minister of State for Foreign Affairs, Hina Rabbani Khar during her visit to Oslo on 4-6 June 2023, well-informed sources told Business Recorder.

M/s Scatec Solar, a Norwegian Company signed a Memorandum of Understanding with Nizam Energy in Oslo Norway on July 7, 2015 for the development of 300 MW solar power plants in District Sukkur, Sindh. After a prolonged process, the company achieved financial closure and approvals from the relevant authorities in Pakistan in February 2021 for operationalising three power plants, each of 50MW capacity, thus bringing 150MW renewable energy into National Grid. The project would also bring in US$100 million FDI.

During the 11th session of Pakistan-Norway Bilateral Political Consultations held in Oslo in December 2021, the Norwegian side conveyed concerns about some impediments in implementation of Scatec investment project. Later, on February 1, 2023, Scatec approached the Pakistan Embassy with the request for a 12-week extension in the implementation deadline needed due to floods in the investment area of Sindh. MoFA shared this request with Power Division for consideration. The Norwegian side had regarded the success of Scatec project as a test case, signaling to the other Norwegian companies that Pakistan was open for business.

However, during recent meeting of Pakistani Mission’s representative with Terje Pilskog, CEO of Scatec, reiterated the following concern: flooding in Pakistan last year had incurred 12-week of delay in the completion timeline of the project. The company had requested the authorities in Pakistan to grant extension of 12-week for the completion period. Later, Scatec’s Executive Vice President Roar Haugland visited Pakistan as part of the official delegation of Norway’s Deputy Foreign Minister Erling Rimestad on 15-16 February 2023. The delegation called on the Minister of Energy and explained the reasons for incurring 12-week of delay in completion of the project with factual documents as evidence for delay.

The Energy Minister seemed reluctant in accepting company’s request for 12-weck extension. It was, however, agreed with difficulty that an 8-weck extension would be granted to the company for the completion of the project. It was also agreed that a formal letter for grant of extension would be provided to the company after the meeting. Despite lapse of considerable time the company is still awaiting the official document/letter from the Ministry of Energy/authorities in Pakistan which is further complicating their work on the project. The company is providing all the equity, equivalent to S25 million. The Dutch Development Finance Assistance (FMO) and a local bank in Pakistan (Faysal Bank) had committed to provide debt for the project. The company has enough funds in Pakistani currency to meet local cost.

However, due to macroeconomic situation in Pakistan, it is difficult to make any offshore payments. To meet contractual obligations, Scatec has agreed with its authorized Faysal Bank not to inject further equity in Pakistan, rather use the offshore accounts for making offshore payments.

This, however, requires approval of the State Bank of Pakistan. Scatec has requested for approval from SBP, which is still awaited.

According to Pakistan’s Mission, based on experience of business ethics in Pakistan, Scatec was highly disappointed. Not only the company’s concerns were not addressed, the extra costs, land issues, penalties, and additional risks frustrated their business plans. The current uncertain situation where on one hand the bank is not complying with its commitment and on the other hand the government is pressuring for completion of the project within the established timeline, the company has been pushed in a tight spot.

“I tried to assuage the CEO’s concerns highlighting that it was in deference to the company’s commitment with the project that their extension request was accepted by Pakistani authorities, albeit for a lesser period than requested. I also assured him that the government was taking effective measures to resolve macroeconomic issues, and, hence, their concerns vis-à-vis Faysal Bank should find an amicable way out,” the representative of Pakistani Mission Saadia Altaf Qazi said adding that the company now seriously apprehends that the renewable project in Pakistan will not prove a success for the company.

According to her, Scatec’s Asset Ownership/Investment Manager approached the Embassy stating that the windstorm in the solar plant area in Pakistan on April 18 2023 had incurred a damage of around $ 4-5 million. The company has directly sent a formal request to the Pakistani authorities for grant of further extension up to 4-6 weeks. In addition, due to damage the company wants to import equipment in Pakistan, which will dock likely in August this year. The company is in direct contact with Pakistani authorities for custom facilitation.

“A meeting between CEO Scatec and the Minister of State for Foreign Affairs Ms. Hina Rabbani Khar is scheduled during her visit to Norway on 4-6 June 2023. It is highly likely that the CEO Scatec will raise the issues with the Minister of State,” she maintained.

Pakistani Mission has requested the Power Division/the State Bank of Pakistan/Faysal Bank to apprise the Mission about their perspective on Scatec’s concerns/status of the issuance of formal letter for grant of extension period for the project as well as response of SBP on their offshore payment request at the earliest so that the brief for MoS meeting with CEO Scatec can be updated accordingly.

Copyright Business Recorder, 2023