Rs256bn loans written off since 1971, SC told

By Nasir Iqbal
ISLAMABAD, Feb 3: The State Bank informed the Supreme Court on Tuesday that commercial banks had written off loans of up to Rs256 billion of more than 669,000 people over a period of about 40 years. After taking suo motu notice of press reports that the central bank had quietly allowed commercial banks to write off loans of Rs54.6 billion under a scheme introduced by former president Pervez Musharraf, the court had ordered SBP Governor Syed Saleem Raza last month to collect details of all loans written off since 1971.

Advocate Syed Iqbal Haider, representing the SBP, submitted a report before a bench comprising Justice Sardar Mohammad Raza Khan, Justice Chaudhry Ijaz Ahmed and Justice Mahmood Akhtar Shahid Siddiqui.

He said the figures were provided by commercial banks after they had been informed about the order of the Supreme Court at a meeting held on Jan 2. Of the amount written off from 1971 to 2009, Rs213.794 billion was of loans of Rs500,000 or more borrowed by 23,445 people. In the category, Rs11.2 billion borrowed by 1,424 people was written off from 1971 to 1996 and Rs202.5 billion due from 22,021 borrowers from 1997 to 2009. Loans of less than Rs500,000 amounting to Rs42.8 billion borrowed by 646,374 people were also waived. Advocate Salman Akram Raja informed the court that he was moving an application on behalf of the presidents of Habib Bank, United Bank, National Bank, Standard Chartered and NIB Bank to become a party to the proceedings.

The report submitted by Iqbal Haider requested the court to ignore an earlier list compiled by 33 banks and four development finance institutions (DFIs) suggesting that Rs193.4 billion owed by 93 borrowers had been written off. Justice Ijaz said the SBP should explain under which lawful authority the loans had been written off and what legal procedure had been adopted.

The judge observed that Circular 29 of the SBP under which a huge amount had been siphoned off during the former president’s tenure appeared to be in conflict with Article 25 of the Constitution (equality of citizens). The four-page report submitted by the SBP said the list of loans written off did not include those waived by the defunct Bankers Equity and Indus Bank because both were in liquidation.

It said every effort had been made to locate the Baig Committee’s findings sought by the court but they were not available with the SBP or any other bank. The Baig Committee was appointed in 1980 to facilitate borrowers to get their mark-up written off after paying the principal amount and some other charges. The Supreme Court had hinted that it would examine Circular 29 on the touchstone of Article 25 to determine whether discrimination had been made while extending benefit to politicians and other influential people by waiving off their loans, but denying the facility to other people who had respect for the law and were willing to pay what they owed.

The proceedings commenced on a news report based on secret information given to the Public Accounts Committee (PAC) of the National Assembly that 50,427 people, including politicians, civil and military business concerns and business tycoons of Karachi, Lahore and other cities had been favoured through the scheme to waive off outstanding loans in 2002. Soon after the October 2002 elections, the then finance minister Shaukat Aziz and his financial team at the SBP approved the loan write-off scheme after succumbing to pressures exerted by certain top leaders of the then ruling party to ease financial burden on their businesses.

Instead of launching an effective campaign for recovering non-performing loans (NPL), the SBP issued an incentive scheme to the banks and DFIs in October 2002 for waiving the NPLs of organisations showing “loss” for three or more years. The cases were divided into three categories -- category A of NPLs of up to Rs500,000, category B of ranging from Rs500,000 to Rs2.5 million and category C of more than Rs2.5 million.

Politicians and large business concerns made use of the third category to get billions of rupees outstanding against them written off.According to the report, the banks and DFIs were asked to recover the maximum possible amount to settle loans falling under categories B and C through forced sale of available assets. The purpose of the scheme was to clean the balance sheets of the banks and DFIs. (Dawn)

Petrol prices increased by Rs6.10

Feb 31: The Oil and Gas Regulatory Authority (OGRA) on Sunday notified an increase in petroleum prices. A notification issued to increase petroleum prices comes into effect from February 1 (midnight on Sunday).

