ISLAMABAD: The Public Procurement Regulatory Authority (PPRA) has turned down a proposal of Exim Bank for exemption from PPRA Rules on the justification that the Bank requires legislative exemption instead of the applicability of Public Procurement Rules, 2004.
On February 20, 2023, President Exim Bank of Pakistan apprised the PPRA Board that mandate of Exim Bank is to provide financing to support the growth of exports from Pakistan, undertake import substitution projects and provide trade risk mitigation products and services. To this end Exim Bank will be introducing, for the first time in Pakistan, Export Credit Insurance (ECI) products for exporters and banks with a focus on SME clients.
He further explained that ECI is an indemnity contract between an insurance company and a business (exporter); the insurer undertakes to pay the exporter in case the insured international buyer does not pay an amount due to the Exporter for the good exported. Therefore, ECI provides businesses the confidence to extend credit to their customers thereby providing exporters more trade opportunities.
ICIEC re-insurance deals: Govt decides to exempt Exim Bank from PPRA rules
ECI is available internationally but not to Pakistani exporters creating a disadvantage for them. Exim bank will provide the above indemnification to create level playing field for Pakistani exporters while bearing the risks.
President Exim Bank of Pakistan further apprised the Board that in line with international risk management practices, Exim Bank will reinsure part of its ECI portfolio risk.
Exim Bank of Pakistan stated that as reinsurance is a form of indemnity and reinsurance contract; therefore, it would be similar in nature to a contract of indemnity. Insurance companies transfer insurance risk to reinsurance companies to limit risk exposure and improve their financial statements.
The premium charged by the insurance company is the “risk premium” the company has calculated based on actuarial data. Reinsurance is the form of a normal business transaction of an insurance company; keeping in view the peculiarity of every transaction risk mitigation tools are deployed.
President Exim Bank of Pakistan opined that Exim approached credible international organizations in re-insurance business including Swiss-re, Munich-re, Credendo and Islamic Corporation for the insurance of investments and Exports Credit (ICIEC).
He further invited attention of the Board to the fact that in response the organizations provided a consistent reply indicating inability to offer Exim bank any re-insurance support; however, there is a positive response from ICIEC (a subsidiary of Islamic Development group). In view of non-availability of re-insurance from the commercial market, it seems prudent for Exim to materialize the only available option of ICIEC.
One of the Board Members inquired that if all the insurance transactions shall be done through NICL whether this is applicable on financial services.
The representative of Exim Bank stated that Section 166 & 167 of NICL Ordinance, 2000 requires all government organizations to go through NICL and Exim Bank is exempted from the provisions of this Ordinance. The Board Member further inquired that if Exim Bank will require a frontage company then whether Exim Bank has involved any local frontage companies/insurance companies for its re-insurance business. Exim Bank representative explained that credit insurance is different from the general insurance as credit insurance is a specialized field. General insurance is not in this business.
The Board Member further inquired whether the Exim Bank approached private insurance/ frontage companies. In response, the representative of Exim Bank replied in the negative. The Board Member explained that since these are commercial transactions; hence, they are not exempted from the applicability of Public Procurement Rules, 2004.
Exim Bank should have a market competition and in case there is no response then they have a case to be presented to the PPRA Board for consideration. The Board Member further deliberated that the argument of Exim Bank is that the nature of their business is not covered within the ambit of public procurement and if the latter holds true, then Exim Bank requires legislative exemption instead of exemption from the applicability of Public Procurement Rules, 2004.
The Board decided that agenda of EXIM Bank is not a fit case for exemption as Exim Bank requires legislative exemption instead of exemption from the applicability of Public Procurement Rules, 2004.
Copyright Business Recorder, 2023
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