Work on navigation channel: PQA finding it difficult to procure loans on 'attractive terms'

The Port Qasim Authority (PQA) is finding it difficult to procure loans at 'attractive terms' from commercial banks for deepening and widening of navigation channel, well-informed sources told Business Recorder. A couple of weeks ago, Economic Co-ordination Committee (ECC) of the cabinet had accorded approval of GoP sovereign guarantee, enabling loan financing for the project.
The ECC also allowed the PQA to negotiate with the bankers on the basis of sovereign guarantee and the State Bank of Pakistan was to facilitate the Authority to get better financing terms for the project from the commercial banks. The sources said, SBP briefed the ECC, in its meeting on March 30, 2010 that as a matter of policy, it has done away with the direct credit regime and now the banks are free to negotiate the terms and conditions and pricing of loan with their borrowers in accordance with their lending policies, business considerations and risk profile of the borrowers.
"Since, it is a commercial deal between the PQA and banks, therefore, SBP cannot interfere. However, PQA can speak directly to SBP regarding current lending practices of banks and seek suggestions," the sources quoted the SBP representatives as clarifying the central bank's position in the meeting. The ECC has allowed usage of foreign exchange by PQA as the project involves Foreign Exchange Component (FEC) exceeding 25 per cent of the total project cost with the concurrence of the Ministry of Finance.
Official documents reveal that Ministry of Ports and Shipping had submitted a proposal at a meeting presided over by the Finance Minister for extending sovereign guarantee to the bankers of the consortium of Dredging International, Jan de Nul & China Harbour Engineering Company, the successful bidders. The meeting had directed the ministry to explore the cost benefit analysis of purchase and/or rent of dredgers.
Ministry of Ports and Shipping collected the rates of the required dredgers and accessories from relevant quarters and accordingly a comparison of both options to undertake the project through purchase of dredgers and dredging contractors/firms was made. Upon evaluation, the cost of the project through dredging firms as per existing bid stands at $199.48 million, whereas the same through purchase of dredgers comes to $583.3 million.
According to the ministry, following conclusions may be drawn from the comparative study: (a) the option of purchase of dredgers not only increases the impact of the project by 192.41 percent but extends the completion time of the project by 3.5-4 years as well. Port Qasim Authority does not have the required in-house expertise; and (b) in both cases loan financing in foreign exchange through commercial banks would be required, but the option of purchase of dredgers would require more financing.
With a view to gaining competitive advantage in the region, meeting the pressing demand of port users particularly Qasim International Container Terminal, Fauji Oil Terminal Company, grain and fertiliser terminal, coal/clinker terminal and prospective LNG operators and extract benefits through economy of scales, undertaking of the capital dredging project through contracting firm as per existing bid appears to be the only feasible and cost effective option at this stage.
Port Qasim maintains 45 kms long navigational channel for handling ships with draught up to 11.5 meters. In order to meet the pressing demand of port users, particularly QICT, Fotco, grain and fertiliser terminal and prospective LNG operators there is a need to undertake dredging. The sources said ECC also approved the project with the observation that there was no need to submit the proposal to the CDWP/ Ecnec, as the project requires no PSDP funding and would be implemented through commercial financing.