Financially-depressed Railways: government guarantee to cover Rs 6.1 billion NBP loan

The government of Pakistan is to extend guarantee to cover a loan of Rs 6.1 billion being given by National Bank of Pakistan (NBP) to financially constrained Pakistan Railways, well informed sources in Finance Ministry told Business Recorder. The sources said freight operations of Pakistan Railways are presently suspended because as many as 345 locomotives are either under repair or require extensive rehabilitation works.
Suspension of freight operation has impacted adversely on Railways' revenue base, with the result that a large number of passenger trains have also been discontinued. Taking stock of the critical situation, Federal Cabinet in its meeting on December 29, 2010 approved a bailout package of Rs 11.10 billion, including Rs 6.10 billion for rehabilitation of locomotives, and advised the Ministry of Finance to provide necessary funding to Pakistan Railways.
After detailed discussions, Ministry of Finance, NBP and Pakistan Railways, have agreed on a plan for repair of 96 locomotives through a loan of Rs 6.1 billion to be advanced to Pakistan Railway Advisory & Consultancy Services Limited (Pracs), which is a subsidiary of Pakistan Railways whose shares are wholly owned by the Government of Pakistan.
The source said, NBP has submitted a proposal for arranging a loan of Rs 6.1 billion. Main features of the proposal are: (i) National Bank of Pakistan will arrange a loan of Rs 6.1 billion against privately placed term finance certificates of face value of Rs 6.1 billion to be issued by Pracs. National Bank of Pakistan will issue a guarantee securing payment obligations of Pracs under the said financial instrument; (ii) mark-up to be charged on the loan will be on base rate (average Kibor quoted by banks on that day) plus 0.50 percent and the total amount (principal and mark-up) will be repayable in six biannual instalments with a grace period of two years; (iii) M/s Pracs will arrange repair of 96 locomotives nominated by Pakistan Railways. The repaired locomotives will be utilised only for working freight trains; (iv) a Master Collection Account of Pakistan Railways will be established under control of National Bank of Pakistan with receivables from all resources to be routed through this account and National Bank of Pakistan will have first right of repayment of the instalment amount. Likewise, a Master Collection Account will also be established by Pracs; (v) Ministry of Railways will make suitable provision in its budget over the next five years for payment of instalments under PPTFC; and (vi) Government of Pakistan will issue guarantee to secure the principal and mark-up payments becoming due for payment in respect of the facility.
Railways, is a subject in Part-II of the Federal Legislative List and thus falls under the purview of the Council of Common Interests (CCI). However, Law Division has opined that administrative matters do not require approval of the CCI.