The government on Friday approved sovereign guarantees to help Water and Power Development Authority (Wapda) arrange $350 million in loan from Credit Suisse for meeting external financing needs for the 2,160-megawatt Dasu hydroelectric power project.
The Economic Coordination Committee (ECC) of the cabinet, headed by Finance Minister Ishaq Dar, allowed the Ministry of Finance to issue sovereign guarantees to cover a loan of $140 million.
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The World Bank, which is the lead financier of the Dasu project, is providing guarantees for the remaining $210 million. The bank will charge 0.75% interest for the guarantees.
The ECC also approved the draft of a tripartite power purchase agreement in order to meet the condition for a $400-million loan for balance of payments support. The government is desperately looking for the loan before the end of June.
The ECC accepted the proposal of the Ministry of Water and Power for government guarantees for the $140-million loan for the Dasu power project.
Total cost of first phase of the project is $4.4 billion. The World Bank has already approved a credit of $588 million and is expected to give another $533 million in the current fiscal year. This leaves a gap of $2.4 billion that will be bridged by borrowing from domestic and international debt markets.
The government has arranged $1.44 billion or Rs144 billion from domestic markets and now plans to raise $800 million from foreign debt markets. Wapda will arrange $350 million from international capital markets for 10 years by using both sovereign guarantees and the World Bank’s partial credit guarantees.
Wapda also plans to issue $500 million worth of bonds in the international capital market next year to arrange the remaining funds.
Credit Suisse has offered the lowest interest rate at London Interbank Offered Rate (Libor) plus 3% for 10 years, according to official documents. However, the bank will also charge 1.5% of the total loan as arrangement fee in addition to the commitment fee.
The ECC approved the draft of a standard power purchase agreement, which will be used as template for future deals, said the finance ministry.
It is a tripartite agreement between the Central Power Purchasing Agency Guarantee Limited on behalf of ex-Wapda distribution companies, National Transmission and Despatch Company and power producers.
Sources said the tripartite agreement was one of the many conditions of the Asian Development Bank (ADB) for a $400-million policy loan including $100 million from the French Development Agency.
The $400 million is part of a $700-million policy loan Pakistan is seeking from the ADB over the next two months to stave off pressure on the external sector.The Ministry of Water and Power has said in its official summary that the tripartite agreement is “the structural benchmark”. However, due to paucity of time, the ministry did not circulate the summary to all stakeholders.
The ECC approved a proposal of the Economic Affairs Division for exempting the Japan International Cooperation Agency from all levies and taxes on the loan extended by Japan on concessionary terms. Japan is giving $26 million for the Islamabad-Burhan Transmission Line Reinforcement project.
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The objective of the project is to improve reliability of the national grid and meet growing demand for electricity through reinforcement of the transmission lines which are necessary for power supply to the Islamabad Capital Territory and surrounding areas.
The ECC also approved a request of the Ministry of Industries and Production to reduce the price of imported urea lying with the National Fertiliser Marketing Limited to Rs1,000 per 50kg bag. The price was slashed by Rs200 as the government was struggling to clear 163,000 tons of urea.