ISLAMABAD: The Federal government has allowed Petroleum Division (PD) to utilise funds from the Gas Infrastructure Development Cess (GIDC), amounting to Rs1.717 billion for the repayment of Government Holdings (Pvt) Limited (GHPL)’s loan, well informed sources told Business Recorder.
The Inter State Gas Systems (Pvt) Limited (ISGSL) was the nominated entity of the Government of Pakistan (GoP) for the implementation of various strategic gas infrastructure projects of international stature on a G-to-G basis. The Company was established in 1996 with the authorised capital of Rs10 million.
The permitted establishment / administration expenditure of ISGSL was reimbursed by the Sui companies, in pursuance of the Services Agreement, signed amongst ISGSL, SSGCL and SNGPL. The arrangement continued till FY 2015-16 during which, the Oil and Gas Regulatory Authority (OGRA) disallowed the inclusion of ISGSL's establishment expenditure in the determination of Estimated Revenue Requirements (ERR) of the Sui companies.
In pursuance of this the ECC in its meeting held on December 15, 2016, tasked the Government Holdings (Pvt) Limited to fund all the project activities of ISGSL in the form of a medium-term loan. Accordingly, ISGSL and GHPL signed a loan agreement on August 9, 2018 wherein it was agreed that the loan shall carry an interest rate of annual KIBOR + 0.1 percent, effective from the date of disbursement. The loan and interest were payable in a single bullet payment and was due to be paid on December 14, 2019 i.e. upon the expiration of the loan agreement. Subsequently, due to non-availability of ISGSL’s revenue stream and on the direction of the ECC, the loan term was further extended for a period of one year i.e. up to December 14, 2020. Subsequent to the loan agreement, GHPL provided loans for the project development and administrative expenditures, which along with the interest accrued, stood at Rs1.71723 billion.
The ECC in its meeting held on February 10, 2020 approved the rationalised expenditure for the company, as approved by ISGSL’s Board, including TAPI and NSGP commitments, to be funded through the Gas Infrastructure Development Cess (GIDC) funds, if possible. The approval was granted for funding ISGSL’s operations by GHPL, conditional upon ISGSL being financially self-sustaining after the first project reaches closure stage. GIDC was primarily meant for the projects being implemented by ISGSL, however no funds had been released to date for the development activities of TAPI, NSGP, IP and GNGP except the GoP’s pre-FID equity contribution in the TAPI Pipeline Company Limited (TPCL). As a result of non-availability of GIDC funds, ISGSL had been constrained to rely on financing from the parent Company i.e. GHPL for project related activities. This was intended as a stopgap arrangement for three years, during which ISGSL was advised by the Petroleum Division to make optimal efforts for the development of a revenue stream of its own. Recently, the Supreme Court of Pakistan (SCP) in its judgment regarding the GIDC case on August 13, 2020 directed as follows: "The Federal Government shall take all steps to commence work on the laying of the North-South pipeline within six months and on TAPI pipeline as soon as its laying in Afghanistan reaches the stage where the work of laying pipeline on Pakistan soil can conveniently start and on IP pipeline as soon as the sanctions on Iran are no more an impediment in its laying. In case no work is carried out on North-South pipeline within the prescribed time and for laying any of the two other major pipelines (IP and TAPI) if the political conditions become conducive, the purpose of levying Cess shall be deemed to have been frustrated and the GIDC Act, 2015 would become permanently in-operational and considered dead for all intents and purposes."
The sources said, ISGSL argued that progress on its other strategic projects like TAPI and IP would be dependent on external geopolitical factors beyond the control of the Company and/or the Federal Government and NSGP activities were on track and would be realised by FY 2023- 24 and generate revenues for the Company therefore, an arrangement for funding the gap period of 2-3 years would be required to be made through GIDC, along with repayment of the accrued loan to GHPL.
On December 24, 2020, Petroleum Division submitted the following proposals to the ECC;(i) utilisation of funds from the Gas Infrastructure Development Cess, amounting to PKR 1.71723 billion for the repayment of GHPL’s loan;(ii) All direct and indirect costs in relation to ISGSL gas import and infrastructure projects shall be met though the GIDC funds until any of ISGSL’s projects generate revenue. Funds so approved will be released to GHPL for ISGSL’s utilisation;(iii) funds for the acquisition of land or ROW, as well as the development of ISGSL projects shall be made available to ensure smooth progress, especially for NSGP and ;(iii) any funding provided by GHPL to ISGSL, as a stopgap arrangement, to meet the immediate funding requirements of ISGSL, will be reimbursed as actual to GHPL by the Finance Division from GIDC funds within three months of the cash call made by ISGSL.
During the ensuing discussion, Special Secretary, Finance Division stated that Finance Division had no objection to the proposals though some proposals were subject to approval of the High Powered Project Review Board.
However, on use of GIDC funds for ISGSL’s projects, Finance Division asked Petroleum Division to provide justification for ISGS’s continuity as an independent entity along with budgetary requirements.
Copyright Business Recorder, 2021