DFIs warn against unilateral power deals, urge govt to maintain investor confidence

Eight Development Finance Institutions (DFIs) have cautioned the government that renegotiating Power Purchase Agreements (PPAs) with wind and solar Independent Power Producers (IPPs) without consultation could undermine investor confidence and deter future private investment in Pakistan’s renewable energy sector.

According to a news report, in a joint letter addressed to key government officials, including the Finance Minister, Power Minister, and Special Assistant to the Prime Minister (SAPM), the DFIs raised concerns over the proposed PPA amendments introduced by the Energy Taskforce on January 10, 2025. 

The signatories of the letter included leading global financial institutions, such as the Asian Development Bank (ADB), British International Investment (BII), DEG – Deutsche Investitions-und Entwicklungsgesellschaft mbH, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO), International Finance Corporation (IFC), Islamic Corporation for the Development of the Private Sector (ICD), Islamic Development Bank (IsDB), and Societe De Promotion Et De Participation pour La Cooperation Economique S.A. (Proparco).

The letter emphasized that Pakistan’s renewable energy sector has attracted $2.7 billion in investments over the past 25 years, and any unilateral changes to existing agreements could disrupt the momentum for further private sector participation.

The DFIs acknowledged the challenges facing Pakistan’s power sector and recognized the government’s efforts to implement structural reforms. However, they warned that unilateral PPA renegotiations could set a damaging precedent, eroding investor trust and making it harder for Pakistan to secure much-needed funding for its energy transition.

The letter further highlighted that IPPs financed by DFIs are contractually obligated to seek prior written approval from their lenders before agreeing to modifications in key project agreements, including PPAs. The DFIs urged the government to reconsider its approach and explore alternative solutions to address long-term issues in the power sector without breaching contractual obligations.

The DFIs reaffirmed their commitment to supporting Pakistan’s power sector and expressed willingness to work with the government to develop sustainable energy solutions that do not compromise investor confidence or contractual integrity.