A cohort of 11 wind farm projects in Pakistan’s Jhimpir wind corridor, totalling 560MW in total installed capacity, reached financial close in November 2019. Pakistan Prime Minister Imran Khan and Federal Minister for Energy Omar Ayub gave their imprimaturs to the ceremony. IFC had used a programmatic approach, its first in the wind sector, on what it dubs the Super Six – not to be confused with the Seven Sisters or Nubian Suns.

Coopetition, cost and time

 Super Six’s financing is about competitive collaboration, cost efficiencies and time management. In the late 1980s business school professors began describing the spread of competitive collaboration. Some 15 years later, two Italian academics helped make coopetition strategy a thing. Cost efficiencies are a first-order effect of coopetition and, in turn, drive value creation.

“The projects originally had an up-front tariff, which was high at around eight US cents,” recalled Bridge Factor chief executive Akbar Bilgrami, who served as financial adviser to eight of the 11 projects, including the Super Six.

The previous administration had prioritized imported gas over renewable energy. The wind farm projects consequently halted. Prime Minister Khan’s administration revived the projects.

Bilgrami advised the sponsors to go with a cost-plus tariff, which National Electric Power Regulatory Authority (Nepra) granted at a rate around

$0.047.

“We convinced the government these were the lowest tariffs ever in Pakistan’s history and the project continued,” said Bilgrami. “The tariff was so tight,” he continued, “that we had to be mindful of expenses. Bridge Factor worked with IFC to club the projects. We must compliment IFC for very efficiently organising the programme.”

However, he conceded the sponsors, at first, were not keen on the idea. “Each sponsor likes to get a better deal than their peers, and here we were proposing they would basically get the same deal,” remarked the Bridge Factor chief executive. “Once it was all done, however, the sponsors appreciated the programmatic approach to achieve close, as they saved on legal, due diligence and travel costs.”

Time to close was another considerable factor. Nepra had given a year after the tariffs were determined in November 2018 to reach close.

“We had to do this through a programme to bring efficiency,” said Bilal Aslam, IFC investment officer for infrastructure and natural resources. “We had hired just one team of advisers to help with all six, so that helped with a lot of efficiencies.”

Aslam told IJGlobal that “signing everything” happened in the three weeks before close (late October / early November 2019). “We went from one common term sheet to six in three days,” another source close to the project said a few days before close.

Financing the Super Six

 The headline figures for the Super Six are:

total Nepra-approved project value – $390.6 million debt-to-equity – 80:20

foreign (US dollar)-to-local (PRs) – 50:50

debt package with six providers (contribution) – $312.5 million: IFC (42%

DEG (18%)

Bank Al Habib (16%)

Meezan Bank (16%)

Bank Alfalah (4%)

Allied Bank (4%)

central bank State Bank of Pakistan local concessional lending – 3%

local pricing – 3% + 150-300bp, depending on sponsor’s wind experience and bank’s own risk profile of sponsor US dollar tranches pricing – three-month Libor + 150-300bp

four projects with wind-experienced sponsors – ACT 2 Wind, Artistic Wind Power, Gul Ahmed Electric and Metro Wind Power – priced on the low side

door-to-door tenors and principal repayment periods: local tranches – 12.6 years and 10 years international tranches – 15.5 years and 13 years

IRR-based return on equity – 14%

Nepra reduced the construction period from 18 to 15 months for all six syndication – $105.4 million:

IFC’s Managed Co-Lending Portfolio Program – $68 million Artistic Wind

Din Energy Metro Wind Tricom Wind

DEG – $37.4 million

ACT 2 Wind

Gul Ahmed Electric Metro Wind

50MW ACT 2 Wind

 A total of 22 individuals own the 320-acre wind farm’s SPV through a consortium of three Pakistan business groups:

Akhtar Group Ismail Group

Tapal Group (ACT Group)

Nepra changed a number of the project terms from requested to approved (percentage change), including:

total project cost – $84.91 million ==> $62.95 million (-26%), mainly due to an EPC cost reduction levelised tariff – $0.071924/kWh ==> $0.047212/kWh (-34%)

