The Water and Power Development Authority (Wapda) has defaulted in servicing foreign re-lent loans amounting to Rs 20.5 billion which were due to be paid by June 30, sources in Economic Affairs Division (EAD) told Business Recorder on Wednesday.
"Wapda has not carried out debt servicing of foreign re-lent loans amounting to Rs 20.1 billion, which had to be paid by June 30," sources said. They said that the EAD had been approached by Finance Division to seek guidance for future line of action against the defaulting utility, adding that the latter had advised the former to take up the matter with Wapda and its parent ministry for payment of foreign re-lent loans immediately.
"The EAD has asked Wapda to deposit the outstanding amount in the State Bank of Pakistan (SBP) account immediately as the loans have to be repaid to the concerned foreign agencies," sources said. They said that the GoP had already converted Wapda's Rs 4.2 billion loans into equity in February last, keeping in view its financial position.
They said that GoP's re-lending policy was being revised, as public sector utilities, especially Wapda, were not ready to take new loans, saying that it was better to borrow on the prevailing market rates rather than on higher interest rates of EAD.
The Economic Co-ordination Committee (ECC) of the Cabinet had directed EAD in April to bring out revised re-lending policy in the next meeting, but the directive has not been implemented.
Wapda is of the view that the prevailing rate is 11 percent (Kibor 9.07 percent plus exchange risk coverage 2 percent) while GoP's current re-lending rate is 17 percent, which the public sector entities are not prepared to accept, said another official.
The decision was taken in the backdrop of two project loans, namely upgradation of load dispatch system Phase II, and transmission arrangements for power dispersal of Ghazi Brotha Hydropower Project (GBHP), which the government intends to re-lend to Wapda.
Sources said that loan and project agreements were signed between KWF, a German financial institution, GoP and National Transmission and Dispatch Company (NTDC), the project executing agency, on July 15, 2004 for Euro 51,129,188.12 for supply and erection of the 500 kV, 220 kV and 132 kV substation at Ghakkar (Gujranwala).
According to the agreement, the borrower would channel the loan to the project executing agency under a separate agreement which should reflect prevailing market conditions in Pakistan, subject to approval of the ECC.
The Ministry of Water and Power, in its summary submitted to the ECC meeting on April 14 had said that NTDC had signed agreement with United Bank Limited on December 12, 2005 for an amount of Rs 1.6 billion to finance the construction of 500 kV Sahiwal sub-station at an interest rate of six months Kibor plus two percent, which is currently 9.07 percent. Thus, the prevailing market conditions justify re-lending rate of 11.07 percent (9.07percent+2percent), whereas Wapda is being offered re-lending loan at 17 percent.
In the case of upgradation of load dispatch system Phase II, the re-lending loan to Wapda is being offered at 17 percent whereas the government borrowed at 1.2 percent from Japan Bank for International Co-operation (JBIC).
Sources said that Ministry of Water and Power had asked the government that re-lending should be extended at 11.07 percent, rather than 17 percent, as Wapda was not ready to avail the loan at higher than the prevailing market rate. They said that EAD had agreed with the proposal, but Planning Commission opined that re-lending terms could not be changed merely for one organisation.
According to sources, Planning Commission even said that if Wapda did not fulfil the terms and conditions, it was free to approach the private banks. The Ministry, however, argued that the much delayed project should not be held back for want of a general decision, particularly when agreement has already been signed with the JBIC. Wapda can not process the projects further until re-lending policy is revised by the ECC, sources said.