CCOP approves sale of K-Electric stake

Issues National Security Certificate for sale of 66.4% shares to Shanghai Electric

Shahbaz Rana March 31, 2018
The Abraaj Group and Shanghai Electric deal has remained pending due to different legal interpretations of the proposed transaction and delay in settlement of financial liabilities. PHOTO: FILE

ISLAMABAD: In a major development, Pakistan has decided to issue the National Security Certificate to Shanghai Electric Power in its bid to buy a majority stake in K-Electric, removing one of two barriers that stopped the multi-billion dollar deal from moving ahead for the last one-and-a-half years.

Headed by Prime Minister Shahid Khaqan Abbasi, the Cabinet Committee on Privatisation (CCOP) approved to grant the National Security Certificate to KES Power Limited for sale of all its 66.4% shareholding in the country’s largest utility company. The KES Power Limited is an offshore company incorporated under the laws of Cayman Islands, and owns 66.4% stake in K-Electric.

The meeting discussed the matter of sale of its shares to Shanghai Electric Power, and decided to issue the National Security Certificate subject to ratification by the Federal Cabinet, according to a notification issued by the PM Office.

Of the stake up for sale (66.4%), 50% is owned by The Abraaj Group, 30% by Al Jomaih Power Limited and 20% by Denham Investment Limited, according to the Ministry of Privatisation. In October 2016, the shareholders entered into a Sale Purchase Agreement (SPA) with Shanghai Electric Power for a value of $1.77 billion but its final price will depend upon the multi-year electricity tariff.

The CCOP’s decision will now go for ratification of the federal cabinet, which will be just a legal formality. However, the issue of determination of the multi-year tariff still remains pending that has to be decided by the National Electric Power Regulatory Authority (Nepra). K-Electric has sought a review of Nepra’s previously determined tariff of Rs12.71 per unit, terming it low and commercially unviable.

The Abraaj Group and Shanghai Electric deal has remained pending due to different legal interpretations of the proposed transaction and delay in settlement of financial liabilities. The deal was contingent upon the settlement of issues between the government and the seller. One of the pending issues was sharing of the SPA, reached between Abraaj and Shanghai Electric.

The CCOP decided that at this stage it was not biding for the sellers to disclose the SPA before the Privatisation Commission, said a senior government functionary who attended the meeting.

Privatisation Secretary Irfan Ali was of the strong view that the “Privatisation Commission may not issue the National Security Certificate without actually having seen the constituent document of the proposed transaction”. But the PM did not agree.

KES Power had also stated that the issuance of National Security Certificate has no relationship to K-Electric’s current operational situation and outstanding liabilities. K-Electric will remain a going concern and post transaction it will not extinguish responsibility from any of its liabilities.

Privatisation Minister Daniyal Aziz was also of the view that Pakistani law with regards to submission of any Sale Purchase Agreement is regulated by the Listed Companies (Substantial Acquisition of Voting Shares and Takeover) Regulations, 2017. The minister informed the CCOP that the National Security Certificate must be issued prior to the requirement for submitting SPA.

The parent company of Shanghai Electric has also remained involved in design of the Chashma Nuclear Power Plant. The minister further stated before the CCOP that the successful culmination of the proposed transaction would preserve Pakistan’s international reputation.

SSGC’s liabilities

In order to address the issue of Rs79 billion in outstanding liabilities against K-Electric, it was decided by the CCOP that KES Power and the Shanghai Electric Power would sign the Extinguishment Deed and Deed of Undertaking, which would extend the provisions of the Original SPA of 2005 to Shanghai Electric Power.

The prime minister was of the view that if the buyer is giving an undertaking to take over the responsibilities of the dues then the ministries should not have any issue.

The Petroleum Division had requested the Privatisation Commission that the National Security Certificate should not be provided until the issue of its liabilities on account of Sui Sothern Gas Company is resolved.

After receiving an application from KES Power, the Privatisation Commission had sought no objection certificates from the Competition Commission of Pakistan, State Bank of Pakistan, Board of Investment, Ministry of Energy, Federal Board of Revenue, Ministry of Defense, Securities and Exchange Commission of Pakistan, Law and Justice ministry, finance ministry, Nepra and Ministry of Interior.

The Ministry of Defence and Ministry of Interior had given conditional clearances. Both ministries had stated that The Abraaj Group will remain liable for its liabilities of SSGC including issues related to over billing. KES Power will submit written guarantees from the new buyer and that will abide by all obligations of K-Electric. Shanghai Electric will be responsible for uninterrupted power supply to all armed forces, military installations including during time of war, emergency and operational periods.

Published in The Express Tribune, March 31st, 2018.

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