ISLAMABAD: Two days before the end of its five-year tenure, the government is likely to sign a $500 million commercial loan agreement with a foreign bank to finance the $2.8 billion Neelum-Jhelum Hydropower Project of 969MW capacity.

According to an official, the agreement is being finalised at about eight per cent interest that works out to about 15 per cent after accounting for currency exchange despite the government’s sovereign guarantees.

He said two key officers, who had opposed the loan for being expensive and finalised without following proper procedure, had been removed immediately from their posts by the finance ministry. The officers believed that the interest rate should have been lower because of the sovereign guarantees. Masroor Ahmed Qureshi who had served as Director General of the Debt Office for over eight years was sent back on Tuesday to his parent organisation, the National Bank, and the National Savings Organisation’s DG Zafar M. Shaikh was given additional charge of the post.

According to sources, Mr Qureshi declined to process the loan’s term sheet because he felt the proper procedure had not been followed.

The ministry’s Joint Secretary for External Finance Rizwan Bashir was also removed and replaced by Younas Gaga who had recently been promoted to grade 21.

The sources said a meeting for signing the loan agreement would be held in Lahore on Thursday.

The ministry’s spokesman Rana Asad Amin was not available for comments, but a senior officer said Mr Qureshi himself had requested Finance Minister Saleem H. Mandviwalla to relieve him of his assignment because his contract was expiring in a few months and he wanted to be repatriated to his parent organisation before the caretaker government came in.

He confirmed that Mr Qureshi and Mr Bashir had objected to the finalisation of the loan agreement, arguing that Wapda, the executing agency of the project, had not followed the procedure.

The Water and Power Development Authority had written a letter to the ministry of water and power for execution of the loan and sent a copy to the finance ministry. Under the standard procedure, a formal request should have been made to the finance ministry to examine the loan conditions and finalise the term sheet.

“This was an operational issue that should not have led to removal of the DG,” the official said, adding that the minister could have simply asked the water and power ministry to send a formal request or assign any other officer to finalise the term sheet.

He said Mr Bashir had also sought leave because he was awaiting promotion to grade 21 and did not want to serve under Mr Gaga, his junior who had been given early promotion.

A former finance secretary said Mr Gaga had never worked in the ministry before his current posting.

The sources said a minister who was among the electricity dues defaulters had come up with a proposal from a European firm which had earlier been named in Iraq’s ‘oil for food’ issue to supply oil worth $2bn on deferred payments to be provided through the same international bank.

However, the loan conditions offered by the bank were termed too expensive by the finance ministry’s key officers. The bank wanted an advance deposit of $100 million to enable it to arrange the financing of $50m monthly supplies, they said.

The terms were such that the bank would not have used its own resources and would have rolled over Pakistan’s advance to enable the foreign firm to arrange oil supplies from sources of its own choice.

Mr Qureshi and former finance secretary Abdul Wajid Rana had opposed the proposal.