Petrol price has been increased by Rs6.10 liter to Rs71.21. High Octane Blending Component (HOBC) prices went up to Rs86.84 from Rs79.43 per liter.

The ex-depot sale price of kerosene was jacked up to Rs64.07 from Rs60.75 per liter. Prices of light diesel oil was increased to Rs61.07 from Rs58.10 by Rs2.97 per liter or 5.11 per cent.

Govt releases ADP report on RPP

The government released on Friday the Asian Development Bank report on rental power projects (RPPs) which highlights major inconsistencies and weaknesses in the contracts, violation of procurement and regulatory procedures, lack of available capacity utilisation and up to 87 per cent increase in customer tariff in two years.

The Ministry of Water and Power, which released the report, has tried to challenge observations made in the report through an addendum, saying the ADB disregarded some of the losses the economy suffered because of loadshedding.

The report said the addition of even 14 RPPs would not eliminate the loadshedding. “Overall, rental service agreements are weak in their legal structure, do not balance the risk sharing between the seller and the buyer and have many inconsistencies.” The ADB suggested that about 2,000MW of electricity could have been utilised from within the existing system through full-capacity utilisation (of 997MW closed plants) and energy conservation measures (1,300MW). The report said that RPPs would put an additional financial burden of up to Rs207 billion on the government. The ADP did not clear eight RPPs on merit, as implied by certain quarters, but gave the go-head as a fait accompli because of already signed contract and payment of mobilisation advance.

The report said: “From customer perspective, under the no-RPP scenario, in fiscal 2011 they will face a tariff of Rs9.23 (from current Rs5.54), an increase of 67 per cent in two years. With 14 RPPs, tariff increases by 80 per cent to Rs9.96. In case of eight RPPs, the tariff increases by 75 per cent to Rs9.68. The low gas scenario is the worst from customer perspective as tariff in this case increases by 87 per cent to Rs10.33 with 14 RPPs. “However, this scenario is based on exchange rate of Rs83.55 a dollar, fuel price of Rs44,818 per ton, gas price of Rs333 per mmbtu and if the government did not provide subsidy as committed with the International Monetary Fund.”

The report said that original RPPs were based on advance payment of seven per cent, but the post-bid addition of standby letters of credit (SBLC) changed the financial situation in favour of RPPs. “Since RPPs are emergency measures where time is premium, it would have been prudent for the buyer to investigate the cost of confirmation before offering SBLC to the market and definitely before making down payment. This changed the situation and “weakened the government’s negotiating position with bidders and a new security package of 14 per cent advance down payment combined with an annual renewable GoP (government of Pakistan) guarantee to cover the buyers obligations, other than fuel payments which are covered under a separate SBLC was provided.”

The report said the provision of GoP guarantee and a high down payment-post bid was a major change under any prudent procurement guidelines as it changed the financial, equity and project risk profile in favour for RPPs. Had the revised arrangements been taken to the market, the government would have gotten better terms. “This, combined with the acceptance of unsolicited bids, diluted the transparency, competition and equal treatment that an international competitive bidding process is in intended to ensure.”

The ADB said that against National Electric Power Regulatory Authority (Nepra) rules, generation companies had sought its approval of power procurement contracts with RPPs-post contract signing, “raising questions about the process”. The resolution of the SBLC issue contributed to delays and derailed a major objective to have rental power in place by the end of Dec 2009. “In fact no RPP has been commissioned to date”.

Two RPPs installed in 2006 had mostly remained off-line, the ADP said. The report said that performance guarantees obtained from RPPs were not uniform, were lower than the standards and inadequate to cover penalties because these were charged against future payments. In the tariff setting too, the hands of Nepra were tied and infringed on its powers and jurisdiction. “Contrary to the rules, Gencos (generation companies) did not obtain approval from Nepra of terms of the contract before signing. By applying for approval after signing a contract and when project is advanced it is forcing Nepra’s hand and also raises question of transparency, encroachment on Nepra’s mandate to ensure affordable and sustainable power supply.”

