ISLAMABAD: In a major development, eight Development Finance Institutions (DFIs) have warned the government that renegotiating Power Purchase Agreement (PPAs) with wind and solar IPPs in a non-consultative manner will be detrimental to the long-term development of the sector, undermining investor confidence and discouraging much needed future private investment, well-informed sources told Business Recorder.
In a joint letter to different top authorities of the government including the Finance Minister, Power Minister and SAPM on, the DFIs have referred to the proposed terms issued on January 10, 2025 by the Energy Taskforce, on behalf of the Government of Pakistan, to wind and solar IPPs financed by their group of development finance institutions, for the purpose of Power Purchase Agreement renegotiation.
“We understand that the Energy Taskforce has subsequently held meetings with each IPP, to discuss the Proposed Terms, and reach an agreement on their implementation,” they added.
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According to the joint letter, the addressees have been informed that they DFIs have had a long-standing commitment to the Pakistan power sector, both as lenders and equity investors. We have invested approximately $2.7 billion in the sector over a period of more than 25 years, with the objective of supporting development of the power sector and fostering a conducive environment for private sector investment.
“While we fully acknowledge difficulties currently faced by the power sector and appreciate some of the steps Government of Pakistan is taking to address longer-term structural challenges, we believe that renegotiating PPAs in a non-consultative manner will be detrimental to the long-term development of the sector, undermining investor confidence and discouraging much needed future private investment.
This investor confidence has been critical in Pakistan attracting significant local and foreign investment in its renewable energy sector, and as you know, significant further investments are needed in this regard,“ DFIs said adding that preserving the sanctity of contracts signed by the Government and honoring its contractual commitments are central pillars of building investor confidence in any country and Pakistan is no different.
The DIFs are of the view that they wish to emphasize that under the terms of their financing and investment agreements, the IPPS we have financed are not permitted to agree to changes to any major project document, including the PPA, without a prior written approval from the lenders.
“We hope the Government will reconsider its approach to PPA renegotiations and work to find alternative ways of solving the energy sector’s structural challenges. We remain committed to supporting Pakistan’s power sector and look forward to working with the Government in this regard,” DIFs added.
The DFIs whose representatives wrote the joint letter are as follows: Asian Development Bank, British International Investment plc, DEG- Deutsche Investitions-und Entwicklungs gesellschaft mbH, Nederlandse Finaninerings-Maatschappij voor Ontwikkelingslandent N.V, IFC, Islamic Corporation for the Development of the Private Sector, Islamic Development Bank and Societe De Promotion Et De Participation pour La Cooperation Economique S.A.
Copyright Business Recorder, 2025
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