MoF to issue LoC for Rs10bn loan pact with Faysal Bank

ISLAMABAD: The Finance Ministry is to issue Letter of Comfort (LoC) for signing of agreement with M/s Faysal Bank Limited for a loan of Rs 10 billion for coal-fired Jamshoro power plant prior to issuance of sovereign guarantee enabling JPCL to proceed further for finalization of loan, well-informed sources told Business Recorder. 

Sharing the details, sources said, Asian Development Bank (ADB) has financed the Lot-l 660 MW of 2x660 MW super critical coal power project Jamshoro for electric power generation on blended coal i.e. 80% imported sub-bituminous coal & 20 per cent Thar Lignite.

The 2x660 MW coal fired power project Jamshoro, under Jamshoro Power Company Limited (JPCL/Genco-1) was approved by the Ecnenc on April 18, 2014. The project consists of Lot-I & l or two units of 660 MW each. The Engineering Procurement & Construction (EPC) contract of Lot-l (Unit No.1 pus common facilities) was signed with M/s. Siemens (Germany) and Harbin Electric International (China on 29 Marah 2018 as EPC contractors.

As of now, the progress at site is 90.6% and planned completion is November 2022 (Lot-1).

As per PC-1 of the project, the debt/equity ratio is 70:30. The 70% debt portion ofLot-1 is being financed by ADB through relent loan of GoP, whereas, as per PG-1, the30% equity portion was to be arranged though GoP funds (through Cash Development Loan (CDL) or grant or by Genco-I/JPCL. JPCL initiated the process in 2016 for availing loan from commercial banks and submitted request to leading commercial banks. After vigorous efforts, only NBP showed interest in 2017 by providing initial terms; Finance Division was kept on board throughout the process, despite the concurrence of Finance Division. NBP changed the terms on three occasions. Finally, NBP showed its inability to proceed with the finance facility. Given that initially some of the funding was arranged through Genco-I funds and so Genco-I has again financed the Project to the tune of Rs. 3.530 billon as of May 31, 2022.

On August 27, 2020, the Cabinet Committee on Energy (CCoE) reduced the Return on Equity (RoE) of the GENCOs from 13% to 10%, which has reduced substantially the capacity of GENCOs to bridge finance any further. The current decision of CCOE of October 10, 2020 for reduction in capacity charge, closures of power plants and shifting of tariff base on take & pay has further reduced the capacity of GENCOs.

In absence of equity financing, the project is facing financial crunch to meet committed obligations towards the contractors. The pending outstanding payments to EPC contractors on account of equity portion are increasing day-by-day and it is feared that further delay in arrangement of local currency financing will start hampering the progress/commissioning of the project.

The total equity portion required for Lot-I of the project in local currency is Rs. 21.5 billion. During FY 2020-21, with approval of ECNEC, Finance Division has provided CDL to JPCL/(Genco-1) amounting to Rs 2.355 billion and for rest of amount of Rs. 19.145 billion the Ministry of Energy (Power Division) proposed to provide as CDL in FY 2021-22 to JPCL and a summary for Ecnec was accordingly moved.

During Ecnec meeting held on September 10, 2021, the Finance Minister directed that the Power Division shall process the case, in consultation with the Finance Division, for arrangement of financing facility for the project from the National Bank of Pakistan/other commercial banks as front-loading measures. This funding shall be then back-loaded through next year’s PSDP.

In line with Ecnec decision, JPCL approached NBP and other commercial banks. In response M/s. Faysal Bank limited submitted their Indicative Terms Sheet to JPCL. After deliberation and discussion, M/s Faysal Bank Limited has submitted its revised term sheet in line with the guidance of Ministry of Finance and Finance Division accorded its approval on June 1, 2022.

The Term Sheet of STFF includes the condition of “unconditional and irrevocable first demand guarantees” of the President of Pakistan covering entire facility amount along-with all markup/profit payments. The Board of Directors of JPCL has also approved the Tem Sheet of Faysal Bank Limited.

After explaining history of the case, Power Division has approval of ECC for issuance of GoP sovereign guarantee for Rs.10 billion in favor of local banks/financial institutions as per following proposals: (i) for Rs. 10 billion STFF agreed with M/s. Faysal Bank Limited with consent/approval of Ministry of Finance on terms & condition of the facility; (ii) the remaining amount of Rs. 9.145 billion may be allocated through the next year PSDP budget for the

FY-2022-23 as directed in ECNEC meeting held on September 10, 2021; and (iii) moreover, due to the paucity of time and urgent requirements for successful commissioning of 660 MW coal power project Jamshoro, the Ministry of Finance may be directed to issue letter of comfort before issuance of GoP sovereign guarantee enabling JPCL to proceed further for finalization of loan.—MUSHTAQ GHUMMAN