U ANNOTATED REPLY OF MINISTRY OF ECONOMIC AFFAIRS

Issues Raised Remarks of EAD

1. SFD presented a total outlay of Ongoing Portfolio comprises of total 13 development projects
around $ 1.6 billion Status of each project is attached at (Annex A)
(S1.2billion loans and $ 400 million grants) 0 9 grants worth $ 230 million
0 4 loans worth $ 404 million
06 Pipeline Projects worth $500 million (loan)
Total portfolio including Ongoing and Pipeline projects is
$1.13 billion
Financing facility for the Import of Saudi Goods on
Deferred Payments worth $1.2 billion signed by EAD and
handled by Ministry of Petroleum

2. Out of the total funds, around $550
million ($500 million loans and $50
million grants) were still not allocated
to any project due to delays in response
from our side.
During visit of Prime Minister of Pakistan to Saudi Arabia (7-9
May, 2021), Framework Memorandum of Understanding
amounting to US$ 500 million was signed between Pakistan
and Kingdom of Saudi Arabia for the financing of potential
(Pipeline) projects in Infrastructure development, Power
Generation and Energy Sector including the following: Status
of each project is attached at (Annex B)
i. Mohmand Dam Project
ii. Shounter Hydropower project
ii. Jamshoro Power Generation Project
iv. 22 MV Jagran IV Hydropower Project
V. Gravity Flow Water Scheme Mansehra, KPK
vi. Abbottabad- Muzaffarabad Road Project
There are no unallocated $50 million grants in record.

3. The SFD was facing some obstacles in There are 3 grant funded projects in Balochistan as follows:
executing 4-5 grant funded project in i. Reconstruction of Permanent Houses in Awaran,
Balochistan due to issues related to Balochistan $25 million
coordination with Economic Affairs ii. ivelihoods Restoration in Balochistan $1.5 million
Division EAD) and agencies ii. Construction of Government Buildings in Awaran,
nominated by Pakistan.
Balochistan $ 1 million

SFD grant 19/1437 "Construction of Permanent Houses in

Awaran Balochistan" letter vide No.HRA/SFD/090922-3
Dated 09 September 2022 was forwarded for 4th Release of
Rs. 400 million from SFD, however, no response has been

4. The King Salman Hospital in
Tarlai, Islamabad (a grant funded
project of around $26 million) was
facing.delays due to the failure of
PWD as the executing agency. The
EAD had proposed to transfer the
project from the PWD and FWO.
5. The Loan Agreement for
Mohamand Dam Hydro Power
Project worth $250 million was
near finalization, pending approval
from Pakistan side;
The Director General Ayid also
recommended that during the SFD
team visit, the loan Agreement for
Mohammad Dam Hydro Power
project may be finalized. And
stressed upon the need for finalizing
received from SFD till date. The last release from SFD was
received on 20th April 2020 for an amount of Rs. 448 million.
PD of Balochistan Projects has shared that SFD so far released
only USD 12 Million from the grant. Despite our repeated
requests dated 21st June 2022, 25th July 2022, 30h August
2022, 9th sSeptember 2022 & 3rd October 2022 regarding |
demand for release of funds.
Letter of Project Director is attached as Annex C
PWD started the process for hiring of consultant in accordance
to SFD guidelines in year 2018,2019 & 2020 but the process
did not get matured three times and was advised to be revised
by SFD on technical issues. The final process of hiring of
consultant was initiated with advertisement on SFD website on
23-02-2021. The firms were prequalified and bids were sought
from prequalified firms. After technical evaluation, financial
bids were opened. Consequently, work was awarded to lowest
bidder M/s Zuhair & Fayyaz Partnership vide SFD letter
dated 23-06-2021.
During the visit of Delegation of SFD on 2-3 March 2022 under DG
of Asia Operations SFD, the Ambassador and the DG requested to
give the project to FWO for execution instead of PWD.
FWO officers came along with Ambassador's staff and
attended the same meeting and asked to share the copies of
MoUs for their internal consultation and processing. Since that
time, FWO has notresponded back and the FWO officer who
attended the meeting was contacted several times
telephonically by the concerned EAD officer and FWO
representative responded that they are seeking clarifications on
some queries from the Embassy and on the receipt ofresponse
of queries further action will be taken.
During the visit of the SFD delegation to Pakistan in early
March 2022, a portfolio review meeting was held between the
executing agencies and SFD delegates. In that meeting, SFD
coiveyed to WAPDA that it can fund the project only if the
contractors are hired as per their procurement guidelines.
Whereas WAPDA responded that the work has already been
awarded and, at this stage, it is difficult to comply with the
SFD condition. WAPDA was finally able to convince SFD on
its terms.
Finally, SFD agreed to WAPDA's terms and shared the initial
draft on 8th September 2022. The initial draft is vetted by
 the project for unassigned funds of WAPDA, Ministry of Finance, Ministry of Law & Justice and
$550 million at the earliest. FBR. Comments have been shared with SFD on 4th Oct 2022.
6. So far, the SFD had not received Status of each project is attached at Annex B.
any response from Pakistan side on
Jamshoro Power Generation,
Jagran-IV Hydro Power, Shounter
Hydro Power, Mansehra Water
Supply and Abbottabad-
Muzaffarabad Road Projects. He
requested for a final word from the
Pakistan side whether to consider
these projects or otherwise.

