Resolving issues: Govt urged to address concerns over KAPCO’s privatisation

Privatization Division says state’s earnings will take hit if investor interest is not taken care of

Zafar Bhutta February 09, 2017

ISLAMABAD: The government wants investors to take interest in the 600MW coal expansion project, in addition to taking control of Kot Addu Power Company Limited (Kapco).

Kapco, which is located in Kot Addu, is also where it plans to set up its extension - a 600MW coal-based plant - which the local community is protesting against due to environmental concerns.

The extension in agreements and liquidity damages amounts to Rs27 billion, which appears on Kapco’s financial statements and  is causing bottlenecks in its privatisation, stated the Privatisation Division to the Cabinet Committee on Privatization (CCoP) in its meeting held on January 27.

Due to this hindrance in privatising Kapco, the government wants an investor to take greater interest in key decisions related to the coal expansion project envisaged by Kapco.

The Privatisation Division said financial advisors had highlighted key issues to be resolved by the Pakistani government to attract investor interest. The advisor proposed assurances from the government on the renewal and extension of major agreements expiring in 2021 including Power Purchase Agreement (PPA), generation license, gas supply agreement, fuel supply agreement and facilitation agreement.

It asked for further assurances on the fate of Kapco’s liquidity damages, adding that the potential investor should be requested to have greater involvement in key decisions with regard to the project.

Privatization Division said that non resolution of the issues, despite key investor interest in the transaction, eventually led to a poor response from investors as only four parties requested for an Expression of Interest (EOI) and none had submitted the document by October 13, 2016.

It was also stated that the financial advisor had conveyed that in the absence of such guarantees, the government might have to significantly compromise on its earnings.

The Privatization Commission board was unanimously of the view that without provision of adequate comfort to the investors on the matter of renewal, extension of PPA and resolution of liquidity damages, the bidding price for the transaction might be significantly impacted.

Privatization Division proposed reinitiating the Kapco transaction subject to the Ministry Of Water and Power providing the requisite comfort letter for the extension of PPA.

The cabinet committee directed the Privatization Division and Ministry Of Water and Power to immediately finalise the comfort letter after settling all the issues regarding terms and conditions, timelines of extensions and other modalities.

Published in The Express Tribune, February 9th, 2017.

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