ISLAMABAD: Pakistan Development Fund Limited (PDFL), Finance Division, has urged National Power Parks Management Company Limited (NPPMCL) to follow financial discipline and to avoid default status, which will endanger the privatisation and debt recapitalization of RLNG-fired power plants, well-informed sources told Business Recorder.
This message was conveyed by CFO PDFL Sohail Iqbal, in a letter (fourth reminder) to CFO NPPMCL.
In the letter, PDFL once again requested NPPMCL to immediately take material steps in repayment of overdue financial obligations to PDFL as this will be reflected as a positive step towards exhibiting financial discipline on the part of NPPMCL in making the privatisation process and the debt recapitalization process a success.
Lack of financial discipline on the part of NPPMCL may highlight the default status. As per the loan agreements (for Balloki & HBS power generation projects), NPPMCL is in an event of “default and enforcement”; therefore the next step for PDFL is to issue a formal, “notice to cure”.
The NPPMCL privatisation process, initiated by the Government of Pakistan in 2018, may run into difficulties due to lack of financial discipline by NPPMCL; in addition to non-conforming to the NEPRA debt-equity ratio PDFL has already highlighted, in various calls and continues to do so, that such financial lapses on part of NPPMCL may reflect negatively in any due diligence conducted by the potential buyer/ investor/ bank, showing NPPMCL’s default status.
Two RLNG-fired plants: Debt re-capitalization, refinancing likely thru local banks
According to PDFL, failure to pay the main sponsor/ majority shareholder may be highlighted as an adverse impression of NPPMCL’s financial discipline, i.e., in terms of evaluating the track record of repaying its creditors (credit history), for any potential lenders/ commercial banks.
And urgently requested the following details for the knowledge and notice of all stakeholders concerned: (i) chalked out a financial plan for repayment of outstanding balances to PDFL; and (ii) any payments that were made bypassing and taking precedence over PDFLs contractual obligations, namely: (a) management bonuses and salary increments and (b) non-developmental operational expenses.
It is NPPMCL’s ultimate responsibility to practice financial discipline, pay its financial obligations on time and not be in a default status as this will greatly endanger the privatisation and/ or debt recapitalization process and the efforts of all stakeholders concerned.
Privatisation Commission has directed NPPMCL to get Board’s approval for the debt recapitalization and refinancing process and raise Rs 110 billion from banks/ financial institutions.
Both RLNG-fired Haveli Bahadar Shah and Balloki Power plants owned by NPPMCL were set up with the Government of Pakistan (GOP) funding equity instead of the 70:30 debt-to-equity ratio benchmark allowed in Nepra’s tariff for NPPMCL’s power plants. Therefore, in order to align the capital structure with the tariff, 70% of project costs were to be based on long-term financing.
Nepra further argued that any refinancing to replace the excess GOP funding and to align the capital structure of NPPMCL with Nepra’s determined tariff has to be within the KIBOR + 1.8% benchmark.
The Cabinet Committee on Privatisation (CCoP) in its meeting held on December 31, 2021, approved a summary of the Ministry of Privatisation with the stipulation that the ceiling of debt recapitalization and refinancing shall be kept at the benchmark of KIBOR plus 1.8%. It was also directed that the process will be made through competitive bidding. The Federal Cabinet on January 11, 2022, has ratified the CCoP decision.
Copyright Business Recorder, 2022
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