The Washington-based International Finance Corporation (IFC) has signed its first private risk management facility in Pakistan with

DG Khan Cement Company. The IFC hopes that this will be the first of many agreements which will encourage the use of risk management instruments by local firms.

The facility, which was approved for an exposure totalling $10 million, will provide DG Khan with access to a variety of risk management hedging instruments. This includes the ability to hedge currency and interest rate risks up to eight years.

The deal is designed to help DG Khan manage payments for a contract on its $170 million expansion project. Financing for the scheme, which was also arranged by the IFC last year, is all in dollars. However,the major contract, awarded to Denmark's FL Smidth in 1994, has been agreed in Danish kroner, a currency which has strengthened against the dollar since the contract was signed.

The expansion involves increasing production at the DG Khan's plant in the Punjab by 3,300 tonnes a day to about 2 million tonnes a year. FL Smidth announced in May last year that it had been awarded two contracts totalling DKr 1,100 million ($203.4 million) by DG Khan and Maple Leaf Cement Company. Both jobs are for extensions to existing plants and are of similar size and were for three years (MEED 6:5:95).

'DG Khan's risk management transactions are the first such derivatives hedging transactions undertaken by a private sector entity in Pakistan and IFC is pleased to have been involved in structuring this facility,' said Andre Hovaguimian, director of IFC's Central Asia, Middle East and North Africa department.