1. As you are aware, some
international banks, before advising Letters of Credit (L/Cs)
issued by some of the banks registered in Pakistan, require
such L/Cs to be confirmed for a variety of reasons. This confirmation
has a cost, which ultimately adds to the cost of imports.
2. To help resolve this
issue and to enable banks registered in Pakistan (Issuing
Banks) to have the confirmation of their L/Cs at a reasonable
rates, in respect of certain eligible L/Cs, as defined hereinafter,
the Government of Pakistan (GOP) has negotiated a facility
with the Asian Development Bank (ADB).
3. The ADB facility (Facility)
shall be used to guarantee payment to international banks
confirming eligible L/Cs, if the payment obligation under
the L/C is not made by the Issuing Bank and this failure to
pay is solely, directly and immediately caused by the occurrence
of certain events which have been pre-agreed between ADB and
the GOP.
4. The guarantee so provided
will effectively transfer Pakistan country risk into ADB risk
and should ensure continued willingness of international banks
to confirm import L/Cs issued by Pakistani banks used for
imports required for export production.
5. The Facility shall
be administered through a Facility Agent, Standard Chartered
Bank in Dubai, which was appointed by ADB, with concurrence
of the Government of Pakistan, to act on ADB’s behalf. The
Facility Agent will act as a conduit between ADB and the guaranteed
confirming bank and will also help promote the Facility internationally
and in Pakistan. On behalf of ADB, the Facility Agent will
enter into a Master Risk Participation Agreement (MRPA) with
each international bank that wants to obtain guarantees under
the Facility, in lieu of guarantee fees.
6. Annexure
I is a list of the international banks that have, as of the
date of this Circular, entered into MRPAs. This list, however,
will change over time as additional international banks sign
MRPAs. If an Issuing Bank has a correspondent banking relationship
with an international bank that is not on this list, but wants
to arrange a confirmation of an eligible L/C supported by
the Facility by that international bank, it can contact the
Facility Agent who will arrange, on a best endeavors basis,
an MRPA with the intended confirming bank.
7. Each guarantee under
the Facility may cover upto 100% of the face value of the
L/C, provided that the failure to pay has been caused by foreign
exchange inconvertibility or transferability blockage or other
clearly defined pre-agreed events.
8. The Facility will,
however, not guarantee, indemnify or cover any other risks
associated with the performance of the Issuing Bank including,
without limitation, any underlying disputes or defaults between
the supplier and/or beneficiary and the Pakistani importer
(Applicant) or the Applicant and the Issuing Bank with respect
to the L/C or otherwise.
9. The salient features
of the proposed arrangements / Scheme are as under: -
Eligible Letters of Credit
10. As already stated, the Facility
shall be available in respect of eligible L/Cs issued by registered
Pakistani banks and branches of international banks operating
in Pakistan. Eligible L/Cs for the said Facility will
-
a.
have a term (i.e., validity plus usance, if any) of
up to 360 days, The term of the L/C may exceed 360 days and
may extend upto 3 years, on a case to case basis, provided
the term of the L/C shall in no case exceed the remaining
period of the ADB Facility. The closing date of the ADB Facility
shall be announced separately.
b.
be subject to UCP 500 and irrevocable.
c.
be not less than US $ 5,000/= or equivalent and not
more than US$ 1,000,000/= or equivalent. The maximum amount
of L/C may exceed US$ 1,000,000/= on case-to-case basis, after
consulting the confirming bank.
d.
be issued in respect of goods, services, spare parts
or capital equipment that originate from ADB Member Countries;
and
e.
be issued by a registered Pakistani bank that meets
the minimum paid-up capital requirement and other SBP prudential
regulations, as shown in Annexure II
f.
contain
the clause : “Intended for ADB PRG/Country of Origin
of Goods ______”.
11.
Further, eligible L/Cs must meet the following criteria,
as certified by the Applicant to the intended
Issuing Bank in an Applicant
Certificate as set forth in Annexure III,
(a)
is
issued in respect of goods that support export production,
meeting any of the
following criteria, prevailing on the date of such
Applicant Certificate:
·
are
imported by or at the request of an exporter registered by
the Pakistan Export Promotion Bureau; or
·
qualify
to be financed under the Foreign Currency Export Finance Finance
Facility, or are linked to other components under the
Government’s Trade Export Promotion and Industry Program supported
by ADB, including schemes such as the Duty and Tax Remission
for Exports rules, Common Bonded Warehouse rules or the Pakistan
Export Finance Guarantee Agency; or
·
are
in line with State Bank of Pakistan (SBP) eligibility guidelines
(the “SBP Eligibility Guidelines”), if any, as issued or as
amended from time to time by SBP and advised by SBP by circular
or other means accessible to the Applicant and the Issuing
Bank; and
(b)
is not used for the importation of any of the following,
prevailing on the date of such Applicant Certificate:
·
arms,
ammunition and other military materials; radioactive and associated
materials, nuclear reactors, and components thereof, fuel
elements (cartridges) non-irradiated for nuclear reactors;
·
goods,
services, spare parts or capital equipment that originate
from countries other than ADB Member Countries; or
·
luxury
goods, consumer goods or other imports which are on SBP’s
negative list (the “SBP Negative List”), if any, as issued
or as amended from time to time by SBP and advised by SBP
by circular or other means accessible to the Applicant and
the Issuing Bank.
Applicant
Certificate
12.
Each time an Applicant
applies with the Issuing Bank,
(a)
for
an L/C that is intended to be covered under the Facility,
or
(b)
for
an amendment is required to an L/c that has already
been issued under the
Facility and the amendment involves a change in goods,
nature of goods and /or country of origin of goods, or
(c)
for
an amendment required
in respect of an L/C issued outside the Facility and through
this amendment, the Applicant intends the L/C to be covered
under the Facility;
the
Applicant must submit to the intended Issuing Bank, as an
attachment to such L/C application (or amendment), duly completed
Applicant Certificate (Annexure
III), which shall
be treated by the Issuing
Bank as conclusive evidence that the goods to be imported
originate from an ADB member country and country
and meet the eligibility criteria spelt out in 11 above.
13.
Upon receiving any Applicant Certificate, the intended
Issuing Bank shall check;
(a)
the Applicant Certificate for consistency with the
L/C (or amendment) application;
(b)
whether the L/C applied for (or the L/C, as amended, in the case of an amendment application)
meets the eligibility criteria specified in 10 (a) and 10
(c) above;
(c)
that the Applicant
Certificate is duly completed;
14.
If the intended Issuing Bank is satisfied with
the applicant certificate
as per para 13 above and determines that the L/C (or
amendment) applied for meets the eligibility criteria specified
above and eventually issues the L/C, the Issuing Bank shall
insert the following special clause in the L/C: “Intended
for ADB PRG/Country of Origin of Goods ______”.
For SWIFT use Field 47B. Each Applicant Certificate
shall be treated as an integral part of the L/C application
and kept in file by the Issuing Bank.
15.
Further, information on the PRG facility is
available by accessing the following web address: www.standardchartered.com/pk/cib/adb.html
Please
acknowledge receipt.
Annexure
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