ISLAMABAD: The Development Finance Institutions (DFIs), with interests in Independent Power Producers (IPPs) have reportedly approached Chairman National Electric Power Regulatory Authority (Nepra) for modification of tariff determinations to the extent required to reflect the change in the benchmark reference rate from London Interbank Offered Rate (LIBOR) to Term SOFR+CAS (Credit Adjustment Spread), sources in NEPRA told Business Recorder.
The DFIs comprising Asian Development Bank (ADB), British International Investment Plc (BII), Deutsche Investitions-und EntwicklungsgesellschaftmbH (DEG), Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO), International Finance Corporation (IFC), Islamic Development Bank (ISDB), Societe De Promotion Et De Participation Pour La Coopération Économique S.A. (Proparco), Export-Import Bank of Korea (KEXIM), US International Development Finance Corporation (DFC), and Islamic Corporation for the Development of the Private Sector (ICD) have provided financing to several Independent Power Producers (IPPs) in the Pakistani energy market.
The energy tariff determination of each IPP has the as an element of LIBOR tariff and each IPP has foreign currency facilities with LIBOR as the applicable benchmark rate.
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LIBOR ceased to be published on 30 September 2024 and is no longer available for calculation for the purposes of the tariff determinations or the FCY financing facilities.
In the DFI Letter, the DFIs confirmed that the IPPs and the DFIs have decided to opt for term SOFR+CAS as the base rate for replacement of LIBOR. “We understand the IPPs also responded to the suo motu notice to confirm the same,” it stated. DFIs have also shared amendment agreements to the Energy Purchase Agreement and Implementation Agreement (the “Draft Amendment Agree-ments”) as Annexure C to the DFI Letter for your review and non-objection.
As LIBOR has ceased to be published and is no longer available, DFIs would be grateful if the Authority could: (i) once the tariff determinations have been modified, corresponding amendments will also need to be made to the project documents and financing documents (as stated in the PPIB Letter)of the IPPs.
Such amendments need to be made prior to the next Tariff indexation and interest/mark-up payment date of each IPP and will require further liaison with the PPIB and the State Bank of Pakistan to ensure the finance document amendments are approved; time is therefore now of the essence.
As LIBOR has ceased to be published and is no longer available, DIFs have requested the Authority to
(i) issue a Suo Moto Order to modify the Tariff Determinations of the relevant IPPs to the extent required to reflect the change in the benchmark reference rate from LIBOR to Term SOFR+CAS of 0.26161% or 0.42826% (as applicable);
(ii) confirm that the Authority has no objection to the proposed draft amendment agreements, in which case please communicate your non-objection to us, PPIB and CPPA-G; and as a particularly urgent matter, confirm by letter to the IPPs that each IPP can use Term SOFR+CAS as an alternate benchmark for the purposes of invoicing under the tariff determinations and the Project Documents until the suo motu order is issued or the modification is otherwise complete.
Copyright Business Recorder, 2024