Wah Brass loan: ECC tells ministries to renegotiate interest rate

The Economic Co-ordination Committee (ECC) of the Cabinet has directed ministries of finance and defence production to renegotiate with banks to resolve interest rate applicable to the loan of Wah Brass Mills (WBM).
Official documents reveal that the ECC, in its meeting on October 23, 2012, had approved rupee a loan equivalent to $16.00 million at the rate of annual average cost of borrowing of the government for the FY 2012-13 to be repayable over a period of seven years. It had also approved the issuance of Letter of Comfort/sovereign guarantee against the loan facility to POF Wah amounting to rupee equivalent to $ 59.4 million to be raised from any scheduled commercial bank.
Subsequently, a special purpose company, Wah Brass Mills (Private) Limited (WBM), was established and registered with the Securities and Exchange Commission of Pakistan. An EPC contract was concluded with M/s Vitkovice of Czech Republic by POF on November 30, 2012 for the modernisation and upgradation of newly-established company. Wah Brass received the loan in two instalments well in time.
However, the Letter of Comfort/sovereign guarantee by GoP was issued late on December 10, 2013 due to which the EPC contract could be made effective on December 12, 2013. As a result, the construction period of 1.5 years (similar to the loan grace period) also started late and all the important milestones of the EPC contract had to be shifted from the date the contract became effective, ie, December 12, 2013.
The committee was briefed that the Finance Division had directed WBM to pay an amount of Rs 218.329 million as a debt servicing liability into the government treasury before June 10, 2014.
The matter was considered in a meeting held with the Minister for Defence Production on February 4, 2015. It was explained by POF/WBM that the rate of interest applicable on loan disbursed by GoP was 10.65 percent (GoP average rate of borrowing for the year 2012-13) which was higher than the rate charged by commercial banks (9.8 percent, 6 months KIBOR + 1.2 percent).
It was the considered opinion of the ministry of defence production that delay in the issuance of guarantee was on the part of GoP and the loan was of no use unless the guarantee was issued. Therefore, the grace period of 1.5 years together with interest on loan should start from the date the sovereign guarantee/Letter of Comfort was issued.
The Finance Division has supported the extension of grace period from 1.5 years to 2.25 years (27 months). However, it has not agreed to the proposal for the waiver of interest during this period.
The ECC discussed the issue in detail and directed both the ministries to resolve the issue on interest rate with banks. The committee, however, did not approve waiver of interest.