The government on Thursday took responsibility of over Rs80 billion financial liabilities of Pakistan International Airlines (PIA) and Pakistan State Oil (PSO) despite a worsening fiscal position and just one and a half month after the approval of budget.
The Economic Coordination Committee (ECC) of the cabinet, which took these decisions, also approved 25% increase in imported fertiliser prices to Rs2,150 per bag aimed at matching the locally produced commodity rates. Finance Minister Miftah Ismail presided over the ECC meeting.
The ECC approved a proposal to issue the Letter of Comfort in favour of PSO for raising a loan facility of Rs50 billion on an urgent basis, according to a statement issued by the Ministry of Finance.
It added that the ECC also directed the Finance Division to divert some other allocated guarantees to PSO without exceeding the Rs105 billion domestic guarantee limit for the first quarter of current financial year.
The Petroleum Division had approached the ECC for issuing the sovereign guarantees in favour of PSO to help it raise Rs50 billion debt after banks refused to give the loan due to the worsening condition of PSO.
The Petroleum Division informed the ECC that PSO immediately needed cash to avoid default on its Rs110 billion international obligations, maturing before August 15.
It has become a routine for the government departments to bring proposals at the eleventh hour in the ECC meeting and force it to take decisions to avoid default.
Earlier, the ECC had approved a Rs30 billion supplementary budget for PSO on the same pretext.
HBL had formed a consortium of banks that included ABL, NBP, MCB and UBL for sanctioning the loan amounting to Rs50 billion to PSO through a government guarantee. As the issuance of guarantee will take time, the banks have shown their willingness to initiate the process of issuing the loan on the Letter of Comfort, the ECC was informed.
The ECC also approved a sovereign guarantee for financing facility of $142 million or Rs30.6 billion in favour of National Bank of Pakistan (NBP) for giving the loan to PIA for settlement of its financial obligation of Roosevelt Hotel, New York.
PIA owns Roosevelt Hotel through its subsidiary PIA Investment Limited (PIA-IL). The Ministry of Aviation submitted the summary regarding the issuance of sovereign guarantees in favour of NBP.
Roosevelt Hotel has been shut down since December 2020 to avoid losses. On the recommendation of a committee headed by former deputy chairman of the Planning Commission, Dr Jehanzeb Khan, the previous government had approved $142 million support for retiring the Roosevelt Hotel obligations. The Finance Division had arranged financing facilities as loans from the NBP.
However, the Law Division had then stopped the government from giving the guarantees due to litigation by Tethyan Copper Company Limited (TCC) in the Reko Diq case.
Since Pakistan and TCC have reached a standstill agreement till December 15, 2022, the government has decided to issue guarantees.
In case PSO and PIA fail to meet their financial obligations, the Ministry of Finance would pay back the loan to NBP and other commercial banks.
The government took the responsibility just one and a half month after approval of the budget, indicating either it deliberately understated the expenditures or the concerned ministries were not aware of their financial obligations.
The Ministry of Industries and Production tabled a summary for revision in the price of imported urea. It was informed that the price of imported urea stored in NFML warehouses was lower than the locally manufactured urea.
The ECC decided to increase the imported urea price by Rs432 per bag to Rs2,150, a surge of 25%.
Published in The Express Tribune, August 12th, 2022.
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