ISLAMABAD: In an important development, the Ministry of Defence has given a security clearance certificate for the sale of Abraaj Group’s 66.4% stake in K-Electric to Shanghai Electric Power. However, the issue of settlement of over $1 billion dues still remains unresolved.
Both Ministry of Defence and Ministry of Interior have given the no-objection certificates for the sale of majority shares to the Chinese company, sources in the Ministry of Energy said. However the Ministry of Defence gave the certificate on the condition that the new buyer of K-Electric -the country’s largest integrated power utility company – would ensure power supplies to vital defence installations at all times, they added.
Since the Amended Implementation Agreement has also expired, the Privatisation Commission has asked the Power Division to sign a new legal agreement to make sure that the buyer is legally bound to supply electricity to defence installations.
The Privatisation Commission has also asked Abraaj Group (the seller) to share the draft Sale Purchase Agreement but it has refused to meet this condition, said the sources.
The Power Division had asked Shanghai Power to seek security clearance from the Ministry of Defence and Ministry of Interior for the deal to be ratified. Shanghai Power is already running a nuclear plant in Pakistan.
The defence ministry’s endorsement would remove one of the main irritants that have delayed the finalisation of the deal. In August last year, the Abraaj Group sold KES Power – the offshore entity that controls 66.4% of total K-Electric shares – to China-based Shanghai Power. The deal is estimated at $1.77 billion and is contingent upon settlement of issues between the government and the seller.
The Abraaj Group will get only half of $1.77 billion as the first Saudi Arabia-based buyer – the AlJomiah Group – has kept its investment through an offshore entity. As per the shareholders’ agreement, the Abraaj Group has a 50% stake in KES Power – the holding company of K-Electric – and will get half of the total price, sources said. This means that when and if the deal materialises, Abraaj Group will claim over $785 million as its share.
The government of Pakistan sold its majority stakes in K-Electric – then KESC – in 2005 to AlJomiah Group.
Since Abraaj and Shanghai Power failed to conclude the deal by March this year, they had to seek fresh regulatory approvals. After the expiry of the original deadline, Shanghai Electric made a public announcement on June 29 of its intention to acquire K-Electric.
“In accordance with takeover regulatory framework, the acquirer may make public announcement of the offer till December 26 of this year,” the Securities and Exchange Commission of Pakistan (SECP) said.
The Abraaj Group has been making hectic efforts to conclude the deal at the earliest. Its officials also met with Prime Minister Shahid Khaqan Abbasi last month to get his support, according to sources.
They said that a meeting of an inter-ministerial committee was scheduled for Wednesday but had to be postponed due to non-availability of Finance Minister Ishaq Dar. The inter-ministerial committee has been setup to thrash out impediments to the deal.
“For us the most important issue is the receivables but so far there is no convergence on this issue,” Secretary Power Division Yousaf Naseem Khokhar told The Express Tribune.
Khokhar said that outstanding dues have to be settled by the seller before the deal is finalised. He said that an inter-ministerial committee is handling the deal and once all the pre-requisites are completed, the matter will be placed before it for approval.
The Sui Southern Gas Company (SSGC) and National Transmission and Despatch Company (NTDC) have made claims worth around $1.24 billion on account of cost of electricity, gas and late payment surcharges (LPS). Abraaj Group does not want to pay the interest and is seeking settlement of payment of principal amount.
Abraaj Group is of the view that since the matter of payment of mark-up is pending in the court this issue should not be linked with the deal. The Power Division and SSGC do not agree with this stance.
Published in The Express Tribune, September 29th, 2017.