ISLAMABAD: The petroleum division has been asked by Economic Coordination Committee (ECC) for financing Rs175 billion RLNG-III pipeline via public-private partnership.
The pipeline will be laid from Karachi to Lahore, which will have a capacity of 1.2 billion cubic feet day (BCFD).
ECC meeting chaired by Prime Minister Shahid Khaqan Abbasi who also holds portfolio of Federal Minister for Energy, gave these directives to Sui Northern Gas Pipelines (SNGPL) and Sui Southern Gas Company (SSGC) after their mixed response over the raising of finance for this pipeline, reported Business Recorder.
Meetings held between Finance, Petroleum divisions and gas companies, the suggestion put forward was for mixed financing portfolio’s.
According to initial forecasts, both SNGPL and SSGC had requested Rs175.510 billion for the project, with SNGPL demanding Rs110.510 billion and SSGC Rs 65 billion respectively.
Petroleum Division (PD) shared both gas companies had expressed their failure at being able to raise appropriate funding from banks due to their weak balance sheets.
Also, both SSGC and SNGPL said they would be unable to meet the 80:20 debt to equity ratio which has touched 95:5 due to increased borrowings already made for execution of various other gas development projects.
For SSGC and SNGPL to earn a return from assets established under GIDC as cash development loan, these companies sought a soft loan since OGRA rules don’t permit return on assets to gas utilities in their revenue requirements.
Furthermore, PD shared reservations of SSGC, SNGPL over foreign financing for the project as the companies felt the project may face commitment problems due to its lack of confirmation.
The suggested financial model put forth envisages SNGPL providing Rs10 billion for this project from its savings in RLNG-II project, SSGC would spend Rs7.5 billion from GIDC allocation as CDL, whereas SNGPL will spend Rs12.5 billion.
SNGPL, SSGC will ensure the arrangement of Rs25 billion and Rs28 billion local financing sovereign guarantees from the Government of Pakistan (GoP). SNGPL will provide Rs8 billion financing from its own balance sheet and Rs10 billion will be extended forwarded by SSGC in this regard.
The suggested financial approval will be given go-ahead in case if both gas companies are unable to raise funds of Rs43 billion, including from their own balance sheets, and would be granted permission to obtain loans from commercial banks backed by GoP guarantee.
Before the project commitment is given, PD said it is important for the foreign financing component backed by GoP sovereign guarantees to be decided about.
The ECC after holding all consultations gave go-ahead to this project.