The government wants to investigate a “banking cartel”
The government decided to contact the Pakistan Competition Commission (CCP) to ask them to examine the possible formation of a cartel of commercial banks to offer loans to public sector entities at high costs.
The move came as commercial banks offered financing at higher rates for the laying of a gas pipeline by utilities to transport liquefied natural gas (LNG) imported from the south to the north of the country.
LNG imports began against the backdrop of a deal between the previous Muslim League of Pakistan-Nawaz (PML-N) government and Qatar for gas supply. For the management of imports, the government awarded an LNG terminal contract to Engro.
However, the country needed a gas pipeline from Karachi to Lahore to pump the imported gas into the network of Sui Northern Gas Pipelines Limited (SNGPL) to meet the consumption needs of the gas-starved Punjab province.
SNGPL has secured Rs 54 billion in commercial bank loans at high rates for the pipeline project. Today, the company entered into a debt swap agreement with banks and solicited offers for new loans. However, he needs a comfort letter to secure the new loans.
The government has decided to approach the CCP while examining the request for the issuance of a sovereign guarantee and a comfort letter to lending banks for a new financing agreement for the pipeline infrastructure development project. LNG-II.
The Economic Coordination Committee (ECC), in a meeting held last week, asked the Finance Division and the Securities and Exchange Commission of Pakistan (SECP) to jointly develop a framework / strategy to reduce the cost public sector borrowing from commercial banks. companies.
In this regard, he said, the CCP can be consulted to take appropriate measures to avoid the possibility of cartel formation by commercial banks while offering loans to public sector companies.
It has been proposed that the ECC may consider approving a sovereign guarantee in the amount of Rs24.188 million to banks for the remaining term of the loan, four and a half years.
The ECC reviewed and approved a summary submitted by the Petroleum Division titled “Issuance of Sovereign Guarantee and Letter of Guarantee and Letter of Comfort to Lending Bank for New Financing Agreement Regarding the LNG-II pipeline infrastructure development project â.
The petroleum division recalled that the ECC had approved a bank loan of Rs 101 billion by SNGPL and Sui Southern Gas Company (SSGC) for the execution of the second phase of a gas pipeline project.
The Finance Division has been requested to provide a government guarantee for the required financing of Rs 101 billion.
The Finance Division had issued a guarantee in 2016 in favor of the SNGPL to set up financing of Rs54 billion with a syndicate of commercial banks. The warranty is valid until 2026.
SNGPL guaranteed the loan at the six-month Karachi (Kibor) Interbank Offered Rate plus 1.1%. At present, the outstanding loan is Rs 24.1 billion.
Considering the high cost, SNGPL decided to swap the loan with a loan at a lower margin while the prepayment penalties of all banks were removed. Tenders have been issued for new loans.
The finance division has approved new term loans whereby a comfort letter is required for Rs 24.18 billion to disburse the funds.
Posted in The Express Tribune, January 6e, 2022.
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