Legal Advice on the Guidelines for Setting Up Private Power Projects in Pakistan Under Short Term Capacity Addition Initiative

1. What is the purpose of the Short Term Capacity Addition Initiative?

The initiative aims to address Pakistan’s immediate power needs by accelerating the development and commissioning of new power generation facilities through private sector participation on a Build, Own, and Operate (BOO) basis.

2. Who invites proposals for private power projects under this initiative?

The Private Power and Infrastructure Board (PPIB), Ministry of Water & Power, Government of Pakistan, invites proposals.

3. What is the scope of work for a private power project?

The scope includes developing, financing, insuring, installing new plant and equipment, testing, commissioning, owning, operating, and maintaining the power generation facility, as well as activities incidental to these tasks.

4. What agreements must the project comply with?

The project must comply with the provisions of the standard Implementation Agreement (IA) and the Power Purchase Agreement (PPA).

5. Where should the projects be established?

Projects should be established within the jurisdiction of PEPCO/NTDC.

6. What is required for site finalization?

Sponsors must finalize sites with the concurrence of PEPCO/NTDC and provide a site confirmation letter from PEPCO/NTDC in the proposal.

7. What is the minimum capacity for the projects?

Projects must have a capacity above 50 MW.

8. Who is responsible for fuel procurement?

The Project Company is responsible for procuring the selected fuel without any guarantee from the Government of Pakistan (GOP).

9. What is the required fuel inventory?

The Project Company must maintain a minimum fuel inventory on-site sufficient for 30 days of operation at full load.

10. What is the debt-equity ratio for financing the project?

The debt-equity ratio should be between 80:20 (minimum) and 70:30 (maximum).

11. Who arranges the financing for the project?

The arrangement of financing is the sole and exclusive responsibility of the Applicant/Sponsor.

12. What currencies are considered for tariff adjustments?

Tariff adjustments will be provided for Pound Sterling, US Dollars, Japanese Yen, and Euro, as per the mechanism defined in the standard PPA.

13. What is the lock-in period for the main sponsor’s equity?

The main sponsor must hold at least 20% of the equity from the issuance date of the LOS until the sixth anniversary of the successful commissioning of the plant.

14. What is the term of the project?

The term of the project is 25-30 years.

15. What is the first step in the project implementation process?

The first step is registration with PPIB by depositing US$ 200 along with a request letter.

16. What is required for proposal submission to PPIB?

Proposals must be submitted as per the given guidelines, along with a Proposal Processing Fee of US$ 20,000.

17. What does PPIB do after receiving the proposal?

PPIB examines the proposal, evaluates the credentials of the sponsors, and seeks approval from the PPIB Board.

18. What follows PPIB Board approval of the proposal?

The sponsors must submit a Performance Guarantee (PG) at US$ 1,000 per MW to PPIB for the issuance of a Letter of Intent (LOI).

19. What is the next step after obtaining the LOI?

The sponsors must submit a tariff petition and application for a Generation License to NEPRA.

20. What happens after NEPRA determines the tariff and issues the Generation License?

Sponsors must submit a PG at US$ 5,000 per MW and a Processing Fee of US$ 80,000 to PPIB for the issuance of the Letter of Support (LOS).

21. What is required after the issuance of the LOS?

Sponsors must negotiate and finalize Project Agreements (IA, PPA, FSA/GSA) and achieve financial close within nine months.

22. When must the project achieve commercial operations?

The project must achieve commercial operations within 33 months after the issuance of LOS or 24 months after executing Project Agreements and Financial Closing, whichever is earlier.

23. What documents must be included in the proposal?

Documents must include details of the proposed power plant, contact details, consortium details, credit rating/financial statement data, experience of power projects, consortium agreement, affidavits on equity commitment and eligibility requirements, endorsement of the Power Purchaser, site finalization, equipment availability confirmation, and fuel availability confirmation.

24. What are the eligibility requirements for sponsors?

Sponsors must provide complete information requested by PPIB, appoint a main sponsor through a Power of Attorney if in a consortium, meet net worth requirements, have requisite power project experience, and ensure the main sponsor does not own more than 25% of the total generation capacity in Pakistan at the time of proposal submission.

