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The IFC chief described economic reforms as impressive

From SHAMIM AHMED RIZVI
Islamabad
 Feb-11 - 17, 2002

After a long interval, the International Finance Corporation has once again become active in Pakistan. The Chief Executive of IFC, Mr. Peter Woicke who paid his first visit to Pakistan last week, besides signing agreements pledging financial assistance of over 46 million US dollars for 3 different projects showed keen interest in the programme of developing small and medium enterprises launched by the government of Pakistan. Mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improving people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses. Since its founding in 1956 through the close of the last fiscal year in June 30, 2001, IFC committed more than 31 billion dollars of its own funds and arranged 20 billion dollars in syndicate for 2,636 companies in 140 developing countries. IFC's committed portfolio at the end of FY01 was 14.3 billion dollars.

The IFC delegation led by its Chief Executive had detailed discussion with government officials and leading businessmen in Karachi, and Islamabad. Besides meeting Minister of Finance and Commerce the delegation also called on the President Pervez Musharraf and landed the economic reforms carried out by the present government. The IFC chief described economic reforms as impressive. The country needed these reforms to remove irritant hampering investment. "The investment climate can only improve in this way," he said. Mr. Peter promised that IFC will certainly consider to help Pakistan in its privatization programme as suggested by the President. The IFC delegation discussed a number of issues with the president including Private Sector's growing confidence and attracting foreign investment.

Talking to journalists Mr. Peter said that the IFC had been very active in Pakistan in late 80s and early 90s in many sectors including financial, power and cement. "In mid-90s IFC had some worries due to some frustration and disappointments on the investment made in Pakistan. The situation has now changed and IFC will now onward play a more active role in Pakistan. We will continue to invest in oil and gas sector and focus on domestic financial market privatization programme and investment in IT project can also attract IFC," he added.

IFC chief stressed upon Pakistan to continue executing economic reforms agenda. "Foreign investors are examining the situation very consciously and if Pakistan maintained stability it could promote foreign investment, he said adding that the prevailing tension between India & Pakistan and threats of war must be removed to enable potential investors to finally make up their minds. "There are some concerns in the ranks of foreign investors due to Islamic banking system but we will find ways and means to proceed in the right direction."

Following are the 3 projects for which IFC delegation pledged investment during its 4 days stay in Islamabad.

1) The IFC will provide $30 million to Lasmo Oil Pakistan Ltd., (LOPL) a subsidiary of Lasmo Plc., which was acquired by Italy's ENI SPA in 2001 to develop Pakistan's Bhit natural gas field. The project involves the development, at an estimated cost of $283 million, of the Bhit gas field located in Kirthar Block, 150 kilometres from Karachi.

As project operator, LOPL will have a 40 per cent stake in the Kirthar Block field with another 40 per cent shares held by Kirthar Pakistan. B.V., a subsidiary of Premier and Shell, and the remaining 20 per cent shares will be held by the Oil & Gas Development Corporation Ltd., a government owned company.

The processed gas will be sold to Sui Southern Gas Company, one of Pakistan's state-owned gas transmission and distribution companies. IFC's $30 million loan will go towards financing LOPL's share of development costs.

2) The IFC completed the debt restructuring for Pakistan's leading cement manufacturer, D.G. Khan Cement Company Limited (DGKCCL). As part of the restructuring, IFC issued a local currency guarantee amounting to US$14.5 million to allow the company to borrow locally in order to refinance part of its foreign currency debt. This is the first restructuring of its type done by IFC in Pakistan and this guarantee structure is now being replicated in other transactions.

The facility enables DGKCCL to partially hedge its IFC "A" loan and to reschedule its foreign currency debt. Under the facility's terms, the Pakistani Rupee equivalent of $14.5 million can be drawn up to July 15, 2004. The final maturity of the facility is January 15, 2009. The financial institutions taking part in the local currency syndication are Standard Chartered Grindlays Bank, Deutsche Bank A.G., Credit Agricole Indosuez, Standard Chartered Bank, and ABN AMRO N.V., with the latter institution acting as the agent bank, led arranger, and documentation agent. DGKCCL is part of the Nishat Group of Companies, the largest business house in Pakistan and the single largest exporter of Pakistani textiles. Other comany in the group include Nishat Mills Ltd. The Nishat Group and Group Chairman, Mian Mohammad Mansha, played a critical role in supporting the company.

An equity investment of $1.6 million (about Rs. 100 million was committed for a 20 per cent stake in Pakistan first private sector licensed Microfinance institution, first Microfinance Bank Limited (FMFBL). According to IFC, the microfinance sector in Pakistan is underdeveloped and dominated by public sector entities. IFC's investment alongside reputable domestic and international investors is designed to demonstrate that micro-finance institutions can be financially sustainable.

The principal sponsors of the project are the Aga Khan Fund for Economic Development (AKFED) and the Aga Khan Rural Support Programme (AKRSP), a non-profit company established by the Aga Khan Foundation in 1982, AKRSP is operating successfully in six northern Pakistan districts of Gilgit and Baltistan as well as in Chitral in the North West Frontier Province.

FMFBL has established its head office in Islamabad where it also plans to open its first branch and additional branches throughout the country, including in major cities such as Rawalpindi, Karachi, and Peshawar. Over the course of the first two years, FMFBL will absorb the clientele of AKRSO's microfinance programme.