The transition of sugar mills from traditional sugar business into a modern power business requires large investments. This transformation process not only requires advanced technical skills but also availability of easy financing. The action is establishing credit worthiness of bagasse based projects to take benefit from the schemes already being offered by State Bank of Pakistan. It is looking at developing a business model for bagasse based power business establishment; financing options through credit from banks and investment funds, and supporting the sugar mills in making the correct calculations and business plans in order to make sure that there is a feasible return on investment.

Financial Risk Assessment of Bagasse Based Power Projects

The financial risk assessment has been conducted for HPC projects by Sequa and TERI. The risk analysis has particularly focused on risk of technology failure, risk of non-payment from power regulator, risk associated with setting up substations for grid interconnectivity, and additional risk of setting up allied units and exporting power to them.The revised indicative tariff, availability of standardized HPC technology solutions of bagasse based power project, and credit guarantee by State Bank of Pakistan (SBP) is further strengthening the confidence of the banks to provide credit to those sugar mills who wants to make the investment for the switch to HPC.

Development of toolkits for SBP’s Schemes and the Credit Guarantee

The action is being worked with five commercial banks and International development institutions (IDIs) i.e. Asian Development Bank and International Finance Corporation to develop an online toolkit for the sugar sector to help them prepare, submit, and monitor their loan applications for financing of power plants using renewable energy. Another toolkit is being developed for commercial bank’s internal process to take benefit from SBP’s SME credit Guarantee Scheme to mitigate the risks associated with bagasse based power generation. This further improves the loan processing for bagasse based power projects.

Trainings of the 5 major FIs in Pakistan on bagasse based co-generation projects

The activity is training the loaning staff of participating banks. They are being educated on bagasse based power project, project cycles, adoption of credit guarantee schemes into their existing investment portfolio, project risks and potential capital availability at SBP and IDIs. They are also being educated to use the SBP’s Schemes and the Credit Guarantee toolkits for reducing the lead time associated with the loan approval process.

Training of sugar mill financial departments on toolkits and Clean Development Mechanism (CDM)

The project is being conducted training of financial managers from sugar sector to educate them on how to avail financing opportunities, preparation of effective business cases, financial negotiations and getting financial closure. The sugar mill financial department is also being trained on developing their bagasse based power projects under CDM or any other voluntary carbon credit scheme (VCS, Gold Standard, etc.). This ensures additional revenue stream for the project developer.

Ensuring financial closure for 10 HPC projects

The action is being assisted the potential HPC developers in the complete project cycle i.e. development of business cases, bankable feasibility studies, loan application, financial audits, risk assessment, tariff application, power purchase agreement, necessary permits resulting in financial closure. These efforts are being undertaken from the Bagasse Power Support Cell which has the capacity to offer similar activities after the project duration, ensuring sustainability of services being offered.

Development of project design document for CDM financing for 10 projects

The action is assisting the sugar mills to prepare CDM project design documents. It is being anticipated the activity is resulting in development of CDM Project Design Documents (PDDs) for at least 10 HPC projects. It further supports their financial closures due to improved rate of returns.