Payment terms for DCCL: ECC violates own criteria

The Economic Coordination Committee (ECC) of the Cabinet has violated its own approved criteria just to relax payment conditions for one party--Dandot Cement Company Limited (DCCL)-which had already defaulted on the payment to the Privatisation Commission (PC), sources told Business Recorder.
The ECC, which met on May 23, had cleared a summary of PC, also backed by the Economic Affairs Division (EAD) headed by Hina Rabbani Khar and Industries Ministry.
Finance Ministry was the only one to set conditions of seeking bank guarantee, if the government intended to facilitate the cement company. But the decision-makers did not heed this recommendation, sources added. "The Finance Ministry had accepted the creation of second charge in lieu of bank guarantee, subject to the condition that the third charge would not be created by DCCL on assets," sources added.
They said that the PC had sold 80.67 percent shares of DCCL to employees group of DCCL for Rs 636.687 million through sale agreement on May 23, 1992. The buyer paid full sale price along with accrued mark-up as per schedule. In addition, a foreign re-lent loan, amounting to Rs 340.841 million, was also outstanding at the time of privatisation.
This amount, along with mark-up @ 11 percent and exchange risk fee @ 3 percent was payable by DCCL in 20 equal half-yearly instalments from September, 1992 to March, 2002. DCCL paid regular installments up to September 1996 but thereafter stopped payment. Consequently, the EAD encashed the bank guarantee provided by the buyer, and obtained Rs 1334.764 million from HBL on September 22, 2000.
Even after encashment of bank guarantee, an amount of Rs 220.270 million, including interest and exchange risk fee, was outstanding against DCCL on June 30, 2003. Sources said that DCCL approached the PC intimating it that due to lower capacity utilisation, higher fuel consumption and high labour cost, the company had become a sick unit.
It had accumulated liabilities of Rs 2.25 billion and losses of Rs 1.3 billion as on June 30,2003. Therefore, the unit was not in a position to pay the outstanding foreign re-lent loan immediately and requested for the re-scheduling of the outstanding amount waiver of penal interest.
They said that the ECC in its meeting on August 24, 2004 had decided that the delayed payment charges/interest of Rs 87.837 million be waived off in line with ECC''s earlier decision in the cases of Wah Cement Company Ltd and Zeal Pak Cement Company Ltd.
It had also been decided that the remaining amount of Rs 132.44 million (Rs 220.270 m-Rs 87.837 m) be allowed to be paid in ten equal half-yearly instalments, effective from July, 2004, along with total mark-up @ 14 percent annually (markup 11 percent and exchange risk fee @ 3percent) but the buyer would be required to provide bank guarantee for the outstanding loan amount, acceptable to EAD.
However, the ECC set a condition that the facility would become available, after 5 years, when the proposed ten six-monthly instalments of the remaining amount of loan, along with markup @ 14 percent are paid by the company and if there is any further default, this write off would not be available.
The question arises, had the company fulfilled this condition before the PC moved a summary to the ECC for granting further relaxation, which was backed by the Finance Ministry without seeking bank guarantee?
The DCCL recently had got evaluated the fixed assets of the company, according to which the value of the fixed assets amounts to Rs 2, 044.461 million whereas the amount of first charges, already created was Rs 1, 962.00 million, leaving a cushion of Rs 82.461 million to be utilised for the creation of second charge in favour of EAD.
Against the outstanding amount of Rs 132.433 million, DCCL had paid six half yearly instalments from July, 2004 to January, 2007 leaving the outstanding balance of Rs 52.974 million payable in four half-yearly instalments from July, 2007 to January, 2009.
DCCL had given an undertaking to the effect that no additional first charge would be created without the consent of the PC. The sources said that the ECC has granted waiver to the company from provision of bank guarantee to create second charge in favour of EAD on the fixed assets, for the remaining amount of the loan subject to the condition that no further charge will be created on these assets.