Pakistan may soon clear K-Electric’s sale

Abraaj Group likely to get clearance certificate after making major concessions

ISLAMABAD: Pakistan may soon issue national security clearance certificate to the Abraaj Group in order to allow the sale of its majority stake in K-Electric to a Chinese company, after the beleaguered multibillion-dollar fund agreed to make major concessions.

Both the seller - the Abraaj Group - and the buyer - Shanghai Electric Power (SEP) - have eased their earlier positions aimed at addressing concerns of the Government of Pakistan, according to officials privy to the details of negotiations.

While accepting a key demand, the Abraaj Group on Friday shared the draft sale-purchase agreement with the Privatisation Commission. Earlier, the group had resisted the demand to share the draft agreement for over two years.



“It is a major breakthrough that will ensure transparency in the stake sale transaction,” commented Privatisation Secretary Rizwan Malik.

The Abraaj Group owns the stake in K-Electric through KES Power - an offshore entity holding 66.4% shareholding in the power utility. The group will get half of the sale proceeds and the rest will go to the original buyers of K-Electric.

The new buyer has agreed to pick both assets and liabilities of K-Electric to the extent of its 66.4% shareholding in the country’s largest integrated power distribution company. Yet the Chinese buyer will be the net beneficiary of the deal.

Officials said the value of the transaction would be determined in Pakistani rupee but payment to the Abraaj Group would be made in the US dollar. Due to depreciation of the rupee, the buyer will get a benefit of around $400 million.



In 2016, when the Abraaj Group announced its intention to sell its stake in K-Electric to SEP, the rupee’s value was at 104 to a dollar. On Friday, the rupee-dollar parity was 138.89.

This would reduce the overall value of the deal from $1.77 billion, estimated in August 2016, to around $1.4 billion, the officials said.

SEP will also get a discount in the share value due to the low tariff determined by the National Electric Power Regulatory Authority (Nepra) for K-Electric. The discount was estimated in the range of 15 to 20 paisa per share, the sources said. SEP will not change K-Electric’s existing management for at least one year.

In return for these concessions, the Abraaj Group will secure much-needed money to settle its liabilities against foreign creditors. An inordinate delay in finalisation of the $1.77-billion K-Electric deal has affected the business of the Abraaj Group that now faces a liquidation case filed by a Kuwaiti pension fund in the Cayman Islands.

K-Electric has also not released its audited financial accounts for the last two years. The deal has remained stuck for the last 28 months due to delay in issuance of the national security clearance certificate by the Privatisation Commission. The commission withheld the certificate because of non-settlement of dues of $1.5 billion on account of gas and electricity supply to K-Electric.

The commission can issue the certificate only after it gets clearance from all the ministries concerned. So far, the National Transmission and Despatch Company (NTDC) and Sui Southern Gas Company (SSGC) have not given the go-ahead.

However, all these liabilities are not fully reflected in balance sheets of the NTDC, SSGC and even K-Electric. Most of these liabilities are shown as off-budget contingent obligations.

In May this year, SSGC “expressed serious concern, stating that K-Electric was not recognising SSGC’s entire overdue amount as liability in its books of accounts”.

SEP Chairman Wang Yundan met with Prime Minister Imran Khan on Friday. Abraaj Group founder Arif Naqvi was also present in the meeting. Wang “evinced keen interest of SEP in investing in the power sector of the country”, according to an official statement issued by the PM Office.

Sources said the PM directed his economic team to settle the dispute at the earliest. But response of the bureaucracy will be critical to an early settlement of the dispute.

The government is now expected to convene a meeting of the Cabinet Committee on Privatisation to have a fresh look at the deal in light of the latest developments.

The government was discussing the draft of the deed of undertaking and the deed of extinguishment aimed at agreeing to a mutually acceptable framework of the deal, said the sources.

Published in The Express Tribune, December 9^th, 2018.

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