Pedo authorized commercial financing of projects – Journal

PESHAWAR: The government of Khyber Pakhtunkhwa approved a new financial model for the Pakhtunkhwa Hydel Development Organization (Pedo) allowing the public sector entity to engage private lenders to finance its future projects instead of relying on government funding.

An official familiar with the matter told Dawn that the Pedo Policy Board approved the new financial model on May 7 after a thorough review.

He said the move would give the organization financial independence and come into effect in the next fiscal year.

“Under this new model, the Pedo will not ask the provincial government to fund its projects,” he said.

According to an official document outlining the concept of the model, the Pedo has embarked on the path of capitalizing its assets “ already built and under construction ” to exploit them commercially to generate the much-needed income.

Manager insists organization grants financial independence

He said the idea was to put the organization on a path of self-sufficiency and elevate it to a position where it not only supports itself, but also provides much-needed revenue to the provincial government.

The document states that in order to achieve the objective mentioned above, a new business model has been drafted on the lines of business financing and in order to get rid of the conventional method of public sector financing.

He said that through the new model, it was envisaged to engage the private sector and inject the capital raised in the market in the construction of new projects.

“In this regard, it was planned to remove the conventional method of discharges carried out by the Hydel Development Fund under the provincial government and / or the annual development program,” he said, adding that instead of this, efforts will be made to increase commercial debt to at least 75 pc of the cost of ongoing projects within the framework of the project financing structure.

The document indicated that for this purpose the projects, which were achievable under the model, would be converted into Special Purpose Vehicles (SPVs). He said that being important from a lender’s perspective, SPVs would help mitigate lender risks and make the transaction bankable.

“At the same time, the sponsor’s liability will be limited to the SPV and will not have any lien / rights over other sponsor assets. Debt service will be covered by entries against a power purchase agreement based on the tariff approved by NEPRA, ”he said.

The document stated that it was estimated that Pedo would be able to generate around Rs 38 billion through this mode of trade mobilization.

He said that a large part of the funding would have already been injected by Pedo into the projects against which the amount was raised since the projects were already under construction and funds had been provided by the organization to cover its cost until nowadays. As a result, the funds raised will be diverted to other ongoing or future projects.

The official said the organization planned to convert four of its ongoing projects, including Koto, Karora, Matiltan and Lawi, to SPV and that in the first phase, Koto and Karora would be transformed into SPV.

The document states that in order to cover delays during approval processes and consents from various stakeholders during the execution of the project financing structure, a relief financing facility of up to Rs 10 billion would be made available through corporate finance and will be available for direct debit. over a three-year period.

“This facility will be secured through Pedo’s existing operational projects under an escrow agreement backed by guarantees from the provincial government,” he said.

The document indicated that a portfolio of nearly 930 MW of projects had also been identified as ripe for operation under the public-private partnership scheme.

He said a substantial portion of the income would also come from two main loan agreements with donor agencies, notably the Asian Development Bank (Balakot HPP) and the World Bank (Gabral – Kalam and Madyan HPP).

The document added that in order to execute this business model, the Pedo would hire specialized teams to execute the first transactions within a period of one fiscal year and at the same time train and equip the human resources of the organization to carry out the subsequent transactions. . sure the same lines.

Posted in Dawn on May 19, 2021

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