ISLAMABAD: Prime Minister, Shehbaz Sharif has received warning letter from eight Development Finance Institutions (DFIs) including the Asian Bank (ADB) and International Finance Corporation (IFC) twhich says that renegotiating Power Purchase Agreements (PPAs) with wind and solar Independent Power Producers (IPPs) 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, sources close to Finance Minister told Newzshewz.
In a joint letter addressed to including the Finance Minister, Power Minister, and SAPM and other top bosses of PPIB and CPPA-G, the DFIs have 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.
The DFIs that signed the joint letter are: 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 S.A.
The joint letter has been written at a time when a high level delegation of the World Bank is already in the town and busy in meetings with the top government functionaries. An IMF delegation also met with the Chief Justice of Pakistan and other concerned authorities.
“We understand that the Energy Taskforce has since held meetings with each IPP to discuss the proposed terms and reach agreements on their implementation,” the letter stated.
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 emphasized that preserving the sanctity of contracts signed by the government and honoring 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. The government claims that savings of Rs 1.1 trillion from these terminations/ alterations. The financial impact of termination of PPAs with 5 IPPs has also been reflected in QTA of second quarter of FY 2024-25.
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