ISLAMABAD, March 9: The finance ministry has declined on technical grounds to reschedule about Rs149 billion Wapda debt in accordance with current market-based interest rates , but said that it would allow Wapda to prepay about Rs20 billion government loans through bank borrowing.

This partial replacement of about Rs20 billion high cost government loans with fresh commercial loans on current market rates would entail a 20 paisa per unit reduction in Wapda tariff over a period of five years.

A finance ministry official who worked closely with the task force on power tariff told Dawn that the whole debt of Rs149 billion could not be rescheduled.

He, however, said that in view of the large loan portfolio on different terms and conditions for different loans, and factors like lender consent, prepayment penalties, remaining repayment period, depth of local money market for re-financing of loans and potential gains or losses in prepayment and refinancing, a detailed study of the whole issue by a financial expert was called for.

The finance ministry, said the official, had given its consent to convert into grant about Rs2 billion worth of cash development loans advanced by the government to Wapda for rural and tubewell electrification because these were to serve government's social objectives but became recurring burden on Wapda.

The interest rate on other Rs15 billion cash development loans of the government to Wapda would be reduced from an average 15.5 per cent to current market rate of seven per cent. However, this would be done through pre-paying these loans to the government by borrowing from the market at current rate over a period of four to five years.

The Wapda was also examining the possibility of refinancing its long term international banks loans of about Rs10 billion. The task force on power tariff had proposed to reschedule the whole of Rs92 billion foreign relent loans but finance ministry disagreed with the proposal on technical grounds.

It said it was difficult to prepay and refinance this very large chunk in view of the involvement of bilateral and multilateral donors who would be reluctant to agree.

The official said it was possible that GOP may convert some of these loans into its equity with the consent of the lenders. After all, it has already recovered the principal amount through higher interest rates.

The task force has also asked the government to examine reducing the exchange risk coverage margin in view of the stable position of the local currency against foreign currencies. As Wapda debt portfolio includes a large number of bilateral loans from France, Germany, Japan and USA, the relief gained from the Paris club in the form of rescheduling of bilateral loans should also be shared with Wapda.

As of June 2003, Wapda had a total debt burden of Rs149 billion. This included Rs92 billion of foreign loans obtained by the government mostly at 0.75 per cent service charges and relent to Wapda at an average of 16 per cent interest rate and Rs17 billion local loans advanced by the government to Wapda.

Another Rs9.6 billion are Wapda's direct foreign loans besides Rs22 billion of Wapda bonds and Rs7 billion worth of short term loans and bridge financing. Wapda's annual debt service liability during last year was Rs32 billion, comprising Rs12 billion of principal repayment and Rs20 billion of interest. In terms of cost to the consumer this portion alone works out at 67 paisa per unit.