Bank loans: ECC refuses to permit Rs2b mark-up payment

Power ministry has to bear mark-up on loans being acquired to pay hydel profit to K-P

ISLAMABAD: The Economic Coordination Committee (ECC) has refused to allow the Ministry of Water and Power to pay Rs2 billion in mark-up on loans being acquired to pay the first installment of net hydel profit to Khyber-Pakhtunkhwa and asked the ministry to seek prior approval of the Council of Common Interests (CCI).

The ECC’s response came after the ministry asked the committee to revise upwards the settlement cost of net hydel profit from Rs70 to Rs72 billion in a meeting held on May 7, said officials who were aware of the development.

During the deliberations, the ECC sought explanation from the ministry for the Rs2 billion increase in the cost of net hydel profit payable to K-P. The ministry replied that the additional amount was needed to pay the mark-up on commercial loans being obtained from banks.

The ECC noted that the issue of net hydel profit arrears of K-P, which would be cleared by the federal government, had been settled and termed the demand for additional funds unjustifiable.

It was of the view that it would be the sole responsibility of the power ministry to seek the CCI’s nod for the increase in the payable amount.

Earlier, the central and K-P governments, following reconciliation of mutual claims, had agreed on the release of Rs70 billion as settlement of the arrears of net hydel profit.

Afterwards, the Water and Power Development Authority (Wapda) sought approval of the CCI and approached the National Electric Power Regulatory Authority (Nepra) with a supplementary tariff petition on April 5, 2016.

The Ministry of Water and Power told the ECC that according to a memorandum of understanding, it had to pay Rs25 billion to the K-P government by the end of current financial year on June 30.

However, it would be difficult to collect the amount through a built-in tariff in the current financial year which was about to end in almost a month. In case the required amount was recovered through the built-in tariff during the year, it would lead to a substantial increase in the consumer tariff, the ministry said.

To avoid this, the finance ministry, power ministry and the K-P government met and reached an understanding. They decided that Wapda would acquire a loan of Rs25 billion and the matter would be referred to the CCI for ratification.

The power ministry submitted three proposals to the ECC. First, Wapda should be allowed to raise Rs25 billion in loans from local banks with sovereign guarantee of the government of Pakistan for the payment of net hydel profit to K-P during the current financial year.

Another proposal said the settlement amount should be revised from Rs70 to Rs72 billion and in the third proposal the ministry said the revision in the settlement amount should be presented in the forthcoming CCI meeting for ratification.

The ECC approved the first proposal, allowing borrowing of Rs25 billion from commercial banks.

Published in The Express Tribune, May 22^nd, 2016.

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