State Bank relaxes Prudential Regulations for infrastructure projects financing

KARACHI (July 06 2003) : The State Bank of Pakistan on Saturday relaxed the Prudential Regulations for 'Infrastructure Project Financing' to promote and develop infrastructure projects help boosting the country's economy in 2003-04.

The central bank issued BPD Circular No 25 and said that for the promotion and development of infrastructure projects financing is of critical importance for economic growth and employment generation.

The State Bank of Pakistan is in the process of developing appropriate regulatory framework for infrastructure project financing which will be instituted in due course.

To encourage private sector investment in infrastructure sector, which are capital-intensive and require heavy capital outlay, the prescribed maximum debt equity is being relaxed to 80:20 for the following infrastructure projects:

A road, including toll road, a bridge, mass transit or a rail system; Telecommunication services, whether basic or cellular; generation and distribution of power; transmission or distribution of power by laying a network of new transmission or distribution lines; a natural gas exploration and distribution project, LPG extraction project;

A water supply project, irrigation project, water treatment system, sanitation and sewerage system or solid waste management system;

Dams and canals; port, shipping, container terminals, airport, aviation project, inland waterway or inland port;

A refinery project; A pipeline project; Any other infrastructure facility of similar nature.

The Bank further said that 'Concession Agreement/Licence/ Right of Way' issued by Government may be accepted as a collateral for infrastructure project financing, in the overall collateral arrangements worked out with the creditors, subject to the following stipulations:

The Right of Way is free of encumbrances; Utilities are shifted appropriately from the area; The Concession Agreement/Licence/ Right of Way is assignable to lenders in the event of default; Commercial banks/DFIs, on the basis of studies and other data regarding volume of expected use and future cash projections, are satisfied regarding the secure nature of Concession Agreement/Licence/Right of Way, the expected source of repayment and the overall collateral arrangements.

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