The government will raise the amount of sovereign guarantee from Rs 5.3 billion to Rs 19.15 billion in favour of local banks syndicate as time gap arrangement for 435 MW Nandipur power project as banks have refused to enhance the loan amount, sources close to Secretary Water and Power told Business Recorder.
The ECC of the Cabinet approved 425 MW Combined Cycle Power Plant at Nandipur in its meeting held on December 27, 2007 at an agreed EPC price of $329.00 million with Dongfang Electric Corporation Limited (DECL), China. The approval was subject to Ministry of Finance agreeing to provide GoP sovereign guarantee for the loan of $329million.
Local banks syndicate (local syndicate) opened four L/Cs on September 15, 2008 for Rs 19.150 bn with local component funding to the extent of Rs 5.3 billion (Syndicated Term Finance Facility-STFF). Foreign loans, namely, COFACE Buyers Credit Facility Agreement for Euro 68,967,879.65 of October 03, 2008 and SINOUSRE Buyers Credit Facility Agreement for $140,177,370.90 plus the dollar equivalent of Euro 6,649,525.35 of March 19, 2009, signed with foreign banks syndicate (foreign syndicate) were envisaged to provide funds for the retirement of shipping documents.
The GoP sovereign guarantees were issued/adjusted by Finance Ministry in favor of local syndicate and foreign syndicate on September 29, 2009 and October 31, 2009 respectively within the amount of the EPC price approved by ECC. Shipments started as per the schedule but foreign loans could not be availed within validity period up to August 31, 2011 due to pending legal opinion (a condition precedent which was issued on October 19, 2011) and reimbursement to the local syndicate which opened project L/Cs and made forced payments.
The sources said funded exposure of the local syndicate reached up to Rs 14.923 billion under L/Cs as against the GoP sovereign guarantee of Rs 5.3 billion , resulting in excess over exposure of Rs 9.623 billion and the local syndicate started to withhold B/Ls, causing non clearance of shipments from Karachi Port etc and incurring demurrage and detention charges. In the meantime, projects L/Cs also expired on April 30, 2011 and the local syndicate refused to extend the same due to their aforesaid excess over exposure and any further likely exposure due to non-effectiveness of foreign loans.
After much persuasion, local syndicate has agreed to extend the project L/Cs and release B/Ls provided that the amount of GoP sovereign guarantee of Rs 5.3 billion is enhanced to Rs 19.150 billion as a last option, to secure its excess over exposure as well as to book further exposure upon extension of project L/Cs to import the remaining equipment valued at $67.431 million and Euro 1.564 million ie existing STFF Rs 5.3 billion will be increased to Rs 19.150 billion as a time gap arrangement till the extension/effectiveness of foreign loans.
STFF of Rs 19.150 billion will be reduced to Rs 5.300 billion again through reimbursement from foreign syndicate upon the effectiveness and availability of foreign loans (ie, through prepayment of STFF, without penalty) and accordingly GoP sovereign guarantee will be reduced. Overall funded exposure of borrowing will not exceed $329.00 million at any point in time although the amount of GoP sovereign guarantees is increased for the aforesaid time gap arrangement (duplication of guarantees) in view of envisaged direct prepayment by foreign syndicate to the local syndicate. The Supreme Court of Pakistan, while passing short order on May 11, 2012 regarding Commission's report on Nandipur and Chichokimallian power projects, directed Ministry of Water to report on project's progress within next two weeks.
The sources said demurrage and detention charges will be accumulated up to Rs 1,729.591 million (till August 31, 2012). The ECC had waived demurrage & detention charges to the extent of Rs 873 million (till July 31, 2011). This waiver could not be availed due to non release of B/Ls by local syndicate for the reasons explained above. Accordingly, ECC is being requested to waive additional demurrage and detention charges Rs 856.591 million.
According to sources foreign syndicate is being pursued for the extension in availability period (expired on August 31, 2011) till August 31, 2012 and December 31, 2012 for COFACE and SINOSURE facilities respectively. In case availability period of foreign loans is not extended by foreign banks syndicate, then Ministry of Finance will revoke the GoP sovereign guarantees issued in favour of foreign lenders and in that, arrangement fee, commitment fee and insurance premium etc aggregating Rs 1.583 billion approximately already paid/to be paid as per the provisions of the credit facility agreements will become a sunk cost.
Moreover, the NPGCL will have to additionally borrow Rs 5.300 billion for financing local component of the project which is not included in STFF Rs 19.150 billion equivalent of project L/Cs ($148,423,099 and EURO 70,200,000) is likely to exceed by Rs 2.00 billion over and above GoP sovereign guarantee of Rs 19.150 billion due to exchange rate fluctuation over the last 3 1/2 years. Total additional funding (Rs 5.300 billion + Rs 2.00 billion) will have to be arranged either through local borrowing or Cash Development Loans (CDL). DEC's claims on account of suspension of work etc, under negotiation will be finalised in due course of time.