ISLAMABAD : The power sector Regulator, NEPRA, has approved transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) for 59 Independent Power Producers (IPPs) on the request of government and IFIs which will be effective from July 01,2023.
NEPRA’s determination says that Power Division in a letter of February 16, 2024 informed that Economic Coordination Committee (ECC) of the Cabinet considered its summary on transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) and approved the proposals. The ECC directed that the borrower companies with debt repayment schedules registered with State Bank of Pakistan (SBP )shall notify SBP the revised repayment schedule after incorporating the SOFR) plus the relevant Credit Adjustment Spread (CAS), as recommended by International Swaps and Derivatives Association (ISDA).
As per the ECC decision, all the project lenders were allowed to opt for any of the following options: (i) Daily Simple SOFR plus relevant ISDA recommended CAS (0.26161% for quarterly payment and 0.42826%forsemi-annualpayment); or ;(ii) Term SOFR plus relevant ISDA recommended CAS. Provided\ however, that all the terms & conditions as mentioned in the respective legacy contracts shall remain unchanged like settlement tenor i.e., three months & six months settlement period will have corresponding settlement periods.
Private Power and Infrastructure Board (“PPIB”) on March 4, 2024 advised power projects with foreign financing to approach NEPRA for the replacement of LIBOR with SOFR, to be followed by amendments in the respective Power Purchase Agreements (“PPAs”), Energy Purchase Agreements (“EPAs”), Transmission Services Agreements (“TSAs”), and related financing documents.
Following the decision made by the ECC on February 01, 2024, letters were sent by NEPRA on 12 June 2024 to seventy-two (72) power projects with foreign financing, advising them to formally file tariff modification petitions for the transition from LIBOR to SOFR, in accordance with the NEPRA (Tariff Standards and Procedure) Rules, 1998.
In response, only two Independent Power Producers (“IPPs”) namely Harappa Solar(Private) Limited and Gharo Solar Limited complied with the Authority’s directions and filed tariff modification petitions. Meanwhile, twenty three (23) other power projects merely submitted requests to transition from LIBOR to SOFR, without following the formal procedure to get their tariffs modified. Additionally, five (05) generation projects namely Metro Power Company Limited, Gul Ahmed Wind Power Limited, Jhimpir Power (Private) Limited, Hawa Energy (Private) Limited and Master Wind Energy requested NEPRA. to exercise its suo moto power in this regard.
Subsequently, the PPIB forwarded a letter dated 20 July 2024, which it had received from RIAA Barker Gillette on behalf of the Pakistan Wind Energy Association, representing several wind energy power producers. In the letter, it was stated that the majority of the association’s clients are partially or wholly foreign-funded, and their lenders have instructed them to seek PPIB’s support for the transition from LIBOR to SOFR. The letter further argued in favor of NEPRA exercising its suo moto powers to expedite the decision, drawing a parallel to previous instances where NEPRA. had used its suo moto powers, such as in the discontinuation of the Wholesale Price Index (“WPP) and the change of the base year for the Consumer Price Index (“CPI”).
In addition to the above, on July 30, 2024, several Development Financial Institutions including the Asian Development Bank, British International Investment Pic, DEG, FMO, International Finance Corporation, Islamic Development Bank, Proparco, the Export-Import Bank of Korea and U.S. International Development Finance Corporation, among others, which provide financing to numerous IPPs in the Pakistani energy sector, collectively sent a letter to NEPRA. The letter requested the incorporation of the transition from LIBOR to term SOFR + CAS as the benchmark interest rate for foreign currency financing facilities in the approved tariff determinations of the relevant IPPs. These institutions stated that as the LIBOR will cease to be published after September 30, 2024.
