The National Electric Power Regulatory Authority (NEPRA) has approved two formulas for transitioning from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) for 59 Independent Power Producers (IPPs), according to a report published by Business Recorder.
The transition, effective from July 1, 2023, follows recommendations from the Economic Coordination Committee (ECC) and international financial standards.
The ECC approved the switch in February 2024 and directed borrower companies with debt repayment schedules registered with the State Bank of Pakistan (SBP) to notify revised repayment schedules based on SOFR and the relevant Credit Adjustment Spread (CAS), as recommended by the International Swaps and Derivatives Association (ISDA).
Borrowers can opt for either Daily Simple SOFR with CAS (0.26161% for quarterly payments and 0.42826% for semi-annual payments) or Term SOFR with CAS.
The Private Power and Infrastructure Board (PPIB) instructed power projects with foreign financing to approach Nepra for tariff modifications and amend relevant agreements such as Power Purchase Agreements (PPAs) and Energy Purchase Agreements (EPAs).
In June 2024, NEPRA issued letters to 72 power projects to file tariff modification petitions for the transition.
Only two IPPs—Harappa Solar (Private) Limited and Gharo Solar Limited—filed tariff modification petitions as directed. Another 23 power projects submitted requests for transition without following the formal process, while five others, including Metro Power Company Limited and Hawa Energy (Private) Limited, requested NEPRA to use its suo motu powers to expedite the transition.
The Pakistan Wind Energy Association, representing multiple wind power producers, also sought NEPRA’s intervention, emphasizing the urgency for lenders dependent on international financing to adopt SOFR.
Development Financial Institutions, including the Asian Development Bank, International Finance Corporation, and Islamic Development Bank, also wrote to NEPRA in July 2024, urging the adoption of SOFR in tariff determinations before the cessation of LIBOR after September 30, 2024.
Considering these submissions, NEPRA approved a uniform “look-back period” for IPPs opting for Daily SOFR.
