Transcript Slide 1

INFRASTRUCTURE PROJECT FINANCE
(IPF) GUIDELINES AND REGULATIONS
Infrastructure, Housing & SME Finance Department
BENEFITS OF INFRASTRUCTURE
DEVELOPMENT

Development of Infrastructure enhances Public Assets

Quality infrastructure improves the investment climate
for foreign direct investment (FDI) by reducing costs

Enhances export competitiveness

Creates employment

Improves living conditions of public

Higher tax revenue of government
IMPEDIMENTS TO INFRASTRUCTURE PROJECT
FINANCING IN PAKISTAN

Transaction amount in the infrastructure sector is sizable
compared to the size of many banks/DFIs

Project financing is not a high priority due to reluctance to
undertake long term payback ventures

There is a lack of specialized project finance expertise
within commercial banks/DFIs

Absence of long-term debt instruments/bond market
TREND IN IPF

Based on data collected from Banks/DFIs on
Infrastructure Project Financing, it has been observed
that financing has decreased over the years
TOTAL AMOUNT OUTSTANDING UNDER
INFRASTRUCTURE PROJECT FINANCING (YEARLY)
320
298.5
Billion Rs
300
288.6
280
275.9
280.7
255.2
260
240
234.4
220
200
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec'13
TOTAL AMOUNT OUTSTANDING UNDER IPF
(QUARTERLY)
300
286.2
Billion
Rs
280
270
260
250
288.6
286.3
290
281.5
266.2
273.2
266.9
254.6
255.2
240
230
Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
INSTITUTION WISE SHARE IN IPF (OUTSTANDING)
Islamic DFIs
5%
Foreign 1%
1%
Private Sector
73%
Public Sector
20%
SECTOR WISE SHARE IN CUMULATIVE DISBURSEMENTS
3%
0%
1%
4%
3%
Telecom
0%
7%
13%
6%
63%
Power
Generation
Power
Transmission
Petroleum
LPG Extract.
Dist.
LPG Import &
Dist
Oil & Gas Explor.
Distr.
Road, Bridge,
Flyover
Water Supply,
Sanitation
Any other
SBP INITIATIVES

Issuance of Guidelines on Infrastructure Project Financing

Capacity development programs for Banks/DFIs

Establishment of Infrastructure Task Force

Facilitation in establishment of Infrastructure Development
Finance Institution (IDFI) – (Concept Paper Preparation)

Consultation with various stakeholders through workshops,
seminars and working groups.

Quarterly Infrastructure Project Financing review.
INFRASTRUCTURE DEVELOPMENT AND FINANCING INSTITUTION (IDFI)

Need
Asset / Liability mismatch in banks/DFIs as most of the deposits are of short
tenor.
 Lack of adequate funding for large infrastructure projects


IDFI will perform a broad array of activities:
•
•
•
•
•
•
•
•
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Project Development – need identification, conceptualization, pre-feasibility
reports, commercial viability aspects, identification of potential investors
Use of innovative structural / financial techniques to enhance project viability
Evaluate infrastructure projects for potential investment
Project Finance – equity participation, loan syndication, other services
Facilitate access to Viability Gap Fund
Tariff and other advisory services
Facilitate co-ordination of project sponsors with relevant ministries and
government departments
Performance Monitoring
May help government in PPP policy formulation
INFRASTRUCTURE DEVELOPMENT AND FINANCING INSTITUTION (IDFI)

Primary focus will be on:
 Power Sector
 Special Economic Zones
 Agricultural Infrastructure including warehousing,
cold chains etc.

Other sectors like road, railway and port etc. would
also be considered later on subject to capacity
enhancement

Long term funding mechanism to develop a financial
climate conducive to large scale infrastructure
projects
IDFI Scope and Structure
• Proposed IDFI to be established as a special DFI with suggested
Equity Distribution as follows:
- Banks/DFIs - 25%
- GoP or government organizations - 25%
- Multilateral Agencies - 50%
• The company will issue long term papers/Bonds/Sukuk to generate
funds from local market and also seek funding and guarantee lines
from international MLAs to support/finance infrastructure projects in
Pakistan. By issuing bonds/Sukuk, it would help develop capital
market.
SBP Guidelines/Regulatory Framework - History

Relaxation in Prudential Regulations for Infrastructure Project Financing (IPF) vide BPD Circular
No.25 dated July 04, 2003 (http://www.sbp.org.pk/bpd/2003/C25.htm).
 Debt equity relaxed to 80:20 for the Infrastructure projects
 “Concession Agreement/License/Right of Way” issued by Government accepted as a collateral

