Debt recapitalization: NPPMCL proposes amendments in GSA with two RLNG-fired power plants

ISLAMABAD: National Power Parks Management Company (Private) Limited (NPPMCL) has proposed amendments in Gas Supply Agreement (GSA) with two RLNG-fired power plants to further the privatisation process and ensure financing of Rs 110 billion from banks for debt recapitalization, sources in Privatisation Commission told Business Recorder.

The banks have highlighted the issue of gas supply deposit requirement of GSA of Haveli Bahadur Shah (HBS) and Balloki power plants during the due diligence exercise for debt recapitalization and refinancing of NPPMCL.

Debt recapitalization and refinancing of NPPMCL approved by the federal government is in process and the last date for submission of bids by the banks is March 31, 2022, the sources added.

According to Chief Executive Officer (CEO), NPPMCL, Dhanpat Kotak, as part of the privatization process of NPPMCL, Government of Pakistan has approved the ‘debt recapitalization and refinancing of NPPMCL’ through competitive process to raise long-term debt up to Rs 110 billion. Accordingly, upon direction of Privatisation Commission, NPPMCL is in the process of raising the amount by seeking proposals/ bids from banks/ financial institutions.

Under the Gas Supply Agreements (GSAs), NPPMCL is obligated to maintain gas supply deposit of one-fourth (1/4) of the maximum gas allocation valued at the current applicable RLNG price, inclusive of sales tax which is equivalent to 90 days or 12 billing cycles.

This obligation was initially met by NPPMCL in 2017 and presently an amount of Rs 29.53 billion is available as security deposits in favour of SNGPL.

While carrying out the due diligence for provision of long-term loan, banks are of the view that continuous supply of RLNG to the power plants of NPPMCL may be restricted by SNGPL due to shortfall of Rs 49.63 billion in the security deposit which has been created on account of huge increase in RLNG price and escalation in foreign exchange (USD) rate, he added.

Presently available amount of gas supply deposits (security deposits) of HBS and Balloki are Rs 29.53 billion which is sufficient to cover approximately 30 days of RLNG billing at the current rates of RLNG and dollar, whereas required gas supply deposits amount as per GSAs obligation at the current rates and dollar is an amount of Rs 79.16 billion to cover 90 days of RLNG billing as required in GSAs. This implies shortfall in gas supply deposits (security deposit) for HBS are Rs 26.62 billion and Balloki Rs 23.01 billion, totalling Rs 49.63 billion.

In view of existing position, NPPMCL has stated that in order to further the privatisation process and ensure the financing of Rs 110 billion from banks, following steps have been suggested: (i) Petroleum Division be requested to advise SNGPL to reduce the requirement of Gas Supply Deposits (security deposit) from existing 12 billing cycles to 3 billing cycles through amendment of GSAs; and (ii) in the meanwhile, Petroleum Division be requested to provide assurance to NPPMCL for prospective lenders that till the amendment of GSAs, as an interim measure the supply of RLNG to the power plants of NPPMCL will not be curtailed/ discontinued on account of present shortfall in the Gas Supply Deposits (security deposit) nor the gas supply deposits will be en-cashed.

CEO NPPMCL has requested that the matter may kindly be taken up with the Petroleum Division immediately in the best interest of privatisation process being undertaken expeditiously by the Privatisation Commission in compliance with the decision(s) of the Federal Government in this regard.

Copyright Business Recorder, 2022