Financing Structures for Mid-Size Energy Projects in Pakistan
An overview of how sponsors and lenders typically structure offtake and security arrangements for smaller power and energy projects.
Financing a mid-size power or energy project in Pakistan runs through a narrower path than financing a large-scale IPP, but the underlying pieces are the same: a bankable offtake arrangement, a security package lenders can actually enforce, and licensing that’s secured before financial close rather than treated as a formality to sort out afterward.
Where the offtake comes from
For grid-connected generation, the offtake typically runs through a power purchase agreement with the relevant distribution company or, for larger connections, the central purchasing entity, structured under tariff terms determined by NEPRA. For smaller and distributed projects — captive power, net metering, or projects serving an industrial off-taker directly — the arrangement is more often a direct bilateral agreement, which shifts more of the credit risk analysis onto the specific off-taker rather than a state-backed counterparty.
How lenders take security
Security packages for these projects generally combine a charge over project assets and receivables registered with SECP under the Companies Act, 2017, assignment of the offtake agreement’s cash flows, and step-in rights that let a lender or its nominee take over project operation if the sponsor defaults. Since PPIB absorbed the former Alternative Energy Development Board’s mandate in 2023, project-level facilitation for both conventional private power and renewable projects now runs through a single body, which has simplified what used to be a more fragmented approval process for renewable-specific projects.
Licensing has to be secured early
A generation licence from NEPRA, and any additional approvals specific to the fuel type or project structure, need to be in place — or at minimum clearly on a defined path to approval — before a lender will commit to financial close. Treating licensing as something to finalise after financing is arranged is one of the more common ways a project timeline slips, because lenders will not release funds against a licence that’s still pending with no clear timeline.
KBL & Associates advises sponsors and lenders on structuring these projects from the offtake negotiation through to the security package and licensing sequence, coordinating the commercial and regulatory tracks so neither one holds up the other.