Debt financing of $50.36 million is split among:

IFC A loan – $12.59 million DEG – $12.59 million

Bank Al Habib (conventional) – $25.18 million in Pakistan rupees

A total of six companies were shortlisted during the EPC procurement process:

HydroChina Corp – China

China Shipbuilding Industry Corp (CSIC) – China Descon – Pakistan

Nordex – Germany SANY – China Vestas – Denmark

HydroChina, the engineering, procurement and construction (EPC) contractor, comprises:

PowerChina

Hydrochina International Engineering Co

Hangzhou Huachen Electric Power Control Co

HydroChina, alongside turbine supplier Goldwind, will also act as the operations and maintenance (O&M) contractor for the first two years. Afterwards, ACT2 Wind will mandate a new contractor.

50MW Artistic Wind Power 

Artistic Milliners owns the 462-acre wind farm’s SPV. Yaqoob Ahmed, a high net worth individual, is a majority owner of Artistic Milliners. Nepra’s changes included:

total project cost – $87.15 million ==> $62.95 million (-28%), mainly due to an EPC cost reduction levelised tariff – $0.07235/kWh ==> $0.047212/kWh (-35%)

Debt financing of $50.36 million is split among:

IFC A loan – $25.18 million

Bank Al Habib (Islamic) – $12.59 million in Pakistan rupees Meezan Bank (Islamic) – $12.59 million in Pakistan rupees

A total of six companies were shortlisted during the EPC procurement process:

HydroChina Corp – China CSIC – China

Descon – Pakistan Nordex – Germany

Orient (Pakistan) / Gamesa (Spain) – did not submit a bid Vestas – Denmark

PowerChina’s Hangzhou Huachen Electric Power Control Co (supplier) and HydroChina International Engineering Co Pakistan (EPC contractor) are involved. The EPC contractor and Ürümqi, China-based Goldwind will also act as the O&M contractor for the first two years, after which the SPV will appoint a new contractor.

50MW Din Energy 

Shareholders of the 325-acre wind farm’s SPV are:

Din Ventures – 31.7% Din Corp – 31.7%

Din Industries Management – 5%

Shaikh Mohammed Pervez and Ghazala Pervez – 31.6%

All four, including the 31.6% equity interest held by the high net worth individuals, are members of the Din Group of Industries. Nepra’s changes comprised:

total project cost – $87.25 million ==> $63.91 million (-27%), mainly due to an EPC cost reduction levelised tariff – $0.072151/kWh ==> $0.047824/kWh (-34%)

Debt financing of $51.13 million is split among:

IFC A loan – $25.56 million

Bank Alfalah (Islamic) – $12.78 million in Pakistan rupees

Meezan Bank Limited (Islamic) – $12.78 million in Pakistan rupees

A total of nine companies were shortlisted during the EPC procurement process:

HydroChina Corp – China CSIC – China

Descon – Pakistan Nordex – Germany Orient (Pakistan) SANY – China

Shangdong Swiss Electric – China TBEA Xinjiang Sun Oasis – China Vestas – Denmark

The EPC and O&M contractors, conditions and timeline are similar to ACT 2 Wind’s.

50MW Gul Ahmed Electric (GEL)

 Gul Ahmed Energy (GAEL) wholly owns the 370-acre wind farm. High net worth individuals of the Gul Ahmed Group hold GAEL. Nepra’s changes consisted of:

total project cost – $86.96 million ==> $62.95 million (-28%), mainly due to an EPC cost reduction levelised tariff – $0.072267/kWh ==> $0.047212/kWh (-35%)

Debt financing of $50.36 million is split among:

IFC A loan – $12.59 million DEG – $12.59 million

Meezan Bank (Islamic) – $25.18 million in Pakistan rupees A total of four teams bid during the EPC procurement process:

HydroChina Corp – China (General Electric, Goldwind, Siemens Gamesa) CSIC – China (Siemens Gamesa, CSIC)

Descon – Pakistan (Nordex, Siemens Gamesa, General Electric, Vestas) Nordex – Germany

Again, HydroChina is the EPC contractor. Its O&M contract is similar to ACT 2 Wind’s. The difference is that it will be working with wind turbine supplier Siemens Gamesa rather than Goldwind.

