Government gives guarantees for Rs80b liabilities
The government on Thursday took responsibility for more than 80 billion rupees in financial debts of Pakistan International Airlines (PIA) and Pakistan State Oil (PSO) despite a deteriorating fiscal situation and only a month and a half after the approval of the budget.
The Economic Coordinating Committee (ECC) of the cabinet, which made these decisions, also approved a 25% increase in the prices of imported fertilizers to Rs 2,150 per bag aimed at matching the rates of locally produced staples. Finance Minister Miftah Ismail chaired the ECC meeting.
The ECC has approved a proposal to issue the letter of comfort in favor of PSO for the emergency lifting of a Rs 50 billion loan facility, according to a statement issued by the Ministry of Finance.
He added that the ECC has also ordered the finance division to divert certain other guarantees allocated to PSO without exceeding the national guarantee limit of Rs 105 billion for the first quarter of the current financial year.
The oil division had approached the ECC to issue the sovereign guarantees in favor of PSO to help it raise a debt of Rs 50 billion after banks refused to provide the loan due to deteriorating PSO state.
The oil division informed the ECC that PSO needed cash immediately to avoid default on its international bonds of Rs 110 billion, due before August 15.
It has become routine for government departments to bring last-minute proposals to the ECC meeting and force it to make decisions to avoid default.
Earlier, the ECC had approved a supplementary budget of Rs 30 billion for PSOs under the same guise.
HBL had formed a consortium of banks including ABL, NBP, MCB and UBL to sanction the Rs 50 billion loan to PSO through a government guarantee. As the issuance of the guarantee will take time, the banks have shown their willingness to initiate the process of issuing the loan on the letter of comfort, the ECC has been informed.
The ECC has also approved a Sovereign Guarantee for a $142 million or Rs 30.6 billion financing facility in favor of the National Bank of Pakistan (NBP) for extending the loan to PIA for the settlement of its obligation financial institution of the Roosevelt Hotel, New York.
PIA owns the Roosevelt Hotel through its subsidiary PIA Investment Limited (PIA-IL). The Ministry of Aviation has submitted the summary regarding the issuance of sovereign guarantees in favor of the NBP.
The Roosevelt Hotel has been closed since December 2020 to avoid loss. On the recommendation of a committee headed by former Planning Commission Deputy Chairman Dr. Jehanzeb Khan, the previous government approved $142 million in support for the retirement of the Roosevelt Hotel Bonds. The Finance Division had arranged financing facilities in the form of RBA loans.
However, the legal division then prevented the government from granting the guarantees due to the litigation brought by Tethyan Copper Company Limited (TCC) in the Reko Diq case.
Pakistan and TCC having reached a standstill agreement until December 15, 2022, the government has decided to issue guarantees.
In the event that PSO and PIA fail to meet their financial obligations, the Ministry of Finance will repay the loan to NBP and other commercial banks.
The government took responsibility only a month and a half after the budget was approved, indicating either that it had deliberately underestimated expenditure or that the ministries concerned were unaware of their financial obligations.
The Ministry of Industry and Production has filed a review summary of the price of imported urea. He was informed that the price of imported urea stored in NFML’s warehouses was lower than that of locally manufactured urea.
The ECC decided to raise the price of imported urea from Rs 432 per bag to Rs 2,150, an increase of 25%.
Published in The Express Tribune, August 12e2022.