7. Even after receiving assurances Saudi Fund for

from the Ministry of Finance, the
Development (SFD) approved a grant of Saudi
Riyals 600 million equivalent to USD 160 million for 29
taxation issue was still not resolved. projects of the earthquake affected areas of AJK and KPK in
This was seen by the SFD as a 2006. ERRA being executing agency of the project, could not
breach of the Signed loan get it completed through local contractors. Then, SFD awarded
agreements; and the contracts through international competitive bidding for the
projects in earthquake affected areas of AJK and KPK in 2017.
M/s Siyah kalem (Turkish Firm) awarded contracts of
was
the
projects in earthquake affected areas of AJK and KPK
amounting to USS 83.631.
The projects were completed and handed over to ERRA in
2019. FBR has levied 2.5 billion income tax for 2018 and 2019
on the contractor of the
project. The tax issue kept pending
between ERRA, FBR & M/S Siyah Kalem.
With the intervention of Ministry of Economic Affairs the
issue is resolved and the Economic Coordination Committee
(ECC) of the Cabinet approved Summary for exemption of
income tax on Siyah Kalem on 27th May, 2022.
With respect to Siyah Kalem case, the following clause is
added in Income Tax Ordinance 2001, Second Schedule Part I
(EXEMPTIONS FROM TOTAL INCOME) as" Income derived
by Siyah kalem Engineering Construction Industry and Trade
Company Limited from contract dated 23rd day of May 2017
with Earthquake Reconstruction and Rehabilitation Authority, |
financed by the Saudi Fund for Development with effect from
tax year 2017."
Accordingly, FBR has withdrawn tax notice and ERRA has
released mobilization advance and performance securities to
Siyah kalem and their payment process has been initiated.

Updated Status ofERRA is attached as Annex D

 Lack of any dedicated team at the
EAD, designated for SFD projects.
A dedicated team needs to
organized at the EAD for SFD
projects; and
9. With the visit of the Crown prince
of Saudi Arabia scheduled for
November, it is imperative that
relevant authorities are directed to
hold constructive and meaningful
engagement with SFD team, and
resolve some of their pending
issues especially with EAD and
FBRto giveout a positive signal
EC Wing deals with Saudi Arabia
portfolio and Additional
Secretary, Joint Secretary, Deputy Secretary and S.O are a
be dedicated team.
SFD has some serious communication issue within
the
organization. Mohammed S. Almasoud, Head of Central&
West Asia Operations has been informed
regarding the
progress of Tax Exemption case via What's app message dated
10th June 2022 and email dated 23rd August 2022 (Email is
attached as Annex E). However, the DG Asia Operations,
SFD seems not to be aware of the latest.
 Annex-A
Government of Pakistan
Ministry of Economic Affairs
(SFD Projects)
Sr. Grant Name of Project/Program Amount Committed
#
/Loan
1. Loan Two tunnels on Chella Bandi Patika Road, AJK USS
55 million
2. Loan Construction of Infrastructure in Malakand Region Project 72 million
3. Loan Neelum Jhelum Hydro Power Project AJK
180 million
4. Loan Golen Gol Hydropower Project 97 million

