ECC extends Rs50b loan guarantee

The Petroleum Division has informed the Economic Coordination Committee (ECC) that the financial position of its companies has improved and they now have sufficient stocks to retire the debt.

The ministry shared the information with the economic decision-making body in a recent meeting while discussing the loan guarantees for Sui Northern Gas Pipelines Limited (SNGPL) for liquefied natural gas (LNG) payments.

The Petroleum Division said that cash flows of energy management companies had shown a considerable improvement and sufficient funds would be available to retire the debt. The ECC directed the division to share projections of the SNGPL cash flow with them. It sought the projections in order to retire Rs50 billion worth of bank loans acquired for re-gasified LNG (RLNG) payments.

In a recent meeting, the ECC noted that short-term borrowing was made from commercial banks to meet financing needs, despite the fact that sufficient cash flow had been anticipated.

It expressed concern that the case had been submitted a year after the expiry of financing. It was explained that SNGPL would be able to pay off the amount in one year.

The Petroleum Division pointed out that the ECC while considering a summary submitted on March 14, 2023 had approved that the Finance Division would provide a sovereign guarantee along with the Letter of Comfort in favour of SNGPL for commercial borrowing of Rs50 billion on an immediate basis.

Pursuant to the ECC's decision, the Finance Division issued the sovereign guarantee on July 4, 2023 in favour of Allied Bank Limited (ABL), Faysal Bank Limited (FBL) and the National Bank of Pakistan (NBP) amounting to Rs20 billion, Rs20 billion and Rs10 billion respectively against the running financing facilities obtained by SNGPL on account of RLNG payments to Pakistan State Oil (PSO) and Pakistan LNG Limited.

The tenor of the financing facilities was one year, which expired on April 12, 2024. Currently, SNGPL is facing a liquidity crunch due to a huge circular debt, subsidies to the export/fertiliser sector, RLNG diversion to the domestic sector and financing costs. Thus, it was not in a position to repay the loans to banks and requested an extension in the validity period of guarantees by one year.

The Finance Division conveyed that the Petroleum division had submitted a summary to the ECC, seeking approval for the extension in the sovereign guarantee. Additionally, SNGPL may be advised to apprise the forum of the plan that envisages the servicing and retirement of the guaranteed facility for FY 2024-25.

In response to the Finance Division's letter, SNGPL said that its ability to repay the facility was compromised due to the circular debt.

SNGPL submitted the following position for the repayment of the loan and the settlement of circular debt by the government.

It proposed the conversion of the running finance facility into a long-term loan with a period of 5-10 years. The Petroleum Division further briefed the meeting that the instant matter was not a new case for the allocation of government guarantee; rather it was an extension in the validity period of the already issued guarantees.

The summary was circulated to the Finance Division for comments. The Finance Division endorsed the proposal for a one-year extension in the validity period of the already issued sovereign guarantee amounting to Rs50 billion in favour of SNGPL.

The Finance Division also stated that the extension would be construed as a new financing facility and the Petroleum Division may direct SNGPL to ensure strict compliance with the financing guidelines on the issuance of sovereign guarantees, dated February 3, 2020, while renewing the financing facilities for another year, after its approval.

The Petroleum Division proposed that the ECC may consider approving the extension of the validity period for one year, with effect from April 13, 2024, enabling SNGPL to remain afloat in payment obligations to LNG suppliers as well as to avoid any threat to LNG supply.

The ECC considered the summary regarding "Extension in Validity Period of Sovereign Guarantees issued against Running Finance/Musharakah Facility of Rs50 billion obtained from Allied Bank Limited, Faysal Bank Limited and National Bank of Pakistan for RLNG Payments" and approved the extension in the validity period up to June 2026, with the stipulation that it shall be a new facility and that the Petroleum Division shall comply with the guidelines of the Finance Division regarding issuance of sovereign guarantee.