ISLAMABAD: The dollar-strapped State Bank of Pakistan (SBP) has asked a Chinese power company to negotiate with its lenders to minimise the requirement of Debt Service Reserve Account (DSRA), as due to foreign exchange reserve constraints it is difficult for it to entertain the company’s request, sources close to Managing Director PPIB told Business Recorder.
On April 23, Thar Coal Block-1 Power Generation Company Limited wrote a letter to Managing Director PPIB, Shah Jahan Mirza, after a meeting held on April 19, 2024 at PPIB which was also attended by representatives of SBP, MoF, MoE and Company on the issue of foreign exchange requirement.
Explaining the background, Managing Director PPIB stated that during the meeting of April 19, Company’s CEO explained that it requires the approval of Debt Service Reserve Account equal to 02 debt repayment instalment’s for 1320-MW Thar Coal Power Plant, as well as, Sino Sindh Resources Limited (Coal Mining Company) which approximately amounts to$76 million and $70 million before the end of April 2024 and May 2024, respectively. Accordingly, the Company applied through its authorised Bank ICBC Karachi to obtain approvals of SBP on February 15, 2024, however no approval has been granted by SBP.
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SBP explained that due to foreign exchange reserve constraints it is difficult to entertain the request. It advised the Company to negotiate with its lenders to minimise the requirement of DSRA,“ the sources quoted MD as saying in his communication with SBP quoting CEO of the Company.
According to the Managing Director PPIB the Company in its letter submitted that further disbursement of the mining project is scheduled in the middle of June 2024 amounting to $ 550 Million, which is crucial for the implementation of the project, and the DSRA needs to be fulfilled under the Facility Agreements (FA) before the said time line, otherwise any default of DSRA will lead to the failure of further disbursement of mining project.
Further, Company also submitted that considering the time constraints, it is difficult for it to approach its lenders to revise the FA or any relaxation on DSRA. Moreover, it will have adverse impact on further implementation of the project, as well as, on the potential future projects to avail investments for Pakistan.
Considering the tight debt remit schedule, Company requested SBP and other stakeholders to give the highest priority to make special arrangement to ensure fulfilment of DSRA in a timely manner to save the project. Accordingly, SBP is requested to resolve the matter at the earliest.
The Company’s CEO Meng Donghai maintains that considering the great time pressure ahead, it is rare possibility for the Company to approach CDB to revise the Facility Agreement or decide for any relaxation on DSRA in a timely manner. Meanwhile, the information to be delivered to the lenders and the Authority in China that GoP is facing severe foreign exchange constrains and attempt to change the current DSRA arrangement of the Project will have great adverse impact to the further implementation of the Project and the potential projects to be invested in Pakistan in the future.
The CEO, Thar Coal Block-1 Power Generation Company Limited further stated that the negative information will also make the lenders of the project unwilling to agree on the disbursement for mining project in June. Considering the great importance of the project, the Company has advised that PPIB could coordinate with SBP and other stakeholders give the highest priority to make special arrangement regarding DSRA payments to ensure the success of further disbursement of the mining project to save the Project.
“After payment, GoP could consider to discuss the overall structure of foreign exchange arrangement related to certain CPEC projects with the Chinese counterparties at the highest forums at a later stage,” the sources quoted CEO of Chinese Company as suggesting to the government.
Copyright Business Recorder, 2024