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Cabinet approves Rs114b equity injection into power projects

Equity converted into ordinary and preference shares

Zafar Bhutta May 16, 2018

The cabinet was briefed that the entire equity injection of Rs114 billion could not be converted into ordinary shares due to the government’s policy and Nepra’s directive for 70:30 debt-to-equity ratio in power projects. PHOTO: FILE

ISLAMABAD: The cabinet has given approval with retrospective effect to equity injection of Rs114 billion into two liquefied natural gas (LNG)-based power projects in Punjab.

The cabinet, in its recent meeting, was told that the government had invested Rs114 billion as cash development loan in National Power Parks Management Company on standard terms for a period of 20 years with five-year grace period.

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Subsequently, with approval of the federal cabinet, a loan was acquired against the equity injection by the Pakistan Development Fund (PDF).

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Accordingly, Rs64 billion was injected as equity on June 30, 2017 into National Power Parks for financing two LNG power generation plants which included 1,223-megawatt plant at Balloki and 1,230MW plant at Haveli Bahadur Shah.

Later, another Rs50 billion was poured into National Power Parks on December 29, 2017, taking the total equity to Rs114 billion.

The second fund injection was required to be made by September 30, 2017 as approved by the cabinet. However, due to legal and regulatory due diligence, the goal could not be achieved.

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Hence, ex post facto extension for equity injection and repayment of the loan from September 30, 2017 to December 31, 2017 was required.

The cabinet was briefed that the entire equity injection of Rs114 billion could not be converted into ordinary shares due to the government’s policy and National Electric Power Regulatory Authority’s directive for 70:30 debt-to-equity ratio in power projects.

Therefore, the PDF equity injection was split into ordinary shares of Rs53 billion and preference shares of Rs61 billion to comply with the regulatory directive. The proposed conversion resulted in a maximum 30% equity stake in the total approved project cost of Rs174 billion.

The Finance Division sought ex post facto approval for equity injection by the PDF and repayment of the loan. The cabinet approved the proposal after detailed discussion.

Published in The Express Tribune, May 16^th, 2018.

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