ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has sought Sui Northern Gas Pipelines Limited (SNGPL’s) cash flow projections to ascertain its capacity to retire the loan of Rs 50 billion on expiry of the term in 2026, sources close to Petroleum Minister told Business Recorder.
Sharing the details, sources said that that the ECC while considering a summary submitted by the Petroleum Division on March 3, 2023 inter-alia approved the Finance Division to provide sovereign guarantee along with letter of comfort in favour of M/s SNGPL for commercial borrowing of Rs.50 billion on immediate basis.
Pursuant to the decision of the ECC, Finance Division issued sovereign guarantee on July 04, 2023 in favour of Allied Bank Limited (ABL), Faysal Bank Limited (FBL) and National Bank of Pakistan (NBP) amounting to Rs. 20 billion, 20 billion and 10 billion, respectively against running financing facilities obtained by M/s Sui Northern Gas Pipelines Limited on account of RLNG payments to Pakistan State Oil (PSO) and Pakistan LNG Limited.
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The tenor of financing facilities was one year which expired on April 12, 2024. Currently, SNGPL was facing severe liquidity crises due to huge amount being stuck up in circular debt from various stakeholders, subsidies to export/ fertilizer sector, RLNG diversion to domestic sector, financing cost; etc., and was not in a position to refund the said amount to lender banks; hence, requested for extension of validity period of the said guarantees for one year from the expiry dates.
According to sources, Finance Division conveyed that Petroleum Division may consider submitting a summary to the ECC seeking approval of extension of subject sovereign guarantee and SNGPL may be advised to apprise the forum on the business plan that envisages the servicing and retiring of GoP Guaranteed facility within FY 2024-25.
In response to Finance Division’s said letter, SNGPL submitted that their ability for repayment of facility was compromised due to gas circular debt and allied issues; however, recent consumer price revisions would likely to improve cash flows. Accordingly, SNGPL submitted following position for repayment of loan: (i) settlement on circular debt stock by GoP; and (ii) convert captioned running finance facility into a long term loan with a tenor of 5-10 years.
The Petroleum Division further noted that the instant matter was not a new case for allocation of GoP guarantee rather it is an extension in the validity period of already issued guarantees. The summary was circulated to Finance Division for comments.
Finance Division endorsed the proposal for extension in validity period of already issued sovereign guarantee amounting to Rs.50 billion in favour of SNGPL for one-year effective from April 13, 2024; and stated that this extension would be construed as a new financing facility and the Petroleum Division may direct SNGPL to ensure that Finance Division’s guidelines on issuance of sovereign guarantee on February 3, 2020 are strictly complied with while renewing financing facilities for another year, after its approval.
The Petroleum Division proposed that the ECC may consider approval of extension in validity period for one-year from April 13, 2024 of already issued sovereign guarantees of Government of Pakistan in favour of Allied Bank Limited (ABL), Faysal Bank Limited (FBL) and National Bank of Pakistan (NBP) amounting to Rs.20 billion, 20 billion and 10 billion, respectively against running finance/ Musharakah facilities enabling SNGPL to remain afloat in its payment obligations to LNG suppliers as well as to avoid any threat towards breakdown of LNG supply chain.
During the ensuing discussion, the ECC noted that short term borrowing from Commercial Banks was relied on to meet the financing needs, despite the fact that sufficient cash flow was not anticipated for the period to service the liabilities. The forum expressed concern that instant case had been moved after one year of expiry of the financing. It was explained that SNGPL would be able to pay off the amount in the next one year.
The Petroleum Division further informed the forum that the cash flows of energy management companies had also shown considerable improvement, and that sufficient cash flows would be available with the Petroleum Division to retire the loan. The forum directed the Petroleum Division to share projections of SNGPL cash flows with the ECC in its upcoming meeting.
After detailed discussion the ECC approved the extension in validity period of sovereign guarantee 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.
The ECC further directed the Petroleum Division to provide projections of cash flows to ascertain the capacity of the SNGPL to retire the loan on expiry of the term in the next meeting of the ECC.
Copyright Business Recorder, 2025
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