The Central Power Purchasing Agency -Guaranteed (CPPA-G) is unlikely to pay the mark-up on loan amounting to Rs 17.5 billion to be arranged by Water and Power Development Authority (Wapda) from Allied Bank of Pakistan (ABL) for debt liability of Habib Bank Limited (HBL) already paid from the credit facility made available by the Finance Ministry, sources close to Minister for Water Resources told Business Recorder. Sharing the background, sources said that the Council of Common Interests (CCI), in its meeting held on December 16, 2016 considered a summary submitted by the erstwhile Ministry of Water and Power on settlement of NHP issue between Wapda and Government of Punjab regarding payment of NHP at par with KP.
In compliance with CCI's approval, Wapda issued the promissory note of Rs 38.12 billion on January 10, 2017. On the request of Government of Punjab that promissory note should be sovereign guarantee backed, the ECC on January 11, 2017 approved provision of sovereign guarantee to the promissory note on Rs 38.12 billion to be retired on December 31, 2017. The Government of Punjab got it discounted on March 29, 2017 from Allied Bank Limited (ABL) after due endorsement by Wapda and Punjab Government.
Wapda filed a tariff petition on March 13, 2017 in Nepra for FY 2017-18 incorporating NHP arrears payable to Government of Punjab as per CCI approval. Nepra determined Wapda tariff on November 22, 2017 incorporating recovery of Rs 38.12 billion in twelve months from the date of notification.
In order to retire the promissory note on the due date, i.e, December 31, 2017, Finance Division conveyed its concurrence through its letter on December 11, 2017 for loan of Rs 38.12 billion with two years' tenure (repayable after one year without penalty for early repayment).
On December 21, 2017, Ministry of Water Resources moved a summary for approval of ECC to allow Wapda to raise loan as per following proposal "to allow Wapda to raise loan of Rs 80.152 billion, including Rs 38.12 billion from HBL as per the term sheet cleared by the Finance Division as well as of the mark -up payments, pertaining to these loans, against sovereign guarantee of the Government of Pakistan (GoP)". The Cabinet Division accordingly conveyed ECC's approval on January 1, 2018 accorded on December 22, 2017, which is as follows: "ECC considered the summary of December 22, 2017 submitted by the Ministry of Water Resources regarding the raising loan by Wapda from local banks for NHP payments to KP and Punjab."
In accordance with the Ministry of Water Resources OM of December 22, 2017, Wapda arranged the amount of Rs 38.12 billion from HBL as bilateral Islamic loan to retire the promissory note from ABL on December 29, 2017 and Rs 42.032 billion from UBL as bilateral Islamic and conventional loan from NHP payments to Punjab Government. However the loan of Rs 42.032 billion from UBL has been retired by Wapda on January 22, 2018.
Wapda started billing NHP receivables from CPPA-G with effect from March 2018 onwards. However, payments from CPPA-G have remained erratic since then. As per loan agreement, Wapda has incurred Rs 6.676 billion in two years as mark up to HBL (i.e. Rs 4.3 billion already paid from December 2017 to June 2019 and Rs 2.3 billion from July 2019 to December 2019 were to be paid along with principal payment of Rs 38.12 billion on December 27, 2019). On the suggestion by CPPA-G, the lender, i.e, HBL confirmed that the rollover of the loan was not possible since it was not covered as per the approved ToRs & and agreement, therefore, the loan had to be settled as a bullet payment by or before December 27, 2019.
Ministry of Water Resources argued that non-payment of amount as on due date i.e. December 27, 2019 would trigger an event of default thereby exposing other GoP guaranteed commercial facilities of Wapda to be recalled by the financial institutions, with potentially catastrophic consequences.
Wapda is already burdened with mark up payment to the tune of Rs 11.024 billion taken for making advance payments to provinces of NHP arrears on the direction of the federal government. This mark up is still not recoverable through tariff owing to pending approvals of CCI.
On December 2, 2019, CPPA-G stated that it can only release funds amounting to Rs 17.8 billion in November and December 2019 which also includes routine O&M expenditure of Wapda and has suggested to rollover the loan.
Finance Division in response to CPPA-G letter intimated that CPPA-G will release Rs 18 billion including Rs 8.8 billion already released to Wapda before due date of repayment to HBL. It further advised Wapda to arrange fresh financing amounting to Rs 20 billion for the settlement of loan backed by GoP guarantee. Wapda has obtained bids from major commercial banks through Request For Proposal (RFP) for Rs 17.5 billion for which the evaluation committee has recommended ABL's proposal as the lowest bidder.
Ministry of Water Resources further submitted that Wapda, from its own sources, can spare Rs 2.5 billion for the settlement of the loan, leaving net shortfall of Rs 17.5 billion. The funds utilized by Wapda will be recouped upon receiving funds from CPPA-G. To meet this shortfall, Wapda was required to raise loan of Rs 17.5 billion.
The markup cost of this loan is not likely to be allowed by Nepra, as Wapda has already billed this amount to CPPA-G from March 2018 onwards but was not able to settle this loan from HBL due to inordinate delays in payments by CPPA-G. The markup cost of this loan, therefore, is to be borne by the CPPA-G.
Since meeting of ECC was not due during the last week of December 2019 and due to paucity of time (due date for payment to HBL on December 27, 2019), the Ministry of Water Resources moved a summary on December 24, 2019 for anticipatory approval from the Chairman ECC/ Finance Advisor, Abdul Hafeez Shaikh soliciting approval of the issuance of the following necessary documents: (i) credit facility approved by the Ministry of Finance and Wapda (Power Wing) with limit up to Rs 17.5 billion during FY 2019-20; (ii) Letter of Comfort from MoF; and (iii) clearance under Prudential Regulations Rs-4( clause 1a and 2) ) from the State Bank of Pakistan to disburse the facility initially against the Letter of Comfort.
On December 26, 2019, Finance Division, allowed Wapda credit ceiling to the tune of Rs 17.5 billion against bilateral financing facility from ABL and conveyed its concurrence to the term sheet of December 12, 2019 from ABL.
Ministry of Water Resources, in its summary to the ECC solicited the approval of following proposal: (i) endorsement of the anticipatory approval from the Chairman ECC; (ii) allow Wapda to raise loan amount to Rs 17.5 billion with one-year tenure and GoP guarantee; and (iii) markup cost on the loan to be borne by the CPPA-G.
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