25. How is net worth calculated for the sponsor(s)?

Net worth is the sum of total assets less total liabilities, with specific criteria for companies, individuals, and consortia.

26. What financial information must be submitted by the applicant?

Applicants must submit audited financial statements for the last three years, details of cash and assets for individuals, and either bank credit references or a credit rating of “A” or above.

27. What experience is required for sponsors?

Sponsors must have prior experience with power projects of at least 50% of the capacity of the offered project, including roles as lead project developer, lead construction contractor, shareholder, or lead operation manager.

28. What happens if the project company fails to achieve financial close?

If financial close is not achieved within nine months from the issuance of LOS, PPIB may encash the PG in full.

29. What happens if the project fails to achieve COD on time?

If COD is not achieved by the stipulated deadline, the PG may be encashed on a pro-rata basis over a period of 90 days.

30. What must be included in Exhibit-I of the proposal?

Exhibit-I must include project description, site details, fuel information, number and configuration of power plant units, capacity details, equipment description, and annual availability of the power plant.

31. What contact information must be provided in Exhibit-II?

Exhibit-II must include the sponsor’s organization address, telephone, fax, email, authorized person for contact, and their contact details.

32. What details must be included in Exhibit-III?

Exhibit-III must include details of the consortium members, equity commitments, and the roles of each consortium member.

33. What credit rating information must be included in Exhibit-IV?

Exhibit-IV must include the name of the sponsor, rating agency, most recent credit rating, type of credit rating, and date of the most recent credit rating.

34. What financial statement data must be included in Exhibit-IV?

Exhibit-IV must include financial data such as current assets, fixed assets, liabilities, net worth, shareholders’ equity, revenues, gross profit, income before interest and tax, financial charges, tax, net profit after tax, and dividends paid.

35. What experience information must be provided in Exhibit-V?

Exhibit-V must detail the sponsor’s prior power projects, including project name, sponsor’s share in equity, location, owner, power purchaser, plant capacity, type, fuel, number and capacity of units, status, years of operation, major equipment manufacturers, major tasks/services performed, award date, construction period, commercial operation date, total capital cost, financiers, and any other relevant details.

36. What must the consortium agreement include?

The consortium agreement must state the equity stake committed by each member, the role of each member, the main sponsor’s obligation to maintain equity, the collective equity commitment, and, if governed by foreign law, a legal opinion confirming its validity.

37. What must be included in the affidavit(s) on equity commitment and eligibility requirements?

The affidavit(s) must confirm the sponsor is not in default or bankrupt, the main sponsor does not own more than 25% of the total generation capacity in Pakistan, the main sponsor commits to holding at least 20% of the equity during the lock-in period, and the sponsor commits to providing at least 51% of the total equity.

38. What is the initial non-refundable registration fee?

The initial non-refundable registration fee is US$ 200.

39. How should the registration fee be paid?

The registration fee should be paid by demand draft/pay order in favor of PPIB, payable at a bank branch in Islamabad, Pakistan, or through wire transfer.

40. What information must be included in the registration request?

The registration request must include proposed project size, fuel, technology, tentative location, a brief introduction of the sponsors, and complete contact details.

41. Is separate registration required for multiple IPPs?

Yes, separate registration is required for each IPP if the party is interested in developing more than one.

42. What is the proposal processing fee?

The proposal processing fee is US$ 20,000.

43. What happens to incomplete proposals?

Incomplete proposals or proposals without the project processing fee will not be entertained.

44. What follows PPIB’s evaluation of the proposal?

After evaluation, the proposal will be submitted to the PPIB Board for approval.

45. What rights does PPIB reserve regarding proposals?

PPIB reserves the right to reject any or all proposals without assigning any reason.

46. What follows the approval of the proposal by the PPIB Board?

A Notice to Proceed is issued, and the sponsor must submit a Bank Guarantee at US$ 1,000 per MW.

47. What is the purpose of the Bank Guarantee at this stage?

The Bank Guarantee ensures the sponsors approach NEPRA for tariff determination and obtain the LOS within the stipulated time.

48. What are the requirements for the Bank Guarantee?

The Bank Guarantee should be issued by a scheduled bank operating in Pakistan with a credit rating of ‘A’ or higher.

