ISLAMABAD: Ministry of Finance to issue Letter of Comfort (LoC) for signing agreement with M/s Faysal Bank Limited for Rs 10 billion loan for Jamshoro Coal Power Plant ahead of issuance a sovereign guarantee allowing JPCL to go further to finalize the loan, informed sources told Business Recorder.
Sharing the details, sources said that the Asian Development Bank (AfDB) has financed the 2×660 MW lot-l 660 MW Jamshoro super critical coal power project for power generation on blended coal, it i.e. 80% imported sub-bituminous coal and 20% Thar Lignite.
The 2×660 MW Jamshoro Coal Power Project, under Jamshoro Power Company Limited (JPCL/Genco-1) was approved by Ecnenc on April 18, 2014. The project consists of Lot-I&l or two units of 660 MW each. The Engineering, Procurement and Construction (EPC) contract for Lot-1 (Unit 1 plus Common Facilities) has been signed with M/s. Siemens (Germany) and Harbin Electric International (China on March 29, 2018 as EPC contractors.
Currently, progress on site is 90.6% and expected completion is November 2022 (Lot-1).
According to PC-1 of the project, the debt/equity ratio is 70:30. The 70% portion of Lot-1 debt is financed by AfDB through a bond loan from the GoP, whereas, in accordance with PG-1, the 30% portion of equity was to be arranged by the GoP funds (through Development Cash Loan (CDL) or Grant or through Genco-I/JPCL. JPCL initiated the process in 2016 to obtain loan from commercial banks and has submitted an application to major commercial banks After vigorous efforts, only the NBP showed interest in 2017 by providing initial conditions, the Finance Division was kept on board throughout the process, despite the Division’s agreement NBP changed the conditions three times. Finally, NBP showed its inability to proceed with the financing facility. Since initially part of the financing was arranged through the Genco-I funds and that Genco-I has again funded the project to the tune of Rs. 3.530 billion as of May 31, 2022.
On August 27, 2020, the Cabinet Committee on Energy (CCoE) reduced the return on equity (RoE) of the GENCOs from 13% to 10%, which significantly reduced the ability of the GENCOs to further fund the relay. The current CCOE decision of October 10, 2020 for capacity load reduction, power plant closures and shifting the tariff base to take & pay has further reduced GENCO capacity.
In the absence of equity financing, the project faces financial difficulties in meeting obligations to contractors. Outstanding payments pending to EPC contractors under equity share are increasing day by day and there is concern that further delays in arranging local currency financing will begin to hamper progress/implementation. project department.
The total share of equity required for Lot-I of the project in local currency is Rs. 21.5 billion. In FY 2020-21, with the approval of ECNEC, the finance division provided CDL to JPCL/(Genco-1) in the amount of Rs 2.355 billion and for the rest amount of Rs. 19.145 billion which the Ministry of Energy (Power Division) has offered to provide as CDL in the financial year 2021-22 to JPCL and a summary for Ecnec has been moved accordingly.
During the Ecnec meeting held on September 10, 2021, the Minister of Finance ordered that the Energy Division process the file, in consultation with the Finance Division, for the arrangement of a financing facility for the project from of National Bank of Pakistan/other commercial banks in front -loading measures. This funding will then be carried over to next year’s PSDP.
In accordance with Ecnec’s decision, JPCL approached NBP and other commercial banks. In response M/s. Faysal Bank limited has submitted its indicative term sheet to JPCL. After deliberation and discussion, M/s Faysal Bank Limited has submitted its revised term sheet in accordance with the guidelines of the Ministry of Finance and the Finance Division which granted its approval on June 1, 2022.
STFF’s term sheet includes the President of Pakistan’s condition of “Unconditional and Irrevocable Guarantees on First Demand” covering the full amount of the installation plus all markup/profit payments. JPCL’s Board of Directors has also approved Faysal Bank Limited’s Tem Sheet.
After explaining the background to the case, Power Division obtained approval from ECC for the issuance of a GoP Sovereign Guarantee for Rs.10 billion in favor of local banks/financial institutions under the following proposals: (i) for Rs. 10 billion STFF agreed with M/s. Faysal Bank Limited with the consent/approval of the Ministry of Finance on the terms and conditions of the facility; (ii) the remaining amount of Rs. 9.145 billion could be allocated through next year’s PSDP budget for the
FY-2022-23 as indicated during the ECNEC meeting held on September 10, 2021; and (iii) further, due to time constraints and urgent requirements for the successful commissioning of the 660MW Jamshoro Coal Power Project, the Ministry of Finance may be requested to issue a letter of comfort before issuance of the GoP sovereign guarantee allowing JPCL to go further to finalize the loan.
Copyright Business Recorder, 2022