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Mitigate and move
24 May 2012
Pakistan’s bank market has supported a small boom in domestic independent power projects. It has used a combination of project-specific enhancements and government undertakings to make project cashflows as secure as possible. By Usama Siddiqui
Between 2009 and 2011 in Pakistan, thirteen independent power projects (IPPs) with aggregate costs of around $3 billion, and a total installed capacity of 2,632MW, were commissioned. This new wave of capacity additions is designed to counter the countrys wide demand-supply gap in power.
These IPPs are typically 200-230MW dual-fuel thermal power plants that run on fuel oil or gas (see Table 1 below). The sponsors of these projects, usually large domestic business conglomerates, develop the plants through project companies to segregate them from the parent companys balance sheet. Syndicates of mostly local banks structured, arranged and provided up to 75-80% of total costs as project debt financing.
Projects repay these loans using assured revenues under power purchase agreements (PPAs) with the sole government off-taker, the National Transmission & Dispatch Company (NTDC). This article highlights the key risks and uncertainties that banks factored into their due diligence processes, and how...
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