FINANCING OF PRIVATE POWER PROJECTS.pdf

7/29/2019 FINANCING OF PRIVATE POWER PROJECTS.pdf

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POWER PROJECTSATIF BAJWA

PRESIDENT, MCB BANK LIMITEDMay 2010


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gen a ower ector ar et tructure

Power Sector Financing Considerations


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Power Sector Market StructureHydel Oil / Gas Based Coal Based Green Energy

Generation

r va e ec or

Investment AcrossGeneration Chain

Key to FuturePublic Sector Existing presence

Limited ability to expand budgetary

constraints & limited technical skills

us a na e

Supply

Private Sector

Need to encourage broader, diversified,

private sector participation in the powergeneration chain

Encourage Public

Private Partnerships,

multi-lateralagencies,

infrastructure funds

Negotiated Tariffs No Competitive Wholesale Market

Absence of

Government Owned and Mana ed Electicit

upp y opower ayment topower

producers

r va e ec or nDistribution Chain

(Excluding KESC)

Distribution

Distribution Network

(Wapda, Regional Distribution Companies)

ne osses,

Financial &

ManagementIssues


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gen a ower ector ar et tructure

Power Sector Financing Considerations


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Commercial Structure of Power Pro ectsLender Consortium Sponsors

FinancingDocuments

ShareholderAgreement

Fuel SupplyAgreement

OfftakeAgreement

Fuel Supplier NTDCGas/oil/biomass

Electricity

ConcessionAgreement,Licenses, etc. EPC

ContractO&M

Contract

EPC

Contractor

Pakistan

Operator


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Key Banking Sector Financing Constraints

an o en a o cy esponsesFinancing Issues Potential Policy Response

Wapda &

OfftakeAgreements

Deteriorating inancial capacity & late

payments to power producers Circular debt issues

Improve management & operating e iciency

Tariff adjustments but hurts economy andignores fundamental issues with Wapda

Fuel Supply

Reliance on fuel imports & dependence

on dollar reserve position

Issues with PSOs ability to meet fueldemand

Broaden domestic fuel sources eliminate mis-

pricing of gas & encourage coal plants

Encourage alternative energy (e.g. SugarCoGen) and Hydel (political will needed)

Bank Portfolio

Limited capacity to take more power risk

Banks do not have the resources to meet

Encourage growth of domestic capital markets

and access to external financing (ECA, Multi-

laterals, project debt market)

by sector Consensus needed on well thought out medium

term policy framework - avoid controversies

e.g. 1994 IPP policy, rental power policy

Sponsor

Capabilities

Local sponsors - limited sector capabilities

Weak project management skills leadingto cost over-runs, delays & technical issues

Facilitation & incentives for foreign

partnerships

Transfer of technology and best-practices


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Concluding Remarks

Industry structural issues Circular debt and fuel supply risks

ponsor capa i ities execution ris

However, regardless of these issues, the DOMESTIC FINANCIAL SECTOR DOES NOTHAVE THE RESOURCES to meet ALL the financing needs of the sector

Policy makers need to think creatively about alternative funding sources to meet power

sector capital requirements

Finally, Investor confidence needs to be built-up around a transparent medium term

policy framework which has consensus buy-in of all stakeholders


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Thankyou