ECC approves Rs190b in sovereign guarantees

Extends application of reduced WHT and imposes 10% duty on yarn import

ISLAMABAD:

The government on Thursday approved roughly Rs190 billion in sovereign guarantees for developing power generation and transmission projects, in addition to backing borrowings for the circular debt.

The Economic Coordination Committee (ECC) of the cabinet, besides approving the sovereign guarantees, also extended the application of 0.3% reduced withholding tax (WHT) on banking transactions to November 15 and slapped a 10% regulatory duty on the import of yarn, grey cloth and processed fabric.

The guarantees were approved by the ECC in order to provide resources for the projects that were critical for efforts aimed at ending power outages before the next general elections in 2018.

Finance Minister Ishaq Dar, who chairs the ECC meetings, has already announced that load-shedding of six hours a day would end in December 2017 - six months before the end of the government’s five-year term.

Power plants, transmission lines

The ECC approved the provision of sovereign guarantees for opening letters of credit for setting up two liquefied natural gas-fired power plants in Punjab. The total capacity of these projects would be 2,400 megawatts with a cumulative cost of Rs162.8 billion.

Of this figure, the cost of foreign machinery and equipment will be roughly $1.12 billion or Rs118 billion.

The sovereign guarantees have been provided for the letters of credit to be opened in favour of Chinese contractors to cover the $1.12 billion cost, according to the officials. The first letter of credit will cover 40% of the cost, amounting to $450 million.

These power plants will be set up in Haveli Bahadar Shah, Jhang district and Balloki, Kasur district, Punjab.

The government has allocated Rs45 billion in the Public Sector Development Programme to cover the cost of these projects.

The ECC also approved issuance of revised sovereign guarantees worth Rs37.7 billion for the controversial 425MW Nandipur power project. The guarantees will be issued to a syndicate of local banks - HBL, NBP, UBL, Askari Bank, Bank Alfalah and the Bank of Punjab - for financing the project.

The PML-N government secured these loans when it revived the project after coming to power in June 2013.

The revision of guarantees will enable the syndicate to extend the financing facility till June 1, 2016, according to a press statement issued by the finance ministry. The ECC also granted approval for the issuance of sovereign guarantees against the financing facility of Rs18 billion for the Thar-Matiari transmission line project. Under the project, electricity produced from the Thar coal-based 1,200MW plant will be transmitted to the national grid.

The committee extended sovereign guarantees for the Rs15 billion term financing facility from the National Bank of Pakistan. The loan has been on the books of Power Holding (Private) Limited to bridge the gap arising out of the circular debt.

The facility has been in place for the last two years and it has been extended for another two years, said the finance ministry.

The government is already charging 43 paisa per unit as a debt servicing surcharge to cover the cost of the syndicated term credit financing.

It is also collecting Rs1.54 per unit in electricity rationalisation surcharge by denying the consumers benefits of reduced prices.

Other decisions

The ECC extended the applicability of the reduced 0.3% withholding tax on banking transactions by non-filers of tax returns up to November 7. It was decided that if the National Assembly extended the Income Tax Ordinance 2015, the reduced tax rate will remain in place until November 15.

The ECC also endorsed a critical element of the textile package, which the finance minister had agreed with the industrialists. It approved 10% regulatory duty on the import of cotton yarn and grey and processed fabrics of cotton. The value-added textile sector, however, is opposing the levy.

The ECC also approved provision of 64,000 tons of wheat to the United Nations World Food Programme for the displaced people of Fata and Khyber-Pakhtunkhwa. This wheat costing Rs2.6 billion will be distributed by December this year.

Published in The Express Tribune, October 30^th, 2015.

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