The World Bank (WB) has sought 'credible' financial recovery plans from the state-owned power sector companies to become eligible for project financing, sources in Economic Affairs Division (EAD) sources told Business Recorder.
"To be eligible for bank's financing, the companies need to have credible financial recovery plans with adequate up-front demonstration in achieving specified levels of financial viability indicators, which will be determined on the basis of financial projections agreed between the bank and project participating companies," the sources quoted one of the bank's observations.
The bank's team, which recently visited various power sector companies, had also demanded details of self-financing ratio, debt-to-equity ratio, debt service coverage ratio, return on capital employed, level of receivables and payables for consideration of cases for project finances, the sources added.
According to sources, the bank was of the view that short-to-medium term investment requirements in Pakistan's distribution and transmission networks significantly exceed the size of requested loan. Thus, the loan would be able to cover only several years of financing for the Electricity Loss Reduction (ELR) and the Secondary Transmission Grid (STG) investments for a few Discos and a couple of projects in the high-voltage transmission network.
The bank, however, has indicated that if Discos and National Transmission and Dispatch Company (NTDC) were not able to finance their needs from other sources and subject to their interests and the government's support, the bank was ready to support their remaining investment programme through a series of follow-up investment loan (programmatic lending). Such new loans could follow up relatively soon after the first loan and their timing would be driven by the ability of the companies to prepare and present bankable projects in the context of credible business strategy for financial recovery.
The bank raised concern over the project's design and selection criteria, saying that there were serious problems throughout the sector, those plaguing Discos were especially critical because of their key role in overall financial health.
"Two main problems facing the Discos are high losses, especially high non-technical losses, for a number of companies and difficult financial position as reportedly all of them have negative net worth at the moment," the bank added.
The companies, which may be not be ready with their corporate strategies and investment projects for the bank's first investment loan, could if interested, finance their investment proposals once fully prepared, the bank concluded.