Unauthorised borrowing on behalf of Discos: AGP terms loan agreement unlawful

Auditor General of Pakistan has declared Rs 136.454 billion syndicated loan agreement between Power Holding Company Limited (PHPL) and commercial banks being paid by Distribution Companies (Discos) as unlawful. Discos are paying instalments on syndicated term financing of Rs 136.454 billion to banks in accordance with the proportionate share, despite the fact that stiff conditions were agreed by the Ministry of Finance without taking Discos on board.
Discos, sources said, have refused to pay instalments to the banks due to dismal financial condition.
According to Auditor General of Pakistan, a debt advice of Rs 146.20 million was received in Islamabad Electric Supply Company (Iesco) from Central Power Purchasing Agency (CPPA) being 1st mark up payment proportionately against the loan of Rs 136.454 billion by the CPPA through PHPL to pay off obligations towards generation/oil companies.
Audit team maintained that neither the loan was arranged by Discos nor were they taken on board by Pepco prior to the arrangement of loan on their behalf.
Moreover, Nepra expressed concerns significantly on the legality of the PHPL and generally on the organisation/ mandate of the PHPL to undertake borrowing and to enter into relending agreement with Discos and disallowed the cost to Discos including Iesco. Hence, the loan of Rs 136.454 billion arranged by the CPPA/ Pepco on behalf of Discos'' at a very high price of Kibor plus 2 per cent authorised was unjustified and would cause financial burden/loss to the Discos.
According to the Auditor General, the matter was taken up by the management in August, 2013 and reported to the Ministry in November 2013. The management replied that the GoP instructed to book these liabilities with respect to share of each Disco, as the loan was negotiated by the PHPL with banks and the syndicated term finance agreement was also signed between the PHPL and banks. Iesco has not yet signed any agreement with either the PHPL or bank. Nepra had also rejected the mark up cost of this loan; therefore, Iesco was not in a position to book this liability.
The Audit argued that due to unauthorised borrowing by Pepco and approved by Iesco Board subject to tariff adjustment from Nepra will have impact on consumers.
Ministry of Water and Power recently increased power tariff by 30 paisa on the plea that collection from this surcharge will be paid to banks on behalf of Discos through the PHPL, said an official on condition of anonymity.
The Economic Co-ordination Committee (ECC) of the cabinet headed by Finance Minister Senator Ishaq Dar in its recent meeting extended sovereign guarantee for extension in grace period for another two years period.
Ministry of Water and Power argued that payments on account of mark up and principal were paid from collection received by Discos from consumers. Since the date of execution of syndicated term finance facility, the CPPA has released nine instalment payments on account of mark-up aggregating to Rs 36.6 billion through the PHPL to the syndicated banks from cash flows of the power sector. The payment of quarterly instalments on account of principal portion amounting to Rs 11.3 billion due from May 21, 2014 and thereafter every quarter is adversely affecting the liquidating of the power sector.
Initially, Discos resisted the government''s plan to get Rs 136.454 billion loan from banks on their behalf without taking them on board, but ultimately bowed down before the Finance Ministry''s pressure.