Ministry of Finance has reportedly employed a "discriminatory" approach in negotiating the rate of interest on a Rs 50 billion loan with commercial banks - Rs 25 billion for Wapda and the same amount for Power Holding Private Limited (PHPL) to be paid by consumers through an increase in tariff.
Well-informed sources in Finance Ministry told Business Recorder that a controversy has emerged between the Ministry of Water and Power and the Finance Ministry on the different rates of interest on financing facility arranged for PHPL and Wapda. Recently, Economic Co-ordination Committee (ECC) of the Cabinet approved a borrowing of Rs 25 billion from banks to repay loans by PHPL - to be eventually recovered from consumers by imposing a surcharge. Wapda sought permission to borrow Rs 25 billion from banks to be paid to KPK government as net hydel profit, an amount also to be recovered from consumers through an increase in hydel tariff. Last week, Nepra held a public hearing on a supplementary petition filed by Wapda to increase hydel tariff to recover the Rs 25 billion from consumers.
According to sources, Finance Ministry's debt office negotiated the terms and conditions with respect to Rs 25 billion for Wapda at six months' Kibor minus 0.35 per cent; but the terms and conditions with respect to the Rs 25 billion Syndicated Islamic Term Finance Facility for PHPL were negotiated and approved by the Finance Division at six months' kibor plus 2 per cent subject to a rebate of 1.00 per cent in case of payment of profit amount within 30 days of the due date.
The sources revealed that the two financing facilities are being raised from the same bank whereas the terms and conditions for Wapda are more attractive and which have been approved by the Finance Ministry. Ministry of Water and Power, sources said, has expressed unhappiness to the debt office of Finance Ministry for extending a step-motherly treatment to the power sector viz-a-viz PHPL in loan negotiations with banks. However, Finance Ministry has argued that the dynamic terms and conditions of both the loans and entities are different and hence comparing the facility rates offered are not meaningful.
The Finance Ministry further argued that Wapda has a balance sheet of $30 billion along with excellent credit history with high quality assets and has never delayed payments (principal plus interest) on its debt obligations. Wapda agreed to pay K+2 per cent (on its balance sheet strength) and K+ 1.5 per cent (with GoP guarantee) in case of Dasu Hydropower Project. The tenor of Wapda facility is of two years with a repayment option. Apart from GoP guarantee, Wapda loan is backed by Wapda assets indicating high quality of collateral.
The Finance Ministry has further commented that PHPL operates as a Special Purpose Vehicle (SPV) and has a history of technical defaults (government took the portion of its debts on its balance sheet) and never made any repayments since its inception. Even loan restricting has been done in the past to make interest payments ie fresh loans were obtained to pay the overdue mark-up amount. Further details reveal that with respect to the existing PHPL debt it is clearly mentioned that the company in the past has contracted debt at the rate of K+2 per cent on almost all the facilities with a rebate of 1 per cent on timely payments. Even in their main financing facility amounting to Rs 136 billion, PHPL is paying straight K+2 per cent. Hence, new proposed financing facility at K-1-0.85 per cent is the lowest ever rate contracted by PHPL to date from financial institutions. The tenor of Wapda facility is seven years with a two-year grace period.
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