The Authority considered the above submissions and observed that a uniform look back should be approved for ail IPPs opting for daily SOFR. Keeping in view the process of filing the tariff indexation with NEPRA, invoicing with CPPA-G and then payments to be made to lenders, the Authority has decided to use following look back periods for power projects opting for daily SOFR: (i) approved the look back period of previous quarter for quarterly repayments, i.e. for the quarter Jan-Mar, the look back period shall be the previous Oct-Dec quarter. This shall be uniformly applicable on all projects that have opted for daily SOFR and have quarterly debt adjustments approved in their tariffs;(ii) approved the look back period of previous-six months for bi-annual repayments, i.e. for the six month period of Jan-Jun, the look period shall be the previous Jul-Dec period. This shall be uniformly applicable on all projects that have opted for daily SOFR and have bi-annual debt adjustments approved in their tariffs ; and (iii) for non-business days the last available rate shall be used.
After going through all the requests and documents, the Authority has decided that the “revised LIBOR” in the interest component indexation formula in the relevant decisions of the projects has been replaced with “3 months/6 months term SOFR+ relevant ISDA recommended CAS (0.26161%/0.42826%)”. The list of 14 projects on which this formula will be applicable is as follows : Apollo Solar Development Pakistan limited , Karot Hydro Power Project , China Power Hub Generation Company (Private) Limited (CPHGCl), Pak Matiari-Lahore Transmission Company (Pvt.) Ltd. (PMLTC) , China Three Gorges Second Wind Form Pakistan Limited, China Three GorgesThird Wind Form Pakistan (Private) Limited, Crest Energy Pakistan Limited, Engro Powergen Thar (Private) Limited (EPTPL), Lucky Electric Power Company Limited (LEPCL), Thai Nova Power Thar (Pvt.) Limited (TPTPL), Thar Coal Block 1 Power Generation Company (Private) Limited, Thar Energy Limited (TEL), UEP Wind Power Private Limited and K-Electric.
The “revised LIBOR” in the interest component indexation formula in the relevant decisions of the projects has been replaced with “daily simple SOFR” calculated based on approved look back period (last quarter or semi-annual period) +ISDA recommended CAS (0.26161%/0.42826%).
The list of 45 projects with transition from LIBOR to daily simple SOFR is as follows : Act 2 Din Wind (Private) Limited (AWPL), Foundation Wind Energy-1 Ltd, AJ Power (Pvt.) Ltd, Foundation Wind Energy-II (Pvt.) Ltd, ArtisticWind Power (Private) Limited, Karot Hydro Power Project , Atlas Solar Limited, Laraib Energy Limited (LEL), Best Green Energy Pakistan Limited (BGEPL), Metro Power Company Ltd. (MPCL), Crest Energy Pakistan Limited, Mira Power Limited, Din Energy Limited, Sachal Energy Development (Pvt) Ltd (SEDPL), Gharo Solar Ltd, SK Hydro (Private) Limited, Gul Ahmed Electric Ltd, Star Hydro Power Limited, Gul Ahmed Wind Power Ltd, Harappa Solar (Private) Limited, Hawa Energy (Private) Ltd (HEPL), Hellos Power (Pvt.) Limited, HNDS Energy (Pvt.) Limited, Huaneng Shandong Ruy (Pakistan) Energy (Private) Limited (HSRPEL), Hydrochina Dawood Power (Pvt.) Ltd (HDPPL), Indus Wind Energy Limited, Jhimplr Power (Private) Limited (JPPL), Lakeside Energy Limited, LibertyWind Power 1 Limited, Liberty Wind Power 2, Limited , Lucky Renewable (Private) Limited, Master Green Energy Limited, Master Wind Energy (MWEL) , Meridian Energy (Pvt.) Limited, Metro Wind Power Ltd. (MWPL) , NASDA Green Energy Limited, Oursun Pakistan Limited , Port Qasim Electric Power Company (Private) Limited, Sapphire Wind Power Company Limited, Tenaga Generasi Limited, Triconboston Consulting Corporation (Pvt) Limited-A, Triconboston Consulting Corporation (Pvt) Limited-B, Triconboston Consulting Corporation (Pvt) Limited-C, UCH-II Power (Pvt) Ltd, and Zephyr Power Limited
The transition from LIBOR to SOFR shall be applicable uniformly with effect from July 01,2023. For the remaining/upcoming projects, the decision to either apply term SOFR or daily simple SOFR will be made vide their tariff determinations/COD decisions, based on their financing arrangements.
Ends
