CCOP allows privatisation of two LNG power plants

Haveli Bahadur Shah, Balloki plants to be sold together, are likely to fetch $2-2.5b

ISLAMABAD: The federal government decided on Wednesday to privatise two liquefied natural gas (LNG)-fired power plants, with a combined capacity of 2,453 megawatts, as a bundle package due to legal obstacles in the way of separating these plants from their parent firm.

The Cabinet Committee on Privatisation (CCOP) endorsed the Privatisation Commission’s recommendation to sell 1,230MW Haveli Bahadur Shah and 1,223MW Balloki power plants as a bundle deal. The government expects a minimum of $2-2.5 billion