The Sale Board approved borrowing Rs103.8 billion in loans from local banks through competitive bidding on Wednesday to replace the government’s finance before the privatization of the much-touted two LNG-fired power facilities.
The board suggested that scheduled banks and Development Financial Institutions (DFIs) submit Expressions of Interest (EOI) via an advertisement to raise Rs103.8 billion in debt.
The board of directors agreed to extend the loan for seven years at a maximum interest rate of Karachi Interbank Offered Rate (KIBOR) +1.8 percent. The National Electric Power Regulatory Authority (Nepra) has set the KIBOR + 1.8 percent limit, in contrast to the Privatisation Commission’s initial recommendation of KIBOR plus 3.5 percent.
The Haveli Bahadur Shah and Balloki Power Plants were sponsored by the previous Pakistan Muslim League-Nawaz (PML-N) administration through the Pakistan Development Fund Limited (PDFL), which was established with a $1.5 billion Saudi Arabian contribution.
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After obtaining the debt to replace the PDFL financing, the government would proceed to sell the 30 percent ownership shares in both power facilities. The government of Pakistan Tehreek-e-Insaf (PTI) hoped to privatize these plants by June 2019.
Both power stations, owned by National Power Park Management Company (Private) Limited (NPPMCL), were built using government funding/equity rather than the 70:30 debt-to-equity ratio permitted by Nepra’s tariff for NPPMCL’s power plants.
The financial advisers advised the government that securing long-term financing to repay surplus government equity and loan and debt recapitalize NPPMCL within the limits of KIBOR + 1.8 percent locked by Nepra had become a stumbling block in the company’s privatization.
However, Nepra stated in January of this year that the debt financing rate (KIBOR + 1.8 percent) cannot be changed. According to the sources, another reason for the delay in the privatization of LNG-fired power plants is the government’s backtracking on its agreements with the Independent Power Producers (IPPs) who built up facilities under the 2002 program. benchmark, as permitted by Nepra’s tariff, for NPPMCL’s power plants.
The Privatisation Commission stated in a handout on Wednesday that the privatization of NPPMCL is nearing completion, but that in order to match the capital structure with the tariff, 70 percent of the project cost would be dependent on long-term financing.
It stated that the matter relating to long-term financing arrangements and its capital structure with Nepra’s determining tariff and repayment of government loans, State Bank of Pakistan and local banks were contacted for commercial borrowing, and a committee to that effect was also formed by the Cabinet Committee on Privatisation (CCoP) to resolve the matter.