The government has granted revised sovereign guarantees with ex-post facto approval to a loan of Rs 37 billion from consortium of banks to Nandipur Power Project under Syndicated Term Finance Facility (STFF). Sources stated that the Finance Minister Ishaq Dar granted ex-post facto approval of sovereign guarantee on this proposal tabled by Ministry of Water and Power during a recent meeting of the Economic Co-ordination Committee of the Cabinet.
The project became controversial recently due to a significant cost escalation and remaining non-operational owing to major technical issues. The government issued STFF-1 Rs 19.150 billion, STFF-11 Rs 5 billion and STFF Rs 13.500 billion from a syndicate of local banks namely Habib Bank Ltd, National Bank of Pakistan, United Bank Ltd, Allied Bank Ltd, Askari Bank Ltd, Bank Al-Falah Ltd and the Bank of Punjab in August and September 2013, with approval up to 1 June 2015.
According to Water and Power Ministry, during this availability period, the facility-I was fully utilised and its repayment will commence with effect from 1 January 2016. The utilisation of term finance facility-II and III stands at Rs 4.281 billion and Rs 5.500 billion respectively with total utilisation of STFFs at Rs 28.932 billion.
It further stated that upon expiry of availability period of STFFs and letters of credit, the syndicate was requested to extend the availability period of STFF-II, STFF-III, letters of credit up to 1 June 2016 and the grace period up to 30 June 2016. The syndicate has approved the requested extension in availability and grace period of STFFs.
The addendums of syndicate term finance facilities were designed with the syndicate on 14 October 2015 with the condition to provide a revised government guarantee to cover the extended tenure and extension in the grace period. A copy of official documents available with Business Recorder reveals that due to urgency of the matter, the Finance Minister as Chairman ECC granted anticipatory approval on 19 September 2015 for issuing revised government guarantee with the direction to place summary before ECC of the Cabinet for ex-post facto approval.
Thus Ministry of Water and Power solicited ex post facto approval of ECC for issuance of revised sovereign guarantees for the requested amount in favour of the syndicate. The document further reveals that the syndicate has also reduced the amount of STFF-III from Rs 13.5 billion to Rs 11.462 billion for gas conversion equipment because up till now basic infrastructure/arrangements ie laying of gas pipeline and firm allocation of gas quotas is not available.
The amount of guarantees was not changed because Ministry of Water and Power argued that this financing will still be required, keeping in view the plan for conversion of Nandipur plant on gas fuel in near future. Ministry of Water and Power claimed the proposed revision of the government guarantees will not have any additional financial bearing on the exchequer and is solely required to confirm and acknowledge that the said extensions are being made with the consent of the guarantor.
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