Banks not willing to extend loan to Wapda: government may issue Rs 10 billion guarantee for water projects

The federal government is likely to issue GoP guarantee of Rs 10 billion to be raised from local banks for water sector projects as banks are not willing to extend loan to Wapda directly. Official sources told Business Recorder that a meeting on the subject was held on 16th August 2011 at Islamabad co-chaired by the President and Prime Minister of Pakistan to examine and discuss proposals for funding of Wapda projects.
It was agreed that Wapda will raise Rs 10 billion from banks/institutions during 2011-12 against GoP guarantee to complete priority projects. This arrangement would facilitate in discharging contractual liabilities and completion of important water sector projects, viz Mangla Dam Raising, Gomal Zam Dam, Kachhi Canal, Rainee Canal, besides execution of medium irrigation dams.
The approved PSDP allocation for 2011-12 for Wapda water sector projects is Rs 20 billion against the actual ''requirement of Rs 43 billion. Accumulated contractual liabilities as on June 30, 2010 were Rs 23 billion. Due to inadequate budgetary allocations during previous as well as current financial year, work on most of water sector projects has slowed down or suspended while billions of rupees have already been spent on these projects without accrual of benefits. The proposal as circulated to Planning & Development and Finance Divisions who have offered following comments:
Planning and Development Division: "the Planning and Development Division supports the proposed funding of Rs 10 billion to be raised from bank against GoP guarantee as there is no space available in the PSDP to arrange this amount. The Planning and Development Division is of the view that interest part of proposed loan should be serviced through Debt Service Liability window."
Finance Division: "Wapda would raise the loan for funding of Wapda Water Sector Projects against its own assets without backing by GoP Guarantee. As regards repayment of the loan, the same would be done through PSDP. Moreover, the said loan of Rs 10 billion may be utilised for projects which have already been approved by the competent forum."
In this regard Chairman Wapda also held a meeting with Secretary Finance on 2nd March, 2012 wherein financial issues of Wapda and raising of Rs 10 billion from the market were discussed. It was stated that Finance Division will issue a letter of comfort for the banks and government guarantees need not be given. However, it is pertinent to point out that banks are reluctant to advance loans on Wapda -based repayment. As such it may not be possible for Wapda to raise funds without GoP guarantee.
The sources said, the ECC has been requested to approve issuance of GoP guarantee in the sum of Rs 10 billion to be raised in the form of loan from the banks/institutions by Wapda for water sector projects. Repayment of loan along with interest shall be made through PSDP as concurred by the Finance Division.