Updated IPF Guidelines in August 31, 2010 vide No. IHFD/11 /191/ 2010. The salient features of
the revised guidelines: Includes the requirement for establishing a mechanism for generating feasibility reports and
assessing risk mitigation means in the development, construction, start-up and operation
stages of the project.
 Banks and DFIs to establish a proper process for the continuous monitoring of project
implementation to ensure proper utilization of the credit while relevant bank accounts will be
subject to audit by the SBP.
 Banks and DFIs encouraged to accept Concession Agreement/Lisence issued by a government
agency as collateral.
 The institutions to ensure adequate insurance coverage against all potential risks applicable to
the project.
 At no point shall the bank’s exposure to the risk exceed the bank’s equity, and the exposure
availed by any borrower shall also not exceed 10 times the borrower’s equity.
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SBP Guidelines – Areas Covered
Part-A: DEFINITIONS
Part-B: GUIDELINES
G.1: Credit Appraisal
G.1.1 : Minimum Information Requirements
G.1.2 : Assessment of Infrastructure Projects
G.1.3 : Monitoring of Infrastructure Projects
G.2: Collateral Arrangements, Security Package And Project Insurance
G.2.1 : Acceptance of Concession/License as Collateral
G.2.2 : Security Package
G.2.3 : Project Insurance
G.3: Regulatory Compliance
G.3.1 : Exposure Limit
G.3.2 : Debt-Equity
G.3.3 : Funding of Infrastructure Projects
G.3.4 : Provisioning Requirements
Part-C : Annexes
Annex A - IPF: Checklist for Minimum Information Requirements
Annex B - IPF: Provisioning Requirements
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SBP Guidelines- What is an Infrastructure?
Infrastructure Project means one of the followings:
a) A road, including toll road, fly over, bridge project.
b) A mass transit, urban bus, urban rail project.
c) A rail-bed, stations system, rail freight, passenger services project.
d) A telecommunication local services, long distance and value added project.
e) A power generation project.
f) A power transmission or distribution project by laying a network of new
transmission or distribution lines.
g) A natural gas exploration and distribution project.
h) An LPG extraction, distribution and marketing project.
i) An LPG import terminal, distribution and marketing project.
j) An LNG (Liquefied Natural Gas) terminal, distribution and marketing project.
k) A water supply, irrigation, water treatment system, sanitation and sewerage
system or solid waste management system project.
l) A dam, barrage, canal project.
m) A primary and secondary irrigation, tertiary (on-farm) irrigation project.
n) A port, channel dredging, shipping, inland waterway, container terminals
project.
o) An airport.
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p) A petroleum extraction, refinery, pipeline project.
q) Any other infrastructure project of similar nature, notified by SBP.
SBP Guidelines- Credit Appraisal
G.1 – CREDIT APPRAISAL

G.1.1: Minimum Information Requirements
i.
Project Description
ii.
Capital Investment
iii.
Project Schedules
iv.
Environmental Impact
v.
Financing
vi.
Legal Documentation
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SBP Guidelines –G.1 (contd . . .)

G 1.2 : Assessment of Infrastructure Projects
– Development Phase – should be preferably funded through
equity
– Construction & Start-up Phase – Assessment of physical and
financial completion of infrastructure projects. Some
important tools used for completion risk mitigation are:

Project Funds Agreement

Financial Completion Agreement

Insurance
[Ongoing construction period monitoring through:
i.
Technical advisor, via milestone certifications and site visits
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SBP Guidelines –G.1 (contd . . .)
Keeping the financial model live during the construction
period; and
iii. Monitoring of project accounts for disbursements and
payments of project expenses]
– Operation Phase – Entails monitoring of:
i.
Assignment of project receivables and damages
ii.
Continuous presence of valid security arrangement
iii.
Debt repayment and project’s escrow accounts
iv.
Financial covenants for debt repayment
v.
Technical monitoring during operations and
construction phases
ii.
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SBP Guidelines –G.1 (contd . . .)

G.1.3 : Monitoring of Infrastructure Projects

Monitoring for assignment of Project Receivables and
Payments for Damages.

Monitoring for ensuring enforcement of Security

Projects escrow accounts for Monitoring of Repayment of
Debt.

Financial Covenants for Repayment of Debt.

