The Economic Co-ordination Committee (ECC) of the Cabinet, has, reportedly deviated from its approved relending policy 2009, to extend concession to one hydropower project supported by a loan from Kreditanstalt für Wiederaufbau (KfW) of Germany despite strong opposition by the Economic Affairs Division (EAD), official sources told Business Recorder.
Naveed Qamar, Minister for Water and Power, presided over the ECC meeting, which set aside the prevalent relending policy. The federal government entered into a loan/project agreement amounting to 77.080 million Euro with the Federal Republic of Germany on November 11, 2008 for financing of Keyal Khwar Hydropower Project by the Water and Power Development Authority (Wapda). Subsequently, a loan agreement was signed on April 30, 2009 for additional financing of 20 million euro, increasing the total amount of loan to 97.080 million euro.
The EAD, pursuant to the federal government''s relending policy, 1998, fixed relending interest at 17 per cent for a repayment period of less than 15 years including a grace period of two years or the actual redemption period available to the GoP.
The meeting was also informed that the government had revised its relending policy on March 3, 2009, where the relending rate for autonomous bodies/corporations was fixed at 15 percent pa. inclusive of interest rate of 8.2 percent + ERC of 6.8 percent to be charged both on principal amount and interest amount separately.
The repayment period was also fixed as the actual redemption period available to the Government of Pakistan. It was informed that, in order to meet the project cost and to provide low cost electricity to consumers, Wapda made a request to the EAD for revising relending terms of KfW loan in accordance with the revised relending policy.
"Wapda on April 24, 2009 requested the EAD to revise relending terms of loan agreement at the interest rate of 15 per cent per annum inclusive of interest rate of 8.2 percent + ERC of 6.8 percent and repayment period will be the actual redemption period available to GoP," the sources added.
However, EAD declined to accept Wapda''s request on the plea that it would open a floodgate of similar demands from other institutions, commercial entities and provincial governments. The repayment of loan agreed by the KfW with the GoP was as follows: tranche 1- 4.4 million euro, payable in 45 years including 5 years grace period, tranche 2- 92.7 million euro, payable in 36 years including 5 years grace period.
During the ensuing discussion, it was noted that application of revised relending policy to the loans for financing of Keyal Khwar Hydropower Project would ultimately benefit the electricity consumers. Thus, it needed to be approved in the interest of the common man, was the argument put forth. The ECC considered the summary dated 29th June 2011, submitted by Ministry of Water and Power on relending of KfW loan for Keyal Khwar Hydropower Project in accordance with the new relending policy of March 17, 2009 and approved the application of revised relending policy to the loans for financing of Keyal Khwar Hydropower Project.
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