5. Grant Livelihood Restoration in Balochistan 1.5 million

6. Grant F.G College of Home Economics, Islamabad 6 million

7. Grant King Salman Bin Abdul Aziz Hospital Tarlai, Islamabad 20 million

8. Grant Earthquake Reconstruction & Rehabilitation in Project AJ&K, 160 million

AMI Abbotabad.
9. Grant Reconstruction of Permanent House in Awaran Balochistan 25 million

10.Grant Equipping Hayaserai Hospital with Medical Equipment and 0.6 million
Furniture
11. Grant ipping and Furnishing King Abdullah Bin Abdul Aziz 10million
Campus at University of AJ&K
12. Grant Grant Equipping King Abdullah Bin Abdul Aziz Teaching 5.5 million
Hospital with medical equipment and Furniture, Mansehra
13 Grant Construction of Govt. Buildings in Awarar Balochistan 1.0 million
 STATUS OF PIPELINE PROJECTS Annex B
Sr. Projects
No Status
1. Mohmand Dam Project
US$240 million During the visit of the SFD delegation to Pakistan on 2-3 March
review meeting was held between the 2022, a portfolio
that meeting, SFD
executing agencies and SFD delegates. In
conveyed to WAPDA that it can fund the project only
contractors are hired as per their if the|
procurement guidelines. Whereas WAPDA
responded that the work has already been awarded and, at this stage, it is difficult
to
comply with the SFD condition. WAPDA was finally able to convince SFD
on its terms.
Finally, SFD agreed to WAPDA's terms and shared the initial draft on
8t
September 2022. The initial draft is vetted by WAPDA, Ministry of Finance,
Ministry of Law & Justice and FBR. Comments have been shared with SFD on
4th October 2022.

Jamshoro Power
Generation Project Ministry of Energy on 12th October 2021 informed that the Project has not been
US$91 million selected/ optimized by the tool on the least cost basis in Indicative Generation
Capacity-Expansion Plan (IGCEP) i.e. IGCEP 2021-30.
Vide thisMinistry's letter dated 22nd October 2021, SFD has been requested to
divert $91 million of this project to any other project signed under this
memorandum preferably project at Sr. No.6 below.
Subsequently SFD was reminded via emaildated21s" April 2022

Abbottabad Muzaffarabad Executing Agency is NHA

Road Vide this Mínistry's letter dated 4th January 2022, SFD has been requested to
USS26 million consider Muzaffarabad-Mansehra (26.6 km) Road instead of Abbottabad-
Muzaffarabad Road.
Subsequently SFD was reminded via email dated 21t April 2022
NHA has prepared PC-I and once the funding is confirmed, it will be presented
before CDWPfor approval.
4. Jagran fHydropower Executing agency is PDO Power Development Organization, AJK Govt.
Projects IV PCI ofthe subject project is approved from CDWP on 27-07-2022.
USS35 million After receiving Administrative Approval from Implementing Agency, we may
proceed for signing of agreement.

5. Shounter Hydro Power Executing agency is PDO Power Development Organization, AJK Govt.
Project .PCI ofthe project is cleared from CDWP for consideration of ECNEC on 04
USS 66 million 06-2022. After approval from ECNEC, we may proceed for signing of
agreement.

6. Gravity Flow Water Revised PCIofthe project is submitted by Public Health Engineering
Scheme Mansehra Department KP Govt, to CDWP on 04-04-2022 for approval. After approval we

US$41 million may proceed for signing of agreement.

 Annex D
urrent
Status on pendingissues of Contractors of Saudi Fund for Development (SFD)
Proiects

Sr. No. Pending issue Contractor Amount Current status

Bill of Statement at M/s Siyahkalem PKR 368,0557,559 Sent to SFD on 5
completion USD 392,181
September,2022

2. Final Bill M/s Siyahkalem PKR 179,432,302 After the

USD 169,346 settlement of audit
observation, bill is
in process and will
be sent to SFD in

this week.
PKR 616.172 Mn Not yet released
| 3. Pending Final Bills at Different
by the SFD
Contractors
SFD