Federal Cabinet has, reportedly, approved Pakistan Electric Power Company''s (Pepco) revision of financial documents at the behest of foreign lenders subsequent to their finalisation by relevant ministries for the 425MW combined cycle power project Nandipur (Gujranwala) as a special case, despite disagreement between the Ministries of Law, Finance and Water and Power.
The deal, which the Law Division argues is very controversial, was thoroughly debated in the Cabinet meeting on August 24, 2011, presided over by the Prime Minister, Syed Yousuf Raza Gilani. Giving the background, the sources said, GoP approved 425MW combined cycle power plant at Nandipur, District Gujrawala in the ECC meeting held on December 27, 2007 at an agreed EPC price of $329 million with Dong Fang Electric Corporation (DEC) Ltd, China.
The approval was subject to Ministry of Finance agreeing to provide GoP guarantee for a loan of $329 million with the following components: foreign currency component of $164.9 million and Euro 78 million and local currency component of Rs 3 billion. Project L/Cs for Rs 19.150 billion (equivalent to $148 million and Euro 70 million or 90 percent of EPC price) were opened on September 15, 2008 by Habib Bank Limited (HBL) and National Bank of Pakistan (NBP) syndicate in favour of DEC China, along with a loan of Rs 5.3 billion to meet the local currency requirement with support of the Finance Ministry.
The sources said Finance Ministry mandated BNP Paribas and HSBC consortium on June 4, 2008 to arrange a foreign loan (up to 85 percent of EPC price) namely, COFACE facility for French portion and Sinosure facility for Chinese portion to retire shipping documents against the security of GoP sovereign guarantee.
The financial documents were submitted to the Law Division for vetting. Some minor changes were suggested by the Law Division which were incorporated. The second draft along with the format of the sovereign guarantee to be issued by the Finance Division in favour of foreign lenders was then submitted to the Law Division. It was cleared with some minor changes, which were also incorporated.
The final draft was subsequently submitted to the Law Division on March 4, 2009 and the Ministry of Water and Power and Ministry of Finance were authorised to approve the draft agreements. The final consequently stands executed. In the pursuance of the approval of the final agreement, the officers of Northern Power Generation Company Limited (NGGCL) visited Beijing (China) to sign finance documents with foreign lenders. However, the foreign lenders proposed certain last minute changes in the finance documents which were incorporated and the documents were signed. Upon return, the changes were approved by the Ministry of Water and Power and the Finance Division.
At this point, when documents were sent to Law Division for legal opinion as Condition Precedent (CP), the Law Division returned the documents on the ground that the credit agreements and GoP guarantee had already been signed and the Rules of Business did not provide for ex-post facto approval in the matter.
Meanwhile, the first shipment carrying plant equipment arrived in January 2009. The HBL and NBP syndicate refused to allow clearance in the absence of guarantee and securities. Such guarantees could become effective only on the basis of Law Division''s clearance. While the correspondence between the Ministry of Water and Power and Law Division continued neither plant equipment off loaded at Karachi port could be transferred to the site nor power plant was constructed but demurrage charges to the tune of Rs 873 million accrued.
Ministry of Water and Power maintains that the signed documents are not yet effective and do not materially or adversely affect the rights and obligation of the GoP. The plant is to generate 425MW and the country badly needs each megawatt of electricity. DEC''s claim for the idle human resources and equipment are likely to be many times the demurrage and detention charges. The plant is very urgently required to commence generation by December 2011.
The Ministry of Water and Power submitted the summary to the ECC of the cabinet on "waiver of demurrage and detention charges 425 MW combined cycle power project at Nandipur being implemented by NPGCL". ECC, in its meting of July 20, 20111 approved the case. However, for approval of financial documents for the project, it was decided that the matter would be resolved by mutual consultation between the Ministers of Finance/ Chairman of ECC, Minister for Water and Power and Minister for Law, Justice and Parliamentary Affairs. In case of disagreement, the matter would be placed before the Cabinet for a decision.
According to sources, no concurrent resolution has been reached after mutual consultation between the Minister for Finance, Minister for Water and Power and Minister for Law for approval of financing documents. Therefore, the matter was placed before the cabinet for approval of financing documents.
The sources said Cabinet, cleared the amended financial documents, but reiterated that the Ministries/ Divisions should resolve differences of opinion, if any, strictly in line with the provisions of Rules of Business 1973 and that all pre-requisites and legal and legal formalities including meaningful consultations with the stakeholders, be addressed and undertaken before submitting the proposals for decisions of the Cabinet.