ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet is reportedly unwilling to convert "financially unviable" NHA loans into government grant or waive-off these without Finance Ministry’s input, well-informed sources told Business Recorder.

Sharing details, sources said Ministry of Communications revealed that earlier a summary on this matter was submitted to the ECC for consideration.

On November 28, 2019 ECC considered the summary and constituted a committee under the chairmanship of the Minister for Planning, Development and Reforms comprising Secretary, Communications Division, Secretary, Finance Division, Secretary, Economic Affairs Division, Deputy Chairman, Planning Commission and Chairman, NHA to look into the issue holistically and submit its report to the ECC for consideration.

The sources said the first meeting of the committee was held on December 18, 2019 under the chairmanship of Minister for Planning, Development and Special Initiatives. After having deliberated on the matter at length, the following directions were given to Finance Division and NHA by the Committee: (i) Ministry of Finance to share weighted average cost (markup) of the development loans with estimated non-tax receipt share to be received from NHA in financial year 2019-20; (ii) Ministry of Communications/ NHA to provide audited financial statements of the entity to assess the financial health of the Authority and also give a comprehensive presentation on financial statements of NHA in next meeting; and (iii) Ministry of Finance to give response to NHA's proposal regarding future allocation of funds as government grants to NHA. A response could also be given on the proposal that CDL may be advanced only for commercially feasible projects on which Finance Division and NHA mutually agree on the terms and conditions of the loan and its repayment.

The second meeting of the committee was held on January 9, 2020 wherein NHA presented a comprehensive presentation on its audited financial statements for the Financial Year 2017-18. The committee was informed that financial statements of NHA were prepared in accordance with the accounting and reporting standards as applicable in Pakistan which comprises of International Financial Reporting Standards (IFRS Standards) issued by the International Accounting Standards Board (IASB) under the Companies Act, 2017. At the conclusion of the 2nd meeting, the Deputy Chairman Planning Commission (DCPC), desired to hold a follow-up meeting on the following: (i) to reconcile CDL & FRL figures as of December 2019; (ii) to provide road-wise and province-wise revenue streams and expenditure of NHA; (iii) to provide comparison of toll rates with other regional countries; and (iv) to provide any other proposal for the management of long outstanding debt.

In a meeting held on 16 January, 2020, a subcommittee was constituted under the Chairmanship of Member (PSD), Ministry of PD&SI and Joint Secretary, Finance Division, GM (Planning and DD Finance) NHA as members. The sub-committee asked NHA to provide the following in the next meeting: (i) cash-flow statement for at least 12 months ending June 30, 2019; (ii) confirmation of NHA's PSDP 2019-20 amount; (iii) at least 3 years audited financial statements, with endnotes; (iv) a soft copy of NHA's business plan presentation; (v) breakdown of administration, HR/ pension expenses for 12 months period ending 30th June 2019; (vi) finalized and confirmed loan amounts; (vii) one power point slide on key issues to revenue generations/collection; and (viii) timeline for the creation of financial projections of at least 15 years depicting financial results under the envisioned reorganization and business plan.

The third meeting of the committee was held on August 24, 2020 wherein following findings of the sub-committee constituted by the DCPC were discussed/analyzed: (i) analysis of the audited financial statements of NHA revealed that with current revenue stream and given organization structure, NHA is not in a position to pay out its loan installments; (ii) projects undertaken by the Authority are not selected purely on financial viability but rather selected for socio-economic benefits and to ensure national integration through an efficient, reliable, safe and environment friendly national highways and motorway network for sustained economic growth and higher quality of life in Pakistan; (iii) the projects which are executed in remote areas have very less revenue generation potential to recoup the funds expended or even to reach the break-even point at any definite period of time; (iv) currently NHA's existing liability for CDL and relented loans (through Economic Affair Division) exceeds Rs 2.2015 trillion which renders NHA as a non-financially viable entity; (v) Government of Pakistan established Pakistan International Sukuk Company Limited (PISCL) and Pakistan Domestic Sukuk Company Limited (PDSCL) which are operating under the companies law. By underlying the assets of NHA, Sukuk (International Sukuk worth $ 3.6 billion and domestic Sukuk of Rs 714.6135 billion) have been issued by Finance Division to raise funds; and (vi) NHA had undertaken various provincial projects from the PSDP releases (CDL) which were later on handed over to the Provincial Governments. However, PSDP releases for these projects are still reflected in the books of NHA as Cash Development Loans along with accrued interest, which creates a huge negative impact on NHA's financial health.

Ministry of Communications requested the ECC to consider the following recommendations “unanimously” agreed by all committee members: (i) outstanding mark-up accrued till date on all CDL/FRL on NHA shall be capitalized as on June 30, 2020; (ii) there will be a moratorium on further accrual of mark-up on the capitalized CDL/FRL; (iii) there will be a grace period of five years on the recovery of loan after which the loan shall be recovered in 25 years in equal annual installments. During this grace period NHA shall restructure and develop a comprehensive long-term business plan by enhancing revenues from its existing streams as well as by augmenting revenues from ancillary businesses with the objectives of making NHA a corporate entity in due course of time; (iv) in future, all PSDP funding to NHA for projects initiated by NHA shall be treated as CDL (or FRL) on existing terms whereas funding for projects undertaken by NHA on the directives of the Government of Pakistan shall be treated as a grant to the extent of viability gap of the project. Existing PSDP portfolio of NHA shall also receive a similar treatment. Approving forum of PSDP projects shall take decision in this regard on case to case basis for current and future projects of NHA.

During the ensuing discussion, the Adviser to the Prime Minister for Institutional Reforms and Austerity pointed out that in order to make NHA commercially viable, three measures were essential to be carried out: (i) Right of Way (RoW) may be commercialized on a corporate model to be prepared by NHA; (ii) NHA should adopt a balance sheet model so that borrowing may be made on the basis of credit rating rather depending on government borrowings; and (iii) the composition of NHA should be restructured through inclusion of market and commercial expertise therein to make it a corporate entity. Adviser to the Prime Minister on Finance and Revenue agreed with the logic of the proposal but also indicated a need to explore validity of the expenses and revenue of NHA.

After a detailed discussion on the proposal for conversion of NHA loans into Government Grant or waive off the Ministry of Communications was directed to submit a detailed operational and corporatization plans for NHA in consultation with Finance Division and submit it along with subject proposal to ECC for consideration.