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ISLAMABAD: The government to issue a ‘Government Sovereign Guarantee’ amounting to Rs6.944 billion through the National Bank of Pakistan (NBP) for Sialkot (Sambrial)-Kharian Motorway.

The Executive Committee of the National Economic Council (ECNEC), in its meeting held on March 11, 2021, approved the project: construction of Sialkot (Sambrial)- Kharian Motorway on Build-Operate-Transfer (BoT) basis at cost of Rs43.383 billion without Foreign Exchange Component (FEC) including GoP share of Rs19 billion and concessionaire share of Rs24.309 billion.

The procurement of the approved project has been done through competitive bidding process. Joint Venture (JV) of M/s Frontier Works Organization (FWO) and M/s Sultan Mahmood and Co (SMC) was declared as successful bidder. The JV registered M/s Sialkot Kharian Infrastructure Management (Pvt) Limited (SKIMS), a Special Purpose Vehicle Company (SPVC) with Securities and Exchange Commission of Pakistan (SECP) for implementing the project.

Public-Private Partner-ship Authority (P3A) in its 16th Board meeting convened on August 27, 2021 approved the PPP agreement negotiated between the NHA and M/s SKIMS. The approved PPP agreement was signed between NHA and M/s SKIMS on September 13, 2021.

Under the Concession Agreement, release of Viability Gap Funding (VGF) amounting to Rs10.9 billion (through PSDP as grant) has been agreed as follows: (i) NHA shall fund, or cause to be funded through the GoP, the NHA funding amount, i.e., Rs4 billion in the class B Equity Subscription Account within three months of the effective date (PPP agreement signing date) in the wake of capital VGF as condition precedent;(ii) aggregate amount of Rs6.944 billion inclusive of taxes) to be paid, or caused to be paid by NHA through the GoP, as operational VGF in eight equal instalments @ Rs868 million.

PM to perform ground-breaking of Sialkot-Kharian Motorway today

The NHA shall fund the 1st operational VGF instalment amount by the date occurring three months prior to the earlier of the scheduled substantial completion date or the service commencement date.

According to the Ministry of Communi-cation, concession agreement further stipulates that a government sovereign guarantee or Standby Letter of Credit (SBLC) backed by sovereign guarantee the operational VGF financial instrument acceptable to the financiers, to the tune of Rs6.944 billion shall be provided or cause to be provided by the NHA through the GoP within three months of the effective date for the comfort of commercial lenders of the project.

The Finance Division has intimated that guarantee space amounting toRs6.9 billion is available for this project.

Moreover, the federal government guarantee, being a supreme financial instrument, may be issued against operational VGF.

Therefore, the SBLC by sovereign guarantee to be backed by sovereign guarantee may not be provided as it will entail additional cost for the NHA and also set the precedent for upcoming PPP project.

In order to initiate the requisite process, the Ministry of Communication has requested the ECC to accord approval for issuance of the Government Sovereign Guarantee amounting to Rs6.944 billion to be issued by the NBP on the instructions of the Ministry of Finance for the comfort of commercial lenders of the project, so that the concessionaire can achieve financial close.

Copyright Business Recorder, 2022

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