60MW Metro Wind Power

 Punjab-based Metro Group of Companies has a 100% equity interest in the 410-acre wind farm’s SPV. Nepra revisions included:

total project cost – $103.71 million ==> $73.93 million (-29%), mainly due to an EPC cost reduction levelised tariff – $0.067386/kWh ==> $0.04636/kWh (-31%)

Debt financing of $59.14 million is split between:

IFC A loan – $29.57 million DEG – $29.57 million

A total of four teams bid during the EPC procurement process:

HydroChina Corp – China (General Electric, Goldwind, Siemens Gamesa) CSIC – China (Siemens Gamesa, CSIC)

Descon – Pakistan (Nordex, Siemens Gamesa, General Electric, Vestas) Nordex – Germany

The EPC and O&M contractors, conditions and timeline are similar to Gul Ahmed Electric’s.

50MW Tricom Wind Power

Tricom Wind’s shareholders of the 347-acre project are:

Lucky Textile Mills – 51% Lucky Energy – 49%

YB Holdings, a holding company of the Yunus Brothers Group (YBG), wholly owns both Tricom Wind shareholders. YBG is one of Pakistan’s largest conglomerates and export houses.

Nepra changes comprised:

total project cost – $87.65 million ==> $63.91 million (-27%), mainly due to an EPC cost reduction levelised tariff – $0.070578/kWh ==> $0.047824/kWh (-32%)

Debt financing of $ 51.13 million is split among:

IFC A loan – $25.56 million

Bank Al Habib (conventional) – $12.78 million in Pakistan rupees Allied Bank (conventional) – $12.78 million in Pakistan rupees

The EPC and O&M contractors, conditions and timeline are similar to Artistic Wind Power’s, except the wind turbine supplier is Siemens Gamesa in place of Goldwind.

Next steps

 IFC’s Aslam and Bilgrami, of Bridge Factor, are optimistic about Pakistan’s renewable energy financing market.

“Given Pakistan’s macroeconomics, its power market is quite robust,” said Aslam. “Bankers are comfortable with the wind concession. Even with tight pricing and cost, their comfort with renewables is much more than before.”

Bilgrami told IJGlobal that the government will be shifting away from cost-plus tariffs towards a competitive bidding regime. The next round will prioritise projects that already have land procured. He estimates the round to offer 650MW.

Alternative Energy Development Board (AEDB), the agency in charge of renewables, had taken comments on a draft request for proposal (RFP) in late November (2019). A revised version will head soon to Nepra for approval.

Bilgrami anticipates the RFP to hit the market next month (January 2020). Bidders will then have about four months to organise their proposals, meaning bids will likely be due in April or May (2020). Once the preferred bidders are announced, they will have between nine and 12 months to reach financial closure, predicted the chief executive.

Super Six’s advisers

 Advisers to the sponsors of the IFC-led projects have included:

Bridge Factor – financial (Akbar Bilgrami, Ashruff Rana) Haidermota & Co – local legal (Owais Aziz)

RIAA Barker Gillette – local legal (Din Energy and Tricom Wind Power) (Bilal Shaukat) RE 2 – local technical

HaidermotaBNR & Co recently demerged and reverted to Haidermota & Co and Bhandari Naqvi Riaz. Advisers to the lenders include:

Shearman & Sterling – international legal (Bill McCormack and Jean-Louis Neves Mandelli) Kabraji & Talibuddin – local legal (Ali Maaz and Maheen Faruqui)

DNV GL – technical

Willis Towers Watson – insurance

But what about us?

The following six projects, with a combined installed capacity of nearly 300MW, also had an 18 November deadline to reach financial close:

50MW Indus Wind Energy – CDC-backed with Bridge Factor advising 50MW Lakeside Energy – FMO-backed with Bridge Factor advising 50MW Liberty Wind Power 1

50MW Liberty Wind Power 2 50MW NASDA Green Energy 48.3MW Transatlantic Energy

Transatlantic is the only project that has not reached financial close. It will be requesting an extension.