PAKISTAN Law and Practice Contributed by: Nadir Altaf and Muhammad Fahim Khan, RIAA Barker Gillette
of the government will review the financial and technical strength of the investor before approv- ing their investment in the project. The aforementioned approval process involved the selection of a potential investor through vari- ous modes such as the international competitive bidding process, the PPP process or the solici- tation of projects. Once a sponsor for a project is approved, they are issued a letter of intent against the submission of a bank guarantee. The sponsor is required to prepare a feasibil- ity study and have it approved by the govern- ment, have its tariff determined by NEPRA and fulfil any other condition that may be stipulated in the letter of intent. After the conditions in the letter of intent are fulfilled, a letter of support is issued by the government. Pursuant to the letter of support, the sponsor is required to achieve financial closing during the term of the letter of support. After fulfilling the requirements of the letter of support, the project company will be eligible to enter into the concession agreements with the government. Following the notification of the EPP Regulations, it is now required for a project to be included in the IGCEP as well as the approved power acquisition programme of a supplier of last resort (SOLR). This stipulation has prevented many projects that have been issued a letter of intent from progressing further. Typically, the permitted debt-to-equity ratio is from 80:20 to 70:30. Any equity in excess of the permitted ratio will be treated as debt by NEPRA when determining the tariff. Further, when determining the tariff, NEPRA will take into account: • return on equity during construction; • interest during construction; and • return on equity.
Repatriation of foreign investment is subject to the exemption/approval of the State Bank of Pakistan (SBP), which grants the approval in accordance with the prevailing foreign exchange policy. 1.4 Sale of Power Industry Assets NEPRA imposes restrictions and conditions on various transactions by licensees, including amalgamations and mergers by licensees and the sale of power industry assets by licensees. The Generation and Distribution Licensing Rules impose a number of restrictions and conditions on the generation and distribution licences issued by NEPRA, including restrictions in respect of: • the transfer of the licensee’s shares and other voting securities; • the disposal of the licensed business; • the issuance of guarantees/surety bonds; and • the acquisition of shares in any entity, subject to exceptions. Transactions that involve the foregoing require the prior approval of NEPRA, which will take into account the promotion of competition in the electric power industry as a whole and any change in the control or management of the licensee likely to result from the approval (if granted). Additionally, pre-merger approval is also required from the Competition Commission of Pakistan (CCP), subject to the transaction meeting the thresholds imposed by the appli- cable provisions of competition law. Further, the implementation agreement entered into between IPPs and the government provides for a contrac- tual “lock-in” period, during which the shares of the main sponsor of the project company can- not be transferred without the approval of the government.
244 CHAMBERS.COM
Powered by FlippingBook