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The Privatisation Board on Wednesday allowed raising Rs103.8 billion debt from local banks through competitive bidding to replace the government’s financing before privatisation of much-trumpeted two LNG-fired power plants.

The board recommended that Expression of Interest (EOI) may be invited from scheduled banks and Development Financial Institutions (DFIs) through advertisement to raise Rs103.8 billion debt.

The board approved to raise the debt for a period of seven years at a maximum interest rate of Karachi Interbank Offered Rate (KIBOR) +1.8%. The National Electric Power Regulatory Authority (Nepra) has set the KIBOR plus 1.8% limit against the wish of the Privatisation Commission that had initially recommended KIBOR plus 3.5% interest rate.

The last Pakistan Muslim League-Nawaz (PML-N) government had funded the Haveli Bahadur Shah and Balloki Power Plants out of the Pakistan Development Fund Limited (PDFL) - being set up with $1.5 billion Saudi Arabian grant.

After raising the debt that will replace the PDFL funding, the government would then move to the next step of selling the 30% equity stakes of both the power plants. The Pakistan Tehreek-e-Insaf (PTI) government wanted to privatise these plants by June 2019.

Both the power plants, owned by National Power Park Management Company (Private) Limited (NPPMCL), were set up with government funding/equity instead of the 70:30 debt-to-equity ratio benchmark as allowed in Nepra’s tariff for NPPMCL’s power plants.

The financial advisers had informed the government that arranging long-term financing, to return excess government equity and loan and to debt recapitalise NPPMCL within the limits of KIBOR + 1.8% locked by Nepra, has become a stumbling block in privatisation of the company.

However, Nepra, in January this year, clarified that the rate for debt financing (KIBOR + 1.8%) cannot be revised. The government’s backpedalling on its deals with the Independent Power Producers (IPPs) who set up plants under the 2002 policy is another reason for a delay in the privatisation of LNG-fired power plants, said the sources.

In a handout, the Privatisation Commission said on Wednesday that the privatisation of NPPMCL was at an advanced stage but in order to align the capital structure with the tariff, 70% of the project cost will be based on long-term financing.

It said that the matter relating to long-term financing arrangements and its capital structure with Nepra’s determined tariff and repayment of government loans, State Bank of Pakistan and local banks were contacted for commercial borrowing, a committee to that effect was also constituted by Cabinet Committee on Privatisation (CCoP) to resolve the matter.

It was decided after the committee meeting that the Privatisation Commission would recourse to commercial borrowing from local banks to replace the government’s excess equity and loan, the rate for debt financing is fixed by Nepra.

“The PC Board recommended the scheme of debt-recapitalisation and refinancing of NPPMCL in line with the recommendations of transaction committee,” according to the press statement.

In addition to arranging loans from local banks, there are also other stumbling blocks in the way of the privatisation of these power plants.

The sources said that there was also a dispute between NPPMCL and Sui Northern Gas Pipelines (SNGPL) regarding encashment of Stand by Letter of Credit of Rs10.4 billion by SNGPL. The matter is under international arbitration.

The financial advisers have recommended that the dispute issue has to be separated from NPPMCL and placed in PDFL to avoid its adverse effects on privatisation. However, SNGPL has not yet agreed to this arrangement.

Similarly, NPPMCL was also facing cash flow problems due to less inflow of funds from the power purchaser. The company officials have informed that working capital lines of NPPMCL have been fully utilised, therefore, NPPMCL was unable to pay weekly RLNG bills to SNGPL, resulting into RLNG circular debt.

In case of non-payment of RLNG bills, SNGPL has the right under the Gas Sale Agreement to encash the SBLCs, which can trigger an event of default under financing agreements with banks/lenders. Piling up of receivables is not giving a positive outlook of the company to the investors.

The government’s privatisation programme is so far limited to selling the state land and properties instead of doing anything meaningful to stem the losses by the big public sector enterprises. NPPMCL is also a profitable entity.

The PC Board approved the list of 12 potential bidders/investors who have shown interest in the Jinnah Convention Center (JCC) transaction. The pre-qualified parties would be allowed for due diligence of the JCC property to participate in the bidding process subsequently.

The matter relating to the corporatisation of State Life Insurance Corporation (SLIC) was also discussed. The CCoP and federal cabinet approved the divestment of up to 20% of the government’s shares in the corporation.

In order to proceed further with divestment of 20% of shares of SLIC in the proposed privatisation the corporatisation of SLIC is a pre-requisite, said the Privatisation Commission. The Ministry of Commerce will proceed for corporatisation and related legislation. The PC Board decided to take up the matter with CCoP.

Published in The Express Tribune, August 12th, 2021.

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