ECC Approves Rs. 21 Billion Sovereign Guarantee for LNG-II Pipeline Project

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The Economic Coordination Committee (ECC) of the Cabinet Tuesday approved the proposal of the Petroleum Division regarding issuance of sovereign guarantee amounting to Rs. 21 billion in favor of Faysal Bank at a considerably lower markup rate for the remaining tenor of the loan along with the issuance of Letter of Comfort for new finance agreement with respect to pipeline infrastructure development project LNG-II.

Federal Minister for Finance and Revenue Shaukat Tarin presided over the meeting of the Economic Coordination Committee (ECC).

The ECC, while considering a summary submitted by the Petroleum Division in 2015, had approved bank borrowing to the extent of Rs. 101 billion in favor of M/s SNGPL and M/s SSGCL to carry out Phase-Il of Pipeline Project whereas Finance Division was advised to provide Government of Pakistan (GoP) guarantee in favor of these gas utility companies enabling them to arrange the required financing from commercial banks.

The Finance Division, under the decision of the ECC in 2016 had issued a sovereign guarantee to M/s SSGCL in favor of Habib Bank Limited for securing a loan worth Rs. 39.8 billion. The guarantee is valid for the tenor of the loan from FY 2016 to FY 2026.

M/s SSGCL under the agreed term sheet secured a loan of Rs. 39.8 billion at six (6) months KIBOR + 110 bps. The outstanding amount at present is Rs. 21,012.5 million. In view of the high pricing of the current loan, M/s SSGCL swapped the debt with a lower mark-up rate. Reportedly, Faysal Bank Limited (as Agent/Investment Agent) has offered Syndicated Term Finance Facility at six (6) month KIBOR + 10 bps.

As per terms of the new loans, a Letter of Comfort in favor of a new lender bank for an amount of Rs. 21 billion was required to be issued by the Finance Division for disbursement of funds. The issuance of a sovereign guarantee was also required for the security against the said loan. For issuance of a Letter of Comfort and fresh GoP guarantee against the proposed financing, Finance Division had advised that approval of ECC may be solicited.

Petroleum Division was of the view that the matter was not a new case for allocation of GoP guarantee as after issuing LOC, the existing bank guarantee, as stated above, was required to be re-issued in favor of new lender banks against the current outstanding amount of the previous loan i.e. Rs. 21 billion for the remaining tenor of the loan.

Forgoing in view, Petroleum Division had proposed that ECC may consider approval of sovereign guarantee in favor of Faysal Bank for the remaining tenor of the loan which is 4.5 years along with the issuance of Letter of Comfort by the Finance Division.

Faiz Paracha is a seasoned broadcast journalist with over 15 years’ experience in reporting and e...

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