Privatisation conundrum: Two out of three bidders bow out of HEC deal

Fauji Fertilizer, Elahi Electronics opt out of potential Rs1b transaction.

ISLAMABAD:

Two out of three pre-qualified bidders, looking to buy the state-owned Heavy Electric Complex (HEC), have bowed out, which may minimise gains for the government that is eying to achieve its first strategic sale next week.

The government’s bid to start the strategic sale process of almost two-dozen entities on a positive note will hinge on the outcome of the first offering, which is the HEC.

So far, the government has divested shares in United Bank Limited, Allied Bank Limited and Pakistan Petroleum Limited, earning Rs68 billion from these deals – all profitable entities.



The HEC is spread over an area of 81 acres and, according to a brief that the government presented in a parliamentary committee meeting last month, it was anticipating a minimum of Rs1 billion from the sale of 97% of its shares.

“For the government, the successful culmination of a strategic sale is very important”, said Privatisation Commission (PC) Chairman Mohammad Zubair, while talking to The Express Tribune.

The government was expecting healthy competition among bidders, as the PC had cleared all the three parties as pre-qualified bidders, which was also subsequently approved by the PC board.

But, at the time of submitting earnest money, two parties – Elahi Electronics and Fauji Fertilizer Company Limited – did not submit the earnest money, said Zubair.

This has left Cargill Holdings Limited as the sole party vying for the HEC. The three parties submitted the Statement of Qualification (SOQ) documents on February 23.

The PC has called a board meeting on Monday that will approve the reference price for the first strategic sale. The same price will then be tabled in a meeting of the Cabinet Committee on Privatisation (CCoP) for its approval, which will be headed by finance and privatisation minister, Ishaq Dar.

Unlike the previous occasions when the financial bids were opened in public, this time a lot work will be taking place behind closed doors, as the withdrawal of two parties has eroded the competition element. A three-member negotiation team of the PC is expected to work as a bridge between the sole bidder and the government, said an official of the PC.

Another meeting of the PC Board will be held on Tuesday in which it will approve or disapprove the bidding results.

For the PC, all three parties seemed good options and it was expecting maximum possible gains from the deal. The net worth of each of the three parties was for more than Rs2 billion, which was the minimum threshold for qualification, said the PC officials.

The officials said Fauji Fertilizer changed its business plan and was keen to invest abroad instead of placing its bids in Pakistan.

They added now the biggest challenge for the PC was not only to complete the transaction but also make sure that the buyer does not change the core business after acquiring HEC. There was also concern that the deal was not signed for the sake of 81 acres of land, said another official who spoke on the condition of anonymity.

Financial advisors deadline

Meanwhile, the PC had to give extensions in the hiring of financial advisors for the strategic sale of two government-owned power plants. It did not receive financial and technical bids from the prospective financial advisors for the sale of 880MW Jamshoro Power Company Limited and 150MW Lakhra power plant.

The PC chief said that few parties came forward but they sought time for making consortiums. The deadline for the Jamshoro company has been extended to March 20 while March 24 was set for the Lakhra power plant.

The Supreme Court of Pakistan had struck down the Lakhra Power Plant lease deal, which the Pervez Musharraf-led government had signed with the Associated Group of Iqbal Ahmed in 2006 for 20 years without open bidding.

Earlier, it did not receive bids from prospective financial advisors for Hyderabad, Sukker and Quetta power distribution companies. The government is blaming past actions that have made foreign investors suspicious about the success of the privatisation process.

Published in The Express Tribune, March  7^th,  2015.

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