The report said about 997MW of installed IPPs’ unutilised capacity could be brought into the system that remained out of the system due to contractual and administrative reasons, while addition of energy-saver bulbs could also reduce loadshedding by 1,133MW. The two steps together could bring peak loadshedding to 850MW even without an RPP.

The report also revealed that rental tariff of 11 of 14 contracted RPPs ranged between 18 and 22.24 cents per unit, and one each of 15.60 cents, 9.5 cents and 8.5 cents per unit. The last three RPPs are based on gas and the others on furnace oil and hence could go up or down with fluctuation in oil prices.

“With a 14 per cent down payment and limited bank guarantee, major concern is that the RPP sponsor may abandon the project in the event that the plant runs into difficulties…In case for RPPs with five years contract, the sponsor would have recovered his investment in three years, he would have made comfortable return and still own the government part of the down payment. The seller could thus abandon the project rather than face penalties and the plant would not offer any collateral.

It is noted that neither the request for proposal nor the rental agreement refers to the import policy order provisions on used/second-hand power plants.”

The report said the credibility of the process also suffered because of inclusion of unsolicited proposals, especially based on gas because they were free to offer different fuels. However, to expect bidders to arrange for gas whose allocation is controlled and regulated by the government restricted competition.

“If gas was available it should have been transparently included in invitations under the bidding. There is one unsolicited gas plant which has become effective.”

According to the report, the third-party review also highlighted the need to take an integrated look at the energy sector given that the current crisis to a large extent was fuel crisis caused by unexpected and unmitigated increase in furnace oil prices and delays in finding a substitute for depleting domestic gas supplies because gas shortage increased the cost of power and lowered efficiency and capacity for plants designed to run on gas.

“The available gas needs to be optimised for maximum economic benefit.” It said the report predominately relied on data and information provided by the government and its agencies and its findings were shared with the government during periodic reporting and consultation to confirm the direction of the study and facilitate early awareness and decision-making. (Daily Dawn)

Sindh PA urges Punjab to scrap power project

Sindh PA urges Punjab to scrap power project

Karachi, Jan 28: The Sindh Assembly on Thursday strongly opposed a proposed 44MW power plant at Chashma-Jehlum Link Canal by the Punjab government and urged the federal government abandon the project immediately.

The Sindh Assembly adopted the resolution unanimously. The resolution reads as “The Punjab government has proposed a 44MW power plant at the tail of the Chashma-Jhelum Link Canal to be operated by a private party. The Sindh government has been opposing this project as it is detrimental to the interest of the province and will add to the already acute water shortage being faced by the province.

Nepra (National Electric Power Regulatory Authority) and the Ministry of Water and Power (including the federal minister for water and power) have been made aware of Sindh government’s reservations by the government.

The honourable chief minister has also apprised the honorable prime minister of the objections of the government regarding the project. However, it appears that Nepra is continuing consideration of the project. Therefore, this assembly resolves and recommends to the government to approach the federal government and once again apprise them of the strong opposition of the people of Sindh to this project, which is detrimental to the interest of the people of Sindh, and convey to the federal government that this project is not acceptable to the people of Sindh and should be immediately shelved as Sindh has been facing acute shortage of water.”

Zardari signs bill on women's workplace harassment

KARACHI, Jan 29: President Zardari on Friday signed the 'Protection against Harassment of Women at Workplace Bill 2009' which the parliament adopted on January 21.

The bill was signed during a ceremony at the Chief Minister’s residence in Karachi.
The objective of the bill is to create a safe working environment for women, free of harassment, abuse and intimidation.

The bill was part of a comprehensive bill originally moved by former information minister Sherry Rehman when she held the additional portfolio of Women’s Development.
The House had passed the punishment section of the bill in November 2009, which was also adopted recently by the Senate. — DawnNews