ISLAMABAD: Days after a team from Shanghai Electric, the company that is in a bid to buy controlling stake in K-Electric for $1.77 billion, left town, the government has come up with some changes in the legal framework surrounding the deal to allow for multiple financial transactions in the future.
A meeting of the Cabinet Committee on Energy (CCoE), presided over by Prime Minister Shahid Khaqan Abbasi, deliberated on the revised framework presented by the Privatisation Commission.
The meeting noted that such a legal and financial platform should be in the light of international standards to prove to the markets through actions and not words how Pakistan was progressing on ‘ease of doing business’.
Minister for Privatisation Danyal Aziz told media that the previous legal arrangement including the sale and purchase agreement (SPA) of the erstwhile Karachi Electric Supply Corporation (KESC) allowed only one management and assets transfer after the first privatisation. That transaction has already been done almost 10 years ago when the utility was taken over by Abraaj Capital.
Therefore, the entire old SPA is being revised that would take into account various options and eventualities and how assets should take hands smoothly, not only for the Shanghai Electric of China to take over K-Electric from Abraaj but how all future transactions should look like in case situations go bad.
As such new mechanism should provide for multiple future transactions ie mergers and acquisitions and sale of shares so that international investors can have the comfort that companies could be purchased in Pakistan and sold, provided certain basic conditions and laws are complied with under checks and balances.
The minister declined to go into details of the proposed framework, saying various stakeholders would now examine the structure from legal, judicial, financial and contractual aspects and come back with their comments to move forward.
He said various vested interests were against the transfer of KE to Shanghai Electric from Abraaj that was a business house and lacked technical expertise to run such a utility and did not improve generation and distribution network the way it should have.
On the other hand, Shanghai Electric was an international power operator producing 10pc of global power and that has promised to invest $9bn until 2025 for system upgradation, $3bn of which was front loaded.
Mr Aziz said a lot of effort and studies had been going into the revision of share purchase agreement, but it was unfair that a transaction could not conclude in two years when international investors were looking at Pakistan’s business climate and ease of doing business.
The minister said it was also strange that Shanghai Electric applied for the KE takeover in 2016 and it could not be given a Security Clearance Certificate (NSC) until now despite the fact that it was partner in development of Pakistan’s Chashma nuclear power plants.
This should be time bound – two months, six months or whatever the case may be – but not two years in any case. He agreed that the cabinet approval for the NSC was in place but it was contingent upon a series of documentation including those relating to proposed revised SPA.
The minister said the existing tariff structure was not viable to run the power sector on sustainable basis and entailed international best practices in local conditions without providing enabling environment. He alleged conflict of interests in tariff setting for the entire power sector and KE.
He said the addition of 10,000MW of fresh power generation capacity had brought these shortcomings to the forefront as the government inherited Rs500bn circular debt and cleared at the outset and was back on the books. “You can keep on injecting public money that should otherwise flow to the health, education and social sector, but the private sector could not do this,” he said.
He was responding to questions that various government entities including Power Division, power and gas companies and power regulator – National Electric Power Regulatory Authority – to facilitate KE transfer at the cost of consumers and the public exchequer.
Separately, officials requesting anonymity said they faced repeated pressures from the top political offices to allow old Multi-Year Tariff (MYT) of about Rs15.50 per unit to the new buyer instead of its revised tariff of Rs12.07 per unit determined by Nepra in March 2017 and appealed against by the Power Division reluctantly.
They said the Abraaj group had secured a deal with Shanghai Electric for $1.77bn for transfer of 66.4pc shares on the basis of Rs15.5 per unit tariff. On the basis of Rs12.07 per unit, the value of the deal comes down to about $500-600m and many political masters want Abraaj to walk away with $1bn booty.
They said the KE issue was repeatedly been included in the CCoE agenda and sometimes taken up for discussion without an agenda item. All these discussions revolve around facilitation to KE through higher tariff. This is despite the fact that even a policy direction to the power regulator to enhance the MYT has to be issued by the Council of Common Interests (CCI) after the 18th constitution amendment.
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The 2018 Boao Forum for Asia (BFA) annual conference is scheduled for April 8 to 11 in Boao, Hainan Province. The forum will be themed "An Open and Innovative Asia for a World of Greater Prosperity."
— The Daily Mail - People's Daily