Mission aborted: Govt cancels meeting set to approve HEC sale price

Indicates Privatisation Commission could not reach consensus deal with sole bidder

ISLAMABAD:

The government has cancelled a meeting of the Cabinet Committee on Privatisation (CCOP), which had been convened to approve the sale price of Heavy Electric Complex, indicating that the Privatisation Commission (PC) could not reach a consensus deal with the sole bidder, M/s Cargill Holdings.

Minister for Finance and Privatisation Ishaq Dar on Tuesday called the meeting to consider the negotiated price for the first strategic sale of HEC, which was cancelled after getting no final feedback from the commission about the negotiated price agreed with the bidder.



The CCOP was scheduled after a meeting of the Privatisation Commission Board. The spokesman of the finance ministry was not available for comments.

The HEC is engaged in manufacturing of powers transformers with a total annual capacity of 3,000MVA and is spread over 61 acres. The sources said that the buyer showed the intention to manufacture the transformers and subsequently export these to Kenya.

On Monday, the PC Board had approved to fix the reference price to sell Heavy Electric Complex at over Rs500 million – which is around two-and-a-half times lower than the forced sale price and three times lower than the fair market value of the entity, worked out by the financial advisor.



Headed by Privatisation Commission Chairman Mohammad Zubair, the board on Monday fixed the reference price of the HEC at just Rs35.72 per share. The Cargill Holdings has deposited Rs25 million as earnest money.

The official said Deloitte Pakistan had recommended the PC Board that the representative range for determining reserve price should be between Rs85.57 per share, valuing the company at Rs1.248 billion, to Rs101.08 per share, valuing it at Rs1.475 billion. The representative range was worked out under the asset based approach of valuation.

However, according to sources in ministry of finance and privatisation, the CCOP in its Monday meeting was not satisfied with the working of the financial advisor. Some CCOP members had questioned the methodology that the consultant used for working out the price of the entity, said a participant of the meeting.

The government had hired Deloitte Pakistan as the financial advisor.



The sources said even Finance Minister Ishaq Dar, who himself is a chartered accountant, was not happy with the reference price. The CCOP had directed the PC to ask the financial advisor to separately work out the land price.

One of the thorny issues was that the financial advisor used a very high discount rate of over 20% to work out a reference price under discounted cash flow approach, sources privy to the discussions said. They said the CCOP discussed the appropriate value of land, property and machinery.

The HEC is established over 61 acres, which has a high market value as it falls on the proposed China-Pakistan Economic Corridor route. Sources said that the CCOP members also questioned the value approach, adopted to work out the cost of machinery and plant.

The buyer was not ready to even accept the Rs500 million price, said sources who negotiated with the buyer, adding that for the buyers, the value of assets minus liabilities was not worth of even Rs500 million.

The HEC will be the first strategic sale by the PML-N government — so far its privatisation programme was restricted to selling stakes in profitable entities. The government wants to sell 97% or 1.4 million shares to the buyer.

Published in The Express Tribune, March 11^th, 2015.

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