ISLAMABAD: The Oil and Gas Development Company Limited (OGDCL) has set stringent conditions on proposed rollover of Rs 82 billion term finance facility with Power Holding Limited (PHL) till June 2024.
Managing Director/CEO Ahmed Hayat Lak, in a letter to Secretary Power Division, referred to the long outstanding overdue Terms Finance Certificates (TFCs) of Rs 82 billion issued by Power Holding Limited (PHL) to OGDCL in the year 2012 under a Government of Pakistan backed partial settlement of circular debt.
The TFCS bear a markup @KIBOR +1%, payable on six-monthly basis and in the case of delayed payment, Liquidated Damages (LDs) @ 20% p.a. is applicable. The tenure of TFCS was 7 years including 3 years’ grace period. PHL defaulted in making payments in accordance with the terms of the investor agreement.
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Subsequently, ECC on July 25 2017 extended the tenor of the facility from seven to ten years without seeking OGDCL’s consent. However, PHL again failed to comply with terms of extended facility and the entire principal amount of Rs 82 billion remained unpaid along with markup of Rs 92.906 billion and LDs of Rs 71.901 billion as at June 30, 2024.
In order to resolve the issue, Power Division through its letter of June 4, 2024 shared draft ECC summary for OGDCL’s comments.
The draft summary recommended rollover of the facility till June 30, 2024 (the settlement date) on the existing terms and conditions along with the following key points: (i) the entire principal amount of Rs 82.00 billion is to be paid on settlement date (On or before June 30, 2024); (ii) outstanding markup accrued till settlement date would be paid by CPPA through PHL in 12 equal monthly installments starting July 2024.
The markup amount shall be paid without any markup on markup on or before 25th of each month;(iii) as markup is levied till settlement date, hence LDs shall not be imposed (OGDCL to waive the LDs accrued on delayed payments as per clause 18 of the Investor Agreement).
The OGDCL through letter of June 7, 2024 conveyed its response to the draft ECC summary.
The key principals of the letter were as follows: (i) the waiver of LDs which was payable by PHL under the investor agreement would require approval of Company’s Board of Directors, therefore, an advice from the Government to this effect would be required by the company; (ii) it would be advisable if entire markup, like principal amount, is also paid off on the settlement date, otherwise the Company would have to book a loss of Rs 9.2 billion in its financial statements for FY 2023-24 under IFRS 9 due to freezing of mark up on the settlement date; and (iii) in order to ensure that PHL does not default this time, the ECC is requested to link the waiver of LDs with full compliance by PHL with the terms of the proposed settlement agreement.
Subsequent to OGDCL’s response on the draft ECC summary, PHL shared a draft addendum to the Investor Agreement in line with the draft ECC summary for OGDCL’s review. OGDCL amended the draft addendum, reiterating its position that LD shall be applicable as per Clause 18 of the Investor Agreement, in the event PHL fails to honour its commitment.
The Power Division through a letter of June 21, 2024 has communicated the relevant paras/decisions of the summary approved by the ECC in its meeting held on June 13, 2024. The summary was ratified by the Federal Cabinet on June 20, 2024.
The OGDCL argues that there has been a major deviation in the approved ECC summary to the initially shared draft summary wherein the date of commencement of repayment of mark-up has been changed from July 2024 to July 2025. Further, the OGDCL’s proposal with respect to LDs has also not been considered.
The OGDCL further stated that the change in markup schedule was neither communicated to it prior to submission of amended summary to ECC nor consented by the OGDCL.
If the start of markup is delayed to July 2025, the estimated loss to be booked in financial statements for 2023-24 under IFRS 9 amounts to Rs 24.242 billion.
“The ECC approval may also raise concerns from the non-controlling shareholders of the company as not only the OGDCL have to waive off LDs of Rs 71.901 billion but also have to bear estimated financial loss of Rs 24.242 billion on the proposed delayed markup payments,” Lak added.
The Power Division’s proposal was discussed in the Board Committee meeting on June 24, 2024 and the Directors requested the Power Division to consider the following: (i) entire markup shall be paid on the settlement date; (ii) if the total mark-up payment is not possible for CPPA-G/PHL on settlement date then the markup shall be made in 12 monthly installments starting July 2024 as communicated to the OGDCL through draft ECC summary of June 4, 2024; and (iii) imposition of LD as per the investor agreement if PHL defaults on the mark up payment on the due date.
The Finance Division has conveyed to the Accountant General Pakistan Revenue (AGPR) the sanction of the President for payment of Rs 82 billion in pursuance of the ECC’s decision of June 13, 2024 on account of “GoP equity in Discos against PHL’s repayment of loans as public debt” to enable PHL to make repayment to the OGDCL during FY 2023-24.
Copyright Business Recorder, 2024