The Economic Co-ordination Committee(ECC) of the Cabinet has directed the Petroleum Division to examine the possibility of Public-Private Partnership for financing of 1.2 Billion Cubic Feet Day (BCFD) capacity for Rs 175 billion RLNG-III pipeline project to be laid from Karachi to Lahore, official sources told Business Recorder.
The committee presided over by Prime Minister Shahid Khaqan Abbasi who is also Federal Minister for Energy, gave these instructions after M/s SSGCL and M/s SNGPL expressed "ifs and buts" in arranging the finance. The source said, ECC in its meeting held on August 29, 2017 had directed Petroleum Division, Finance and Economic Affairs Divisions to examine the financing options of the project, incorporating a mix of local loans, financing by IFIs and loans under sovereign guarantee. It was also directed that once finalized, the plan should be submitted to the ECC for approval.
Pursuant to the ECC decision, Finance Division after consultative meetings with the Petroleum Division and Sui Companies has proposed a model based on mixed financing portfolios. As per initial tentative capital outlay, the Sui Companies requested total project financing of Rs 175.510 billion out of which M/s SSGCL requested financing of Rs 65 billion for its project segment whereas M/s SNGPL requested financing of Rs 110.510 billion.
According to Petroleum Division, the Sui Companies have expressed their inability to borrow funds from commercial institutions/banks based on their weak balance sheets besides their inability to maintain debt to equity covenant of 80:20 which has reached a ratio of 95:05 due to substantial borrowings already made for the execution of various gas development projects. Further, in order to enable the companies to get return on assets which were to be developed from proposed GIDC as Cash Development Loan, the companies had requested that this may be provided in the form of soft term loan in view of the fact that as per approved guidelines OGRA does not allow return on assets to gas companies in their revenue requirements which are developed from government grants and funds.
The Petroleum Division further apprised that the Sui Companies have also expressed their apprehension in respect of foreign financing component proposed in the financing model. The Sui companies argue that the project may not be committed when foreign financing is yet to be confirmed/ decided.
As per the proposed project financing model against requirement of Rs 175 billion in 2017-18, SNGPL will extend Rs 10 billion as saving from RLNGII. SSGCL will spend Rs 7.5 billion from GIDC allocation as CDL whereas SNGPL will spend Rs 12.5 billion. SSGCL and SNGPL will arrange Rs 25 billion and 28 billion GoP guaranteed local financing respectively. SSGCL will arrange Rs 7.5 billion financing against own balance sheet while SNGPL will arrange Rs 10 billion. SNGPL will also contribute Rs 8 billion as contingency from own resources.
In 2018-19, both SSGCL and SNGPL will extend Rs 7.5 billion and Rs 10 billion from GIDC allocation as CDL. SSGCL will arrange Rs 10 billion through GoP guaranteed foreign financing whereas SNGLP will share Rs 18.5 billion. SSGCL and SNGPL will arrange Rs 7.5 billion and Rs 10 billion financing against their own balance sheets respectively. This implies that Rs 10 billion will be contributed from savings from RLNG II, Rs 40 billion from GIDC allocations, Rs 53.5 billion from GoP guaranteed foreign financing, Rs 28.5 billion from GoP guaranteed foreign financing , Rs 35 billion against own balance sheets and SNGPL will contribute Rs 8 billion from own resources.
Petroleum Division proposed the financing model may be approved subject to following: (i) in case Sui companies are unable to borrow funds of Rs 43 billion including contingency from own resources, as proposed in the financing model then they should be allowed to borrow from commercial institutions/ banks backed by GoP guarantee; and (ii) given the stringent timelines for the project, the component of foreign financing backed by GoP guarantee needs to be decided before committing the project.
Prime Minister noted that the possibility of PPP may also be examined to complete the project as per stipulated time lines. After discussion, the ECC approved the project and further directed the Petroleum Division to examine the possibility of public private partnership for the project.
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