ISLAMABAD: The government allowed the Water and Power Development Authority (Wapda) on Wednesday to raise Rs244 billion from domestic commercial banks for timely completing two major hydropower projects of Rs900bn — Dasu and Neelum-Jhelum.

The decision was taken at a meeting of the Economic Coordination Committee (ECC) of the cabinet, presided over by Finance Minister Ishaq Dar.

The meeting postponed till Friday approval of a proposed $16bn gas sale and purchase agreement with Qatar for import of liquefied natural gas (LNG) till 2030.

Wapda Chairman Zafar Mahmood told Dawn that the 969MW Neelum-Jhelum hydropower project was being constructed without its financial close. “Today’s decision is a milestone for the project, which has now been put on the right track.”

He said a consortium of banks led by the National Bank of Pakistan was ready to extend Rs100bn for the project. The ECC decided to issue sovereign guarantees subject to approval of its revised cost by the Executive Committee of the National Economic Council (Ecnec).

The funding will be available to Wapda after formal approval of the project’s revised cost of Rs413bn by Ecnec next week.

Mr Mahmood said the project’s cost estimates were last approved by the Planning Commission three years ago, but without including major components like interest during construction and taxes and duties. The two items were, nevertheless, payable upfront to the banks and tax authorities and hence required to be made part of the final cost estimates.

He said the Central Development Working Party (CDWP) had cleared the revised cost estimates at Rs413bn by including three per cent contingency expenditure, instead of Wapda’s estimates of Rs414bn, including contingency cost of 5pc.

The Ecnec approval of Rs413bn will also enable China Exim Bank to extend a loan of $576 million. With the availability of these two loans (Rs100bn by local banks and $576m by China Exim Bank), the project’s financial close, which has been hanging in the balance for many years, will now be achieved.

On the basis of these funds, a timeline for project completion would be finalised with the contractors immediately, Mr Mahmood said, adding that the delay of one high-flow season deprived the nation of around $250m in lost opportunity cost.

He said there was no reason for delaying the project any further because financing had been lined up. It was a major problem in the past, he recalled.

Informed sources said the Rs100bn loan would be available to the Neelum-Jhelum project for 10 years, including a grace period of two years involving an interest rate of about Karachi Interbank Offered Rate (Kibor) plus 1.75pc. In case of timely payment (eight years), the interest rate would come down to Kibor plus 1.10pc, the sources said.

DASU DAM: About the 4,320MW Dasu hydropower project, the Wapda chairman said it was the first time that the authority had been able to arrange part financing of such a major project on the basis of its balance sheet. He said Wapda would raise Rs144bn for the project whose first phase’s (2,160MW) final cost had been estimated at around Rs486bn.

Mr Mahmood said sovereign guarantees would be available for Rs88bn loans from commercial banks while Rs56bn would be backed by Wapda’s own balance sheet. The World Bank would be providing around Rs184bn which on average were very soft and long-term loans of 25-30 years. This will include International Development Assistance (IDA) of Rs57.3bn, a commercial financing in foreign exchange worth Rs46bn, an export credit of Rs54bn and additional IDA/IBRD (International Bank for Reconstruction and Development) terms of Rs27bn.

The total cost of the Dasu project (first phase) has been estimated at Rs486bn, including interest during construction cost of Rs106bn.

The sources said the banking consortium would extend Rs88bn loan for 15 years, including a grace period of five years. This is expected to entail an interest rate of Kibor plus 1.40pc as it will be backed by the government’s sovereign guarantee. The banks are still demanding Kibor plus 2pc interest rate on the remaining Rs56bn which will be backed by Wapda’s own balance sheet.

COTTON SALE: The ECC, at the request of the commerce ministry, allowed the Trading Corporation of Pakistan (TCP) to sell its balance lint cotton stock on a retail daily basis at a minimum of Karachi Cotton Association’s spot rate for the day through commission agents to be hired by TCP through open tender.

The committee approved a payment of Rs1.4m to transportation company Mercedes Cargo Services on account of supply of wheat to Afghanistan in compliance with a court order.

It also approved release of funds to the Pakistan Steel Mills for payment of two months’ salaries to its employees.

The ECC allowed the petroleum ministry to set up two subsidiaries – LNG Import Limited and LNG Handling Company – for import of LNG and construction of second LNG terminal for which the government’s bid process fell into troubles. A committee has been set up to review legal requirements for the purpose.

Published in Dawn, November 26th, 2015