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SAZH-TAF Report on FDI

Industry - Power

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Some recommendations brought up by a leading professional in the power sector were that once a Power Purchase Agreement is executed, renegotiation should not be allowed to ensure certainty and consistency. Thus, building investor confidence.

 

In the past few years, as shared by the Chief Legal Officer in a power-related government department, due to the crippling effect of potential NAB cases, if by virtue of negotiations, any potential dispute and problem between the government and an Independent Power Producer could be settled or mediated, which could certainly benefit the public at large, the government would hesitate to act on it. This also is due to the complexity of power agreements and negotiations, which is difficult to explain to a person who may not have the relevant expertise. This is further evidenced by the fact that even though nearly all PPAs have international multi-tiered dispute resolution clauses, which include amicable settlement and expert mediations, nearly every case is taken to its penultimate conclusion, which involves expensive international arbitration. Millions are spent on such dispute resolution mechanisms that require either Singapore or London based institutional arbitrations. Yet as the government needs to show that it has expended all options so as to satisfy accountability and audits, thus, DR clauses are taken to their final outcome, costing exchequer in every scenario.

 

 

Furthermore, as discussed above, the power sector is riddled with unnecessary bureaucracy, which creates administrative hurdles and delays in the process of investment. It was mentioned by BOI, that if investors in China want to invest in power in Pakistan, and approach BOI for the same, BOI has to send that inquiry to the relevant ministry, such as power. However, to increase efficiency and ensure that this foreign investment reaches the relevant domestic persons, they could simply advertise and ask local investors to participate in the process. The domestic parties could share how much equity they have, what the business proposition could be and create a sustainable model as part of a joint venture with the Chinese investors. On the basis of which, a decision could be made as to whether the investment for the Chinese is feasible and proceed accordingly. The gate-keeping element of the relevant ministries could be reduced and the friction for FDI could be avoided. Can partner with China. The goal should always be to create a business environment where domestic and foreign investors are connected.


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