ISLAMABAD: The government on Tuesday decided to raise up to Rs340 billion fresh loans to once again bailout the country’s ever-bleeding power sector by pledging major assets of the distribution and generation companies.
A decision to this effect was taken at a meeting of the Economic Coordination Committee (ECC) of Cabinet, presided over by Finance Minister Asad Umar.
In two related, but separate decisions, the ECC ordered finalisation of a mechanism for raising up to Rs200bn in Islamic financing on behalf of Power Holding Private Limited (PHPL) –– an asset-less shell company of the Power Division –– and allowed issuing sovereign guarantee to enable National Power Parks Management Company Ltd (NPPMCL) –– a subsidiary of the federal government and operator of two LNG power plants of 2,453MW –– to raise Rs38 billion.
A senior official of the Power Division told Dawn that ECC constituted a committee comprising top officials of power, petroleum, finance and law divisions as well as Securities & Exchange Commission of Pakistan to work out a mechanism for Islamic financing for PHPL through a consortium of banks, led by Meezan Islamic Bank. The committee would firm up the mechanism within a week and the funds would be used to service payables of the oil and gas sector, that is gripped by more than Rs1.2 trillion circular debt including a fresh flow of almost Rs700bn.
The committee was told that Syndicated Term Finance Facilities of Rs607.035bn had already been executed in the name of PHPL for funding repayment liabilities of Discos. The conventional banks are not ready to commit more funds to the sector, owing to their over exposure.
Therefore, the government has now decided to raise fresh loans of up to Rs200bn from Islamic banks by pledging assets of Discos and Gencos as collateral. The assets have been identified and earmarked by the respective companies and are being shortlisted by the consortium for first stage of financing worth Rs100bn.
The banks have so far identified 43 assets and forwarded to valuators of the Pakistan Banks’ Association for their market valuation and have also shared a tentative term sheet worth Rs100-200bn, which is being reviewed by the Ministry of Finance.
On top of that, the Power Division proposed that an amount of up to Rs200bn be raised from Islamic banks through PHPL to improve liquidity of the sector and create space for structural improvements. The funds would be utilised for funding the repayment liabilities of Discos through Central Power Purchasing Agency. The finance ministry will provide government guarantee for repayment of loan as well as the interest.
To deliver on this, all the board of directors of Discos and Gencos would be required to agree to hold the properties/assets in the trust for banks. The Power Division has reported that under the present legal dispensation, repayment of markup and principal cannot be charged to the tariff because of this being double accounting.
In a related decision, the ECC also approved government guarantee to NPPMCL to raise loan of Rs38bn from financial institutions in order to meet remaining cost of its two power plants –– 1,223MW Balloki and 1,230MW Haveli Bahadur Shah in Punjab.
A Power Division official explained that the two plants were approved by the Executive Committee of the National Economic Council in February 2016 at a total cost of Rs190.44bn and the federal government provided Rs114bn cash development loan in 2016 and 2017 to NPPMCL which was directed to arrange the remaining funds on self-finance basis.
Subsequently, the federal government approved the acquisition of two plants of NPPMCL by Pakistan Development Fund Ltd (PDFL) that was created to take care of $1.5bn “gift” from Saudi Arabia. Rs114bn loan was thus acquired as advance against equity injection by PDFL. To provide further support to meet funding requirements of NPPMCL, the PDFL also provided a short term loan of Rs32.738bn.
Now the NPPMCL has requested the government to arrange project financing of Rs70bn to pay off remaining costs of the scheme and short-term loan of PDFL. The Ministry of Finance, therefore, decided in consultation with all stakeholders that principal amount of Rs32.738bn provided by PDFL as short-term loan be converted into its equity stake in NPPMCL. The NPPMCL will raise the remaining Rs38bn from commercial banks against government guarantee.
Published in Dawn, November 28th, 2018