Dasu hydropower project: guarantee for $350 million financing approved by ECC

The Economic Co-ordination Committee (ECC) of the Cabinet has approved the government guarantee for commercial financing of US $350 million from the international market under the World Bank partial guarantee for the Dasu hydropower project. A meeting of the ECC presided over by Finance Minister Ishaq Dar on Friday was sought by Ministry of Water and Power to approve the government guarantee for repayment of US $140 million loan - 40% of loan $350 million - and was informed that the World Bank will provide guarantee for the remaining $210 million.
The ECC also approved mark-up payments for the entire loan amount of US $350 million except for 3rd year of loan on which no guarantee from any agency is required. The meeting was told that Credit Suisse, a Swiss bank, through competitive bidding has quoted the lowest internal rate of return (IRR) of 5.736% for US $350 million loan of 10-year tenor with an interest rate of Libor +3%, US $ swap rate of 2.40%, arrangement fee of 1.5% of the loan amount, commitment fee of 40% of the spread and capped transaction cost of US $250,000. Additionally, WAPDA will also be required to pay a guarantee fee @ 0.75% per annum on the IDA partial credit guarantee (PCG) of US $210 million provided for US $350 million loan. WAPDA, as a borrower of $350 million, is responsible to repay this loan amount from hydel power sale income.
The Ministry of Water and Power stated that after lengthy deliberations with international banks along with the World Bank, it was agreed that Wapda would raise US $350 million upfront through the international capital market for a 10-year tenor by using PCG of up to 60%, which is US $210 million equivalent to four times of surrendered IDA credit of US $52.5 million and the remaining amount (both principal and interest) would be guaranteed by a government guarantee.
However, to provide standalone exposure to Wapda in the international capital market, the interest during the construction of 3rd year would be exclusively on Wapda's balance sheet with no guarantee. The Ministry of Water and Power stated that the remaining Foreign Commercial Component of approximately US $500 million would be raised either through loan or bond in early 2018 by using the remaining partial credit guarantee of US $250 million ($460 million minus $210 million).
The ECC also approved the Ministry of Industries' proposal for the reduction in the imported urea price to Rs 1,000 per 40-kg bag for Kharif crop to offload surplus stock. Sources said the proposal for a reduction in urea price was also submitted to the ECC meeting in January 2017, which was withdrawn after the meeting remarked the price reduction was not a solution.
The ECC was submitted that the disposal of imported urea at the current price of Rs 1,200 per 50-kg bag was very difficult and the ministry wanted the price of imported urea stock of National Fertiliser Marketing Limited (NFML) may be reduced to Rs 1,000 per 50-kg bag. The ECC approved the proposal of Economic Affairs Division (EAD) for grant of exemption to Japan International Co-operation Agency (JICA) from all levies and taxes for the loan extended by the government of Japan/JICA on concessionary terms, amounting to JPY 2.665 billion (equivalent to US $26 million approximately), for the Islamabad-Burhan Transmission Line Reinforc-ement Project.
The main objective of the project is to improve the reliability of the national grid and meet the growing demand for electricity transmission through reinforcement of transmission lines necessary for power supply to Islamabad capital territory and surrounding areas, thereby contributing to the improvement of economic infrastructure of Pakistan. The ECC also considered and approved the draft standard Power Purchase Agreement (PPA), proposed by the Ministry of Water & Power, which will be used as standard template for future PPAs. The draft PPA is a tripartite agreement among Central Power Purchasing Agency, Guarantee Ltd (CPPA) on behalf of ex-WAPDA Distribution Companies, National Transm-ission and Despatch Company Limited (NTDCL) and the Power Producers.