Shanghai Electric’s acquisition: K-Electric deal hangs in balance over pending dues

Power utility has requested govt to set aside claims worth roughly $1 billion

ISLAMABAD: Pakistan has not yet given the National Security Clearance Certificate for the sale of Abraaj Group’s 66.4% stake in K-Electric (KEL) to Shanghai Electric Power, owing to a disagreement over almost $1 billion dues the utility company does not want to pay to the government.

K-Electric has requested the federal government to set aside claims roughly worth Rs98 billion or about $1 billion, said sources in the Ministry of Finance. The Sui Southern Gas Company (SSGC) and National Tariff and Dispatch Company (NTDC) have made these claims on account of Late Payment Surcharges (LPS), they said.

K-Electric is making its case on the ground that the company could not timely pay the dues owing to delays in payments of electricity sale charges by various government organisation. Its other argument was that the government has also not fully paid its electricity subsidies.

The SSGC financial statement showed Rs68 billion in claims against KEL and out of that the electricity utility company wanted to pay only Rs14 billion. Similarly, the NTDC’s total outstanding liabilities are about Rs75 billion and KEL wanted to pay between Rs30 billion to Rs35 billion, said the sources.

The deal between Abraaj Group and Shanghai Power, estimated at $1.77 billion, is contingent upon settlement of these issues, said sources with knowledge on the matter.

KEL seeks support

KEL officials on Wednesday held a meeting with Finance Minister Ishaq Dar and Water and Power Minister Khawaja Asif. The finance minister constituted a technical committee to resolve the dispute over the payments, said the officials.

“KEL delegation briefed the minister on the status of payables and receivables of K-Electric with regard to various government entities and suggested ways to resolve the pending issues”, according to a handout issued by the finance ministry.

The sources said that KEL wanted to pay only the principal amount, which is less than Rs50 billion - that too in installments. However, it is not willing to pay the Rs54 billion on account of late payment surcharges to SSGC and another Rs44 billion to the NTDC, said the sources.

This has put the SSGC in an awkward position that has cut gas supplies to Pakistan Steel Mills (PSM) on account of Rs45 billion outstanding dues including Rs26 billion late payment surcharges. The SSGC is now in negotiations to acquire land from PSM. The SSGC has written a letter to Shanghai Electric Power, cautioning it that if its dues were not fully cleared by KEL before conclusion of the deal, SSGC would not guarantee supply of 160 mmcfd gas, the officials told The Express Tribune.

Under the sale purchase agreement, SSGC is bound to provide only 10 mmcfd gas, SSGC told Shanghai Electric Power.

It also requested the Privatisation Commission to withhold the National Security Clearance Certificate till the time KEL clears all outstanding dues, sources said.  Without the clearance certificate, Abraaj Group cannot close off the deal, they said.

SSGC officials said that it was not in their hands to write off Rs54 billion late payment surcharges, as these had been imposed under the directions of the Oil and Gas Regulatory Authority (Ogra).

After KEL defaulted on late payment surcharge, SSGC filed a suit in the Sindh High Court in November 2012, for recovery of its aggregate claim, according to the SSGC financial statement.

Head of the KEL delegation, Umar Lodhi, said that negotiations for Shanghai Power’s investment in KEL were progressing and matters were likely to be finalised soon, said the finance ministry. He further stated that the Chinese side carried out its due diligence and was satisfied with the financial position of the company.

Published in The Express Tribune, February 16^th, 2017.

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