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The Economic Co-ordination Committee (ECC) of the Cabinet has refused to change the on-lending policy for the Ministry of Water and Power, which intended to on-lend Asian Development Bank (ADB) loan at 12 percent, rather than at prevalent rate of 17 percent, sources close to Ministrys Additional Secretary, Zarar Aslam, told Business Recorder here on Tuesday.
Sources said: "Power Transmission Enhancement Project was approved by Executive Committee of the National Economic Council (Ecnec) on February 6, 2008, and an agreement was signed between GoP (borrower) and ADB on May 20, 2008 to seek financing for a Power Transmission Enhancement Investment Program (Ordinary Operations, tranche-II) as described in the schedule I (description of the project) of loan agreement.
Keeping in view the Ecnec decision, ADB agreed to lend to the GoP from ADB ordinary capital resources $220 million against Loan No 2396 - PK. The terms and conditions of the loan agreement envisaged payment of interest on the principal amount withdrawn and outstanding for each interest period equal to the sum of Libor and 0.60 percent as provided in section 3.02 of the loan regulations, less a credit of 0.40 percent as provided in section 3.03 of the loan regulations. The borrower will pay commitment charges at the rate of 0.15 percent per annum. The loan has a term of 20 years, including a grace period of three years, as provided in schedule 2 of the loan agreement.
Article 3.01 of the loan and project agreement provides that the "borrower shall re-lend the proceeds of the loan in rupee to National Transmission and Dispatch Company (NTDC) under an on-lending agreement upon terms and conditions satisfactory to ADB. The foreign exchange risk will be borne by the borrower.
The Ministry was of the view that since the ECC had already approved re-lending to NTDC at the interest rate of 12.0 percent per annum, in ADB loan No 2289-Pak, tranche-I for ordinary operation, ADBs loan No 2396-Pak, for tranche-II (ordinary operation) should also be approved on the same terms and conditions.
Sources said that when the issue came under discussion in the ECC meeting, most of the members opposed the proposal, which was consequently rejected. "The ECC did not accept the proposal, and directed that its earlier decision of March 3, 2009 regarding re-lending rates be followed," sources added.
Earlier, the ECC had decided that re-lending rates for the federal government entities, DFIs, autonomous bodies and corporations would be 17 percent, including exchange risk component. The Economic Affairs Division (EAD) had made following recommendations to the ECC in its meeting on March 3, 2009.
Old re-lending formula was "GoPs foreign borrowing cost (of last 28 years)+ ERC (weighted average yield of PIBs for 15, 20, 30 years, US Treasury rates)+ administrative charges) ie 4.5 percent +( 14.7 percent -3.0 percent)+ 0.75 percent = 16.96 percent or 17 percent.
Revised re-lending formula was " GoPs average foreign borrowing cost (of last 28 years)+ ERC (5 years moving weighted average yield of PIBs for 15, 20, 30 years-US Treasury rates + administrative charges) ie 4.5 percent +(11.56 percent-4.74 percent)+ 0.75 percent = 12.7 percent or 12 percent.
In the default cases of recovery of re-lent loans, late fee on the due instalment( principal + interest) @ 1 percent during the first year of default, 2 percent during second year of default, 3 percent during 3rd year of default be charged.
Sources said that the Ministry of Water and Power has been demanding since long that Pepco and NTDC should be provided re-lent loans on lower rate than other corporations or it should be allowed to take loans from the market on negotiated terms and conditions. This demand of the Ministry has not been met so far, sources added.

Copyright Business Recorder, 2009

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