Chinese bank to withdraw loan if Pakistan changes accord

ISLAMABAD: The China’s Exim Bank has threatened to withdraw its highly concessional multibillion loans for construction of 2,200MW Karachi Coastal Nuclear Power Plants (K-2 and K-3) in case of changes in loan agreement made by Islamabad, The News has learnt.
Out of total estimated cost of Rs958.729 billion for K-2 and K-3, the Exim Bank has committed to providing 85 percent concessional loans. The agreement to this effect was signed between Exim Bank and Economic Affairs Division (EAD) on behalf of the Government of Pakistan.
But now the highly concessional multibillion dollar loan being provided by China’s bank for construction of 2200MW (K-2 and K-3) projects has been falling into danger zone because Islamabad was contemplating upon making changes in loan agreement to keep this project off-budget.
When financing of this project came under discussions, Islamabad’s economic managers thought to place a mechanism outside the budget loop in order to avoid ballooning of budget deficit under the IMF programme.
It was decided to establish a public sector company to finance these projects in order to build 2200MW nuclear power plant, but the Exim Bank made it clear that the concessional loan was signed with the Government of Pakistan and in case of establishing any public sector, the terms of loans would be changed, and it would become commercial loan.
“For changing loan agreement, it can take at least one year even if Exim Bank agrees to provide loans so Pakistani government was finding out solutions to finance these projects by placing a mechanism acceptable to both sides,” said the relevant sources.
The Exim Bank sent out its team to Pakistan to resolve this issue amicably. Now Finance Minister Ishaq Dar has taken up this issue in order to find out modalities for financing this project in smooth manner without risk of withdrawal or undue delays in execution of this highly important project for energy deficient country.Finance Minister Ishaq Dar had chaired a couple of meetings to find out solution to these projects.
“Either the government will have to provide its share of financial resources from its kitty by putting this project on its budget without changing anything signed in loan agreement with China’s official Exim Bank by increasing the budget deficit or diverting resources from other projects of PSDP (Public Sector Development Programme) to get cushion for financing,” top official sources confirmed to The News.
The Planning Commission, the sources said, proposed to the government to divert resources from Chashma Nuclear Power Plant (C-3 and C-4) money towards K-2 and K-3 for this year and next year and also adjust resources from other projects to create cushion for this important project of the country.
When contacted to top official in EAD and inquired about the relevant issue related to K-2 and K-3, he said that the financing of the project was the issue for them but issuing sovereign guarantee for this project had never remained a stumbling block in their way.
This scribe also contacted to Finance Minister Ishaq Dar and asked him to comment whether the Finance Ministry agreed to provide sovereign guarantee to Exim Bank for financing K-2 and K-3 project, the minister replied, “these are inbuilt right from beginning as K-2 and K-3 are public sector projects without any involvement of the private sector”.