Technical Monitoring during Development and Operation
Phase.
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SBP Guidelines- G.2
G.2 – COLLATERAL ARRANGEMENT, SECURITY PACKAGE & PROJECT INSURANCE

G.2.1:
Acceptance
of
Concession/license
as
collateral
–
encumbrance free, assignable, transferable in the event of default

G.2.2: Security Package –
–
Primary Security – first charge over project receivables and
accounts
–
Secondary Security – standard security package of the lenders
including hypothecation, mortgage, insurance assignment, share
pledge, assignment over rights under all project documents etc

G.2.3: Project Insurances - construction all risks, third party liability,
marine, accidental, loss of profit, terrorism insurance etc.
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SBP Guidelines- G.3
G.3 – REGULATORY COMPLIANCE

G.3.1: Exposure Limit – per party exposure (as per regulation R-1
of Corporate Banking PRs), total bank exposure to project finance assets
(not to exceed the bank’s equity) fund and non-fund based exposures

G.3.3: Funding of Infrastructure Projects –
–
Loan duration – up to 20 years (excluding grace period)
–
Asset Liability Management – interest rate and liquidity risk
management
–
Arrangement of Long-term Funding – churning more IPF assets
using securitization

G.3.4:Classification and Provisioning Requirements – 21
Annex IV of R8
PR R-1: Limit on Exposure to a Single Person/Group
5. For the purpose of this regulation banks/DFIs are required to follow the
guidelines given at Annexure-I.
Effective Date
For Single Person
For Group
Total O/S (Fund
& Non Fund
Based)
exposure limit
Fund based O/S
Limit
Total O/S (Fund
& Non Fund
Based)
exposure limit
Fund based O/S
Limit
31-12-2009
30
20
45
35
31-12-2010
30
20
40
35
31-12-2011
30
20
35
30
31-12-2012
30
20
30
25
31-12-2013
25
25
25
25
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PR: R-8 Annex IV (Classification & Provisioning)
Classification
Determinant
Treatment of Income
Provisions to be Made
Substand
ard
Where
markup/
interest or principal is
overdue by 90 days or
more from the due
date.
Unrealized mark-up /interest to be
kept in Memorandum Account and
not to be credited to Income
Account except when realized in
cash. Unrealized mark up/interest
already taken to income account to
be reversed and kept
in
Memorandum Account.
Provision of 25% of the difference resulting
from the outstanding balance of principal less the
amount of liquid assets realizable without
recourse to a Court of Law and 40% of the Forced
Sale Value (FSV) of pledged stocks and mortgaged
residential, commercial and industrial properties
(see Note 2 below).
Doubtful
Where
markup/
interest or principal is
overdue by 180 days or
more from the due
date.
As above
Provision of 50% of the difference resulting from the
outstanding balance of principal less the amount of
liquid assets realizable without recourse to a Court of
Law and 40% of the Forced Sale Value (FSV) of
pledged stocks and mortgaged residential, commercial
and industrial properties (see Note 2 below).
Loss
a) Where
markup/
interest or principal
is overdue by one
year or more from
the due date
As above
b) Where Trade Bills
(Import/Export or
Inland Bills)
are
not paid/adjusted
within 180 days of
the due date.
As above
Provision of 100% of the difference resulting from the
outstanding balance of principal less the amount of
liquid assets realizable without recourse to a Court of
Law and 40% of the Forced Sale Value (FSV) of
pledged stocks and mortgaged residential commercial
and industrial properties (see Note 2 below). Benefit
of FSV against NPLs shall not be available after 3 years
from the date of classification of the Loan/Advance.
However, the 40% benefit of FSV of land (open plot
and separate valuation of
land if building is
constructed) shall be available for 4 years from the
date of classification of loan.
As above.
Notes :
1. Classified loans/advances that have been guaranteed by the Government would not require provisioning, however, mark up/interest on such
accounts to be taken to Memorandum Account instead of Income Account.
2. FSV shall be determined in accordance with the guidelines contained in Annexure-V to these Regulations.
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List of abbreviations used
SPV
SECP
BPD
SBP
DFI
LPG
LNG
IPF
NIT
COI
NBFC
TFC
PFA
LOU
MOU
FCA
EPC
O&M
CAR
ALM
NPV
Special Purpose Vehicle
Securities & Exchange Commission of Pakistan
Banking Policy Department, State Bank of Pakistan - Now Banking Policy and Regulation
Department
State Bank of Pakistan
Development Finance Institution
Liquefied Petroleum Gas
Liquefied Natural Gas
Infrastructure Project Finance
National Investment Trust
Certificate of Investment
Non-banking Financial Company
Term Finance Certificate
Project Funds Agreement
Letter of Understanding
Memorandum of Understanding
Financial Completion Agreement
Engineering, Procurement and Construction
Operation and Maintenance
Contractor’s All Risk
Asset Liability Management
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Net Present Value
THANK YOU
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