49. What happens upon acceptance of the Bank Guarantee?

Upon acceptance, an LOI is issued to the sponsors asking them to approach NEPRA for tariff determination and generation license issuance.

50. What must sponsors submit to NEPRA?

Sponsors must submit a tariff petition and application for a generation license to NEPRA within the stipulated time.

51. What does NEPRA do upon receiving the petition?

NEPRA determines the tariff for the project and issues a generation license.

52. What must sponsors submit after tariff determination by NEPRA?

Sponsors must submit a Performance Guarantee at US$ 5,000 per MW and a Processing Fee of US$ 80,000 to PPIB for issuance of the LOS.

53. What are the requirements for the Performance Guarantee?

The Performance Guarantee should be issued by a scheduled bank operating in Pakistan with a credit rating of ‘A’ or higher.

54. What happens upon acceptance of the Performance Guarantee?

Upon acceptance, the LOS is issued to the sponsors, and the initial Bank Guarantee is returned.

55. What must sponsors do after receiving the LOS?

Sponsors must negotiate and finalize the Project Agreements (IA, PPA, FSA/GSA) and achieve financial close within nine months.

56. What happens after financial close?

Construction activities commence, leading to the achievement of Commercial Operations in accordance with the provisions of the LOS and finalized Project Agreements.

57. What is the total envisaged timeline for the project from proposal submission to COD?

The total envisaged timeline is approximately 40 months.

58. What happens if the sponsor fails to achieve financial close within the stipulated time?

PPIB is entitled to encash the Performance Guarantee in full.

59. What is the consequence of failing to achieve COD by the stipulated deadline?

The Performance Guarantee may be encashed on a pro-rata basis over a period of 90 days depending on the extent of the delay.

60. What is the required minimum equity contribution by sponsors?

The minimum equity contribution by sponsors is 51% of the total project equity.

61. What is the required net worth of sponsors?

The net worth of sponsors must not be less than 1.5 times the proposed equity contribution.

62. How is net worth calculated for companies?

Net worth is determined based on the average of the last three years’ audited financial statements.

63. How is net worth calculated for individuals?

Net worth for individuals is determined based on cash, liquid assets, deposits, government securities, shares, and property owned.

64. How is net worth calculated for consortia?

The collective net worth of all consortium members constituting the main sponsor is considered.

65. What information must be provided in Exhibit-IV?

Exhibit-IV must include credit rating/financial statement data, such as bank credit references or a credit rating of “A” or above, and financial statements for the last three years.

66. What experience must sponsors demonstrate in Exhibit-V?

Sponsors must demonstrate prior experience with power projects of at least 50% of the capacity of the offered project.

67. What specific roles must sponsors have held in previous projects to meet experience requirements?

Sponsors must have experience as a lead project developer, lead construction contractor, shareholder, or lead operation manager.

68. What happens if sponsors fail to meet the eligibility requirements?

Proposals from sponsors who do not meet the eligibility requirements may be rejected.

69. What is required for the consortium agreement in Exhibit-VI?

The consortium agreement must clearly state the equity stake, roles, and obligations of each member, including the main sponsor’s equity commitment.

70. What must the affidavit(s) in Exhibit-VII confirm?

The affidavit(s) must confirm the sponsor’s financial status, equity commitment, and compliance with eligibility requirements.

71. What financial viability must be demonstrated by the applicant?

Applicants must demonstrate financial viability through audited financial statements, cash and asset details for individuals, and bank credit references or a credit rating of “A” or above.

72. What must the sponsor’s net worth be in relation to the proposed equity contribution?

The sponsor’s net worth must be at least 1.5 times the proposed equity contribution.

73. What is the minimum equity contribution by the main sponsor?

The minimum equity contribution by the main sponsor is 20% of the total project equity.

74. What is the procedure for registration with PPIB?

Interested parties must request registration on their letterhead, along with a non-refundable registration fee of US$ 200.

75. How is the proposal evaluated by PPIB?

PPIB evaluates the proposal and credentials of the sponsors before seeking approval from the PPIB Board.

76. What follows the issuance of a Notice to Proceed by PPIB?

Sponsors must submit a Bank Guarantee at US$ 1,000 per MW for the issuance of a Letter of Intent (LOI).

77. What is required for submission of the tariff petition to NEPRA?

Sponsors must submit a detailed tariff petition and application for a generation license to NEPRA.

78. What are the subsequent steps after NEPRA’s tariff determination?

Sponsors must submit a Performance Guarantee at US$ 5,000 per MW and a Processing Fee of US$ 80,000 to PPIB for issuance of the LOS.

79. What is the role of the main sponsor in a consortium?

The main sponsor must hold at least 20% of the equity during the lock-in period and ensure the collective equity commitment of 51% by all sponsors.

80. How long is the lock-in period for equity holdings?

The lock-in period is from the issuance of the LOS until the sixth anniversary of the successful commissioning of the plant.

81. What happens if the sponsor owns more than 25% of the total generation capacity in Pakistan?

Such sponsors are not eligible to submit proposals under this initiative.

82. What are the requirements for financial statements submitted by companies?

Companies must provide audited financial statements for the last three years, including consolidated statements for holding companies.

83. What must individuals provide in terms of financial information?

Individuals must provide details of cash, liquid assets, deposits, government securities, shares, and property owned.

84. What are the requirements for bank credit references?

Bank credit references must be from at least two reputable banks, stating the period of dealing, facilities availed, present outstanding amounts, and confirmation of no default events.

85. What is the required credit rating for sponsors?

Sponsors must have a credit rating of “A” or above from a recognized credit rating agency acceptable to PPIB.

86. What specific experience must be demonstrated by sponsors in power projects?

Sponsors must have experience in power projects with a cumulative capacity of at least 50% of the offered project’s capacity.

87. What information must be included in Exhibit-V regarding power project experience?

Exhibit-V must include details of prior power projects, such as project name, sponsor’s share, location, owner, power purchaser, capacity, type, fuel, number and capacity of units, status, years of operation, equipment manufacturers, tasks performed, award date, construction period, commercial operation date, total capital cost, financiers, and other relevant details.

88. What is the required minimum fuel inventory for the project?

The project must maintain a minimum fuel inventory on-site sufficient for 30 days of operation at full load.

89. What happens if the sponsor fails to achieve financial close within nine months?

PPIB may encash the Performance Guarantee in full.

90. What must be done to achieve COD on time?

Sponsors must ensure timely completion of construction activities and adhere to the deadlines stipulated in the LOS, IA, and PPA.

91. What happens if the sponsor fails to meet the deadlines for COD?

The Performance Guarantee may be encashed on a pro-rata basis over a period of 90 days depending on the extent of the delay.

92. What must be included in the consortium agreement if governed by foreign law?

A legal opinion from a qualified law firm must confirm that the consortium agreement is legal, valid, binding, and enforceable.

93. What must the affidavit(s) confirm regarding the sponsor’s financial status?

The affidavit(s) must confirm that the sponsor is not in default or bankrupt.

94. What commitments must the affidavit(s) make regarding equity?

The affidavit(s) must commit to holding the required equity during the lock-in period and providing at least 51% of the total equity.

95. What should be included in the affidavit(s) regarding shareholdings?

The affidavit(s) must confirm that no individual working for PPIB, GOP, or the Power Purchaser is within the sponsor’s shareholders, owners, or companies.

96. What are the consequences of not meeting the eligibility requirements?

Proposals may be rejected if sponsors do not meet the eligibility requirements.

97. What must be demonstrated regarding financial viability?

Applicants must demonstrate financial viability through audited financial statements, cash and asset details for individuals, and either bank credit references or a credit rating of “A” or above.

98. What is required for the main sponsor’s equity contribution?

The main sponsor must contribute at least 20% of the total project equity.

99. What is the required net worth for the main sponsor?

The main sponsor’s net worth must be at least equal to the proposed equity contribution in the project.

100. What information must be included in the proposal for PPIB?

The proposal must include details of the proposed power plant, contact information, consortium details, credit rating/financial statements, experience in power projects, consortium agreement, affidavits on equity commitment and eligibility requirements, endorsement from the Power Purchaser, site finalization, equipment availability confirmation, and fuel availability confirmation.