Govt hesitant to give Gencos, Discos guarantee for Rs200b loan

ISLAMABAD: In a new development, the Finance Ministry has shown hesitance to extend the sovereign guarantee against the huge loan amounting to Rs200 billion the power division wants to raise against the 43 assets of Gencos (electric generation power companies) and Discos (electric power distribution companies). The loan will be utilised to partially off load the circular debt that has factually surged to over Rs1.3 trillion.

A Finance Ministry official says when loan of Rs200 billion will be arranged against the assets, and then there is no need to extend the sovereign guarantee. The Power Division is trying to generate the loan of Rs200 billion through six Islamic banks, including Meezan Bank Limited, Bank Islamic Pakistan Limited, Faysal Bank Limited, MCB Islamic Bank, Dubai Islamic Bank Limited and Al Baraka Bank Limited.

The banks want the sovereign guarantee of the government under Musharakah or Ijra facility, but the finance ministry argues saying when the assets are going to be pledged against the loan, then there is no need of the sovereign guarantee.

However, Secretary Irfan Ali says, “We need more loans, but, at present, we are in talks with Islamic banks consortium headed by Meezan Bank for loan against the assets of Gencos and Discos and the Finance Ministry to the best his knowledge has not refused to give sovereign guarantee.”

Mr Ali said that at the moment the Finance and Power divisions are in contact for finalisation of the repayment plan of the loan that will be attained from the Islamic Banks consortium.

An inter-ministerial committee, to this effect, comprising the Power Division, Law Division and Finance Division has been constituted to prepare repayment plan of up to 200 billion structured Islamic financing facility to be arranged from a consortium of six banks led by Meezan Bank Limited against Wapda, Gencos and Discos assets.

The option of Islamic financing against assets of Discos and Gencos has been weighed after reaching the conclusion that the new Nepra Act does not allow government to impose surcharge on consumers. The facility structure is defined as diminishing Musharakah or Ijra (sale and lease back).

The Meezan Bank Limited, Bank Islami Pakistan Limited, Faysal Bank Limited, MCB Islamic Bank, Dubai Islamic Bank Limited and Al Baraka Bank Limited under the first phase have committed to financing Rs100 billion to the facility on immediate basis. Another tranche of Rs100 billion may be arranged from the Islamic banking industry as Green Shoe Option.

The indicative commitments from the six banks show that the Meezan Bank Limited will extend the loan up to Rs50 billion, Bank Islami Pakistan Limited Rs20 billion, Faysal Bank Limited Rs20 billion, MCB Islamic Bank Rs10 billion, Dubai Islamic Bank Limited Rs08 billion and Al Baraka Bank Limited Rs5 billion. More importantly, the Meezan Bank will act as investment agent.

The officials said that syndicated term finance facilities amounting to Rs606.035 billion have already been executed through Power Holding (Private ) Limited for funding the repayment liabilities of Discos.

To a question, they said that the assets have been identified by the respective Discos and Gencos which were forwarded as consortium of banks, led by the Meezan Bank Limited for further short- listing for stage 1 (loan of Rs100 billion) facility.

According to sources, all the Boards of Directors of Discos and Gencos would have to agree to hold the properties in trust of banks.

The transaction documents will be governed by and construed in accordance with the laws of the Pakistan and Islamic banking regulations issued by the SBP.