The government on Tuesday amended a policy in favour of Fauji Foundation to facilitate the acquisition of a stake in a power plant while revising its earlier decision to promote solar projects.
The decision was taken by Finance Minister Ishaq Dar-led Economic Coordination Committee (ECC) of the cabinet.
The ECC allowed equity investment of $4.9 million by Fauji Foundation for the acquisition of 2.75 million shares (18.64% stake) in Daharki Power Holdings Limited.
According to the Ministry of Finance, the ECC also waived and exempted Fauji Foundation from the policy enumerated in the Foreign Exchange Manual being incorporated as a trust under the Charitable Endowment Act 1980, according to the Ministry of Finance.
The Finance Division presented a summary as the government allowed Fauji Foundation to make an equity investment of $12 million abroad in Daharki Power Holdings in 2008.
Fauji Foundation, the Asian Development Bank and Daharki Power Holdings, BVI entered into an agreement in 2008, which provided the ADB the right to exercise put option concerning the 2.75 million shares subscribed by it.
However, the State Bank of Pakistan (SBP) was of the view that the existing foreign exchange policy did not allow the investment and it had to be amended.
The SBP believes that as per the Foreign Exchange Manual, Fauji Fertiliser being incorporated as a trust under the Charitable Endowment Act 1980 does not meet the policy requirement and will require ECC’s approval to waive the policy provision.
“The cumulative investment of Fauji Foundation in Daharki Power Holdings Limited exceeded the $10 million limit and stood at $16.9 million, which also required approval of the ECC,” the central bank added.
Daharki Power owns Foundation Power Company Daharki Limited (FPCDL). It has a total installed capacity of 186 megawatts and is a base load plant with 100% dispatch because of its dedicated domestic gas field and resulting low tariff.
The Power Division submitted a summary for amendments in the Standardised Security Package Documents (SPDs) for the large solar PV projects.
“The ECC, after discussion, approved the proposals that indexation of tariff in the SPDs is on an annual basis and payment mechanism for the settlement of invoices as per framework guidelines,” said the Ministry of Finance.
The federal cabinet’s approved framework guidelines state that “70% of the overall tariff will be indexed quarterly with exchange rate variation”.
Moreover, in addition to the government guarantees, payments under the energy purchase agreement will be ensured in “60 days after invoice” through bank debit from the dedicated solar account.
However, the ECC in November 2022, while approving the energy purchase agreement and implementation agreement for large-scale solar PV projects, approved a new payment mechanism proposed under the security package agreements for the settlement of invoices through the bank from a dedicated solar account to be maintained by the purchaser be deleted and replaced with the standard payment mechanism given under the earlier ECC approved agreements.
It also approved that the tariff would be indexed annually rather than on a quarterly basis on rate variation. The decisions of the ECC were subsequently ratified by the federal cabinet.
The Power Division had proposed that changes made in the SPDs would be reverted to the extent of indexation and payment mechanism for making the initiative successful.
The suggestion was given based on market response to the said modifications by the ECC and to ensure viability of the project.
Now, the ECC has linked the indexation quarterly and agreed that the payment mechanism for the settlement of invoices will be through bank debit from a dedicated solar account to be maintained by the purchaser and be included in the security package agreements.
The Ministry of Commerce tabled a summary on the import of agricultural tractors under the Kissan Package 2022 and proposed amendments in the Import Policy Order 2022 to reduce the cost of tractors.
The ECC after deliberation approved the proposals of the commerce ministry and allowed amendment in the relevant clause of IPO 2022 for the import of up to five-year-old tractors.
Regarding duty reduction for the import of secondhand tractors, the ECC allowed depreciation at 2% per month up to a maximum of 60% as already provided.
The ECC considered and approved a summary submitted by the Ministry of Commerce on policy regarding business-to-business barter trade mechanisms, especially where banking channels were absent and generally to facilitate trade with other countries.
The ECC also approved a supplementary grant of Rs300 million in favour of the Ministry of Energy (Power Division) for expenditures on development projects under PSDP being executed by Peshawar Electric Supply Company during the current financial year.
Published in The Express Tribune, January 18th, 2023.
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