Economic Coordination Committee (ECC) of the Cabinet has reportedly directed both Sui Companies ie SSGCL and SNGPL to arrange Rs 175bn GoP guaranteed local and foreign financing to finance RLNGIII project, sources close to Secretary Petroleum Division told Business Recorder. Giving the background, the sources said ECC on August 29, 2017 had directed Petroleum, Finance and Economic Affairs Divisions to examine the financing options of the project, incorporating a mix of local loans, financing by IFIs and loans under sovereign guarantee. It was directed that once finalised, the financing plan should be submitted to the ECC for approval.
Pursuant to the ECC decision, Ministry of Finance after consultative meetings with Petroleum Division and the Sui Companies, developed and proposed a model based on mix financing portfolios. As per the initial tentative capital outlay, the Sui companies requested total project financing of Rs 175.510bn of which M/s SSGCL requested financing of Rs 65bn of its project segment whereas M/s SNGPL requested financing of Rs 110.510bn for its project segment. As per the proposed project financing model against requirement of Rs 175bn in 2017-18, SNGPL will extend Rs 10bn as saving from RLNGII. SSGCL will spend Rs 7.5bn from GIDC allocation as CDL whereas SNGPL will spend Rs 12.5bn. SSGCL and SNGPL will arrange Rs 25bn and 28bn GoP guaranteed local financing respectively. SSGCL will arrange Rs 7.5bn financing against own balance sheet while SNGPL will arrange Rs 10 billion. SNGPL will also contribute Rs 8 billion as contingency from its own resources.
In 2018-19, both SSGCL and SNGPL will extend Rs 7.5 billion and Rs 10 billion from GIDC allocation as CDL. SSGCL will arrange Rs 10 billion through GoP guaranteed foreign financing whereas SNGLP will share Rs 18.5 billion. SSGCL and SNGPL will arrange Rs 7.5 billion and Rs 10 billion, respectively, financing against own balance sheets. This implies that Rs 10 billion will be contributed from savings from RLNG II, Rs 40 billion from GIDC allocations, Rs 53.5 billion from GoP guaranteed foreign financing and an additional Rs 28.5 billion from GoP guaranteed foreign financing , Rs 35 billion against own balance sheets and SNGPL will contribute Rs 8 billion from own resources.
The Sui companies have time and again expressed their inability to borrow funds from commercial institutions/ banks based on their own sheets mainly because of their weak balance sheets beside inability to maintain debt to equity covenant of 80:20 which has reached a ratio of Rs 95:05 due to substantial borrowings already made for the execution of various gas development projects. Further, in order to enable the companies to get return on assets which are to be developed from proposed GIDC as Cash Development Loan, the companies have requested that this should be provided in the form of a soft term loan in view of the fact that as per the approved guidelines, OGRA does not allow return on assets to gas companies in their revenue requirements which are developed from government grants or funds.
In addition, the Sui companies have expressed their apprehension in respect of foreign financing component proposed in the financing model, although it is backed by GoP guarantee (but given the stringent timelines of the project vis-à-vis cumbersome process of borrowing involving documentations/ approvals and high interest rates), the Sui companies maintain that the project may not be committed when foreign financing is yet to be confirmed.
After explaining entire scenario, Petroleum Division proposed that financing model be approved subject to the following : (i) in case Sui Companies are unable to borrow funds of Rs 43 billion including contingency from own resources at their own balance sheets as proposed in the financing model then they should be allowed to borrow this amount from commercial institutions/ bank backed by GoP guarantee ; and (ii) given stringent timelines for the project, the component of foreign financing backed by GoP guarantee needs to be decided before committing the project.
The sources said, the summary had been circulated to Finance Division and Economic Affairs Division for comments. Finance Division has stated that it may also provide GoP guarantee for raising commercial financing of Rs 43 billion. Finance Division further stated that SSGCL would follow the agreed financing modality whereas SNGPL may revert to Finance Division for GoP guarantee for raising Rs 10 billion from local banks during current financial year in case lender refused to provide financing against SNGPL's balance sheet; and similarly for FY 2018-19 SNGPL's share of financing of Rs 10 billion from local banks at its balance sheet will be raised through foreign funding against GoP guarantee. Economic Affairs Division stated that in view of lengthy procedure involved in lining up and disbursing of IFI funding, it supports the GoP guaranteed foreign financing as proposed in the mode for the project as it is of national importance.