ISLAMABAD, Dec 6: The federal government has accepted an Asian Development Bank’s loan offer of $350 million for police, judicial and administrative reforms in spite of the staunch resistance from the provinces, which have argued that repayment of the loan would be difficult.

Official sources told Dawn that the ADB, which had earlier offered a loan of $150 million, had increased the offer to $350 million for access to a justice programme under which the first tranche of $100 million was expected to be released before the end of the current month.

No reason has been given for the increase in the quantum of the loan. All the provinces have opposed the increased loan, saying that they will not be in a position to repay the loan.

The federal government, perhaps, interested in improving its balance of payment, has accepted the increase, ignoring its repayment cost, according to an official, privy to the negotiations.

Federal Law Minister Shahida Jameel took up the challenge of persuading the provinces to accept the loan. Last month, she met all the governors to get a muted consent of the provinces. The federal government, despite reservations of the provinces, has signed the MoU.

The finance ministry, the sources said, had been showed great haste in signing the MoU on Nov 30, as it was one of the conditions of the ADB that if MoU was not signed before Nov 30, release of the first tranche of $100 would not been possible in 2001.

The government has agreed to accept the loan programme totalling $330 million, comprising $65 million from ADB’s special resources and a LIBOR-based loan of $256 million from the bank’s Ordinary Capital Resources (OCR). The terms of the special and OCR will be as follows:

The Asian Development Fund (ADB’s soft-lending window loan will have a a maturity of 24 years, including a grace period of eight years. During the grace period, a commission fee of one per cent will be charged. The interest rate during the amortization period will be 1.5 per cent per annum.

The OCR loan will have a 15-year repayment period, including a grace period of three years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a committed charge of 0.75 per cent annually, a front-end fee of 1.0 per cent (the fee will be capitalized in the loan) conversion options and other standard terms and conditions. A technical-assistance loan of $20 million from special resources on ADF terms and conditions along with a technical-assistance grant of $900,000.

The federal government confirmed that the provinces would be entitled to access only 60 per cent of the value of the programme on the basis of a mutually-agreed formula to be decided each year by February. The remaining 40 per cent will be kept by the federal government.

The counterpart funds from the loan would be lent to the provinces on the same terms and conditions. The federal government will bear the entire foreign exchange risk of the loan, which will not be passed on to the provinces.

The federal government confirmed that it would bear the responsibility of repaying the TA loan. The government also confirmed that it would capitalize the Access to Justice Development Fund from its share of the loan programme.

The mission clarified that the funds might be used for the infrastructure and equipment with special emphasis on capacity building and institutional development and other activities in the judicial and police sector consistent with the spirit and the intention of government’s reform policies.

The government said the programme period would be three years and that the reforms spelled out in policy matrix could be achieved in accordance with the time scheduled indicated in the policy matrix.

It was further agreed that on compliance with tranche release conditions indicated in the policy matrix, the amount to be released for each tranche and the expected time for such release would be:

The first tranche of $100 million to be released on loan effectiveness is expected prior to Dec 31, 2001.

An incentive tranche of $50 million is to be released by June 30, 2002. The second tranche of $90 million is to be released by June 2002 and the third tranche of $90 million would be released by June 30, 2003.

The MoU was signed by Finance Ministry Secretary-General Moeen Afzal, the secretary of the ministry of law, human rights and justice, Justice Fakir Mohammad Khokhar; and ADB’s Senior Counsel Hamid Sharif.