ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has approved two formulas to transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) for 59 Independent Power Producers (IPPs), effective July 1, 2023. This transition aligns with global changes as LIBOR ceases publication after September 30, 2024.
ECC and Nepra Decisions
The Economic Coordination Committee (ECC) of the Cabinet, in a February 2024 decision, approved the shift from LIBOR to SOFR. Borrower companies with debt repayment schedules registered with the State Bank of Pakistan (SBP) must notify the SBP of revised schedules, incorporating SOFR and the Credit Adjustment Spread (CAS) recommended by the International Swaps and Derivatives Association (ISDA).
Lenders can choose between:
Daily Simple SOFR plus CAS (0.26161% for quarterly and 0.42826% for semi-annual payments).
Term SOFR plus CAS.
All terms of existing contracts, including three- or six-month settlement tenors, will remain unchanged.
Compliance and Challenges
While Nepra advised 72 foreign-funded power projects to formally file tariff modification petitions, only two—Harappa Solar (Private) Limited and Gharo Solar Limited—complied. Twenty-three projects requested the transition informally, while five others sought Nepra’s suo motu intervention.
The Pakistan Wind Energy Association and several Development Financial Institutions, including the Asian Development Bank and International Finance Corporation, also urged Nepra to expedite the transition for the sector’s stability.
Uniform Guidelines for Daily SOFR
Considering submissions, Nepra approved a uniform look-back period for IPPs opting for daily SOFR. For quarterly repayments, the previous quarter’s rates will serve as the benchmark (e.g., October–December rates for January–March payments).
The transition aims to ensure a seamless shift to SOFR, maintaining financial stability for Pakistan’s energy sector while adhering to global financial norms.
Story by Mushtaq Ghumman
