Govt pays $10.038m as commitment charges for not utilising loans

ISLAMABAD: The government paid $10.038 million as commitment charges to multilateral institutions for not utilising the sanctioned loans earmarked for different projects during the last fiscal year (July 2017 to June 2018).

Documents available with Pakistan Today revealed that the Pakistani government paid commitment charges amounting to $5.250 million in July 2017, $0.129 million in September 2017, $4.627 million in January 2018 and $0.022 million in March 2018.

Commitment charges is a fee charged by the lender to a borrower for an unused or undisbursed loan since it has set aside the funds for the borrower and cannot yet charge interest. The multilateral institutions normally keep 0.15 per cent commitment charges per annum against each project.

Sources said that the government received billions of rupees in loans for a number of projects from multilateral organisations, including the Asian Development Bank and the World Bank. However, they added, owing to the government’s inability to plan and execute, most of the fund remained unutilised.

The sources, citing the example of Jamshoro Power Project, said that project was approved in December 2013 and became effective in November 2014 after a lapse of 11 months. A total loan amount of $900 million was released for the project but the funds were not unutilised.

First, the contract was put on hold due to Economic Coordination Committee’s (ECC) review of the project and Economic Affairs Division’s (EAD) compliance with the contract award conditions in the loan agreement. For the best interest of the project and following the government’s request, ADB issued amendments to the loan and project agreements, which were counter-signed by the government and EA.

In January 2018, the Islamic Development Bank (IDB) cancelled its financing for the project and ADB was made to fully finance the unit 1 of the project. Following the amendment, the contract for unit 1 and its operation and management were signed with Siemens-Harbin consortium on 29 March 2018 and an advance payment ($46 million) was disbursed in June 2018. Due to unavailability of financing for unit 2, the contract award for unit 2 is still pending.

“Presently, no government institution, including EAD, calculates the commitment charges, however, the cost is presented in debt servicing,” sources said.

A senior official of EAD said it was unfortunate that the government could not use the amount despite the fact that the departments sit with the lending organizations every six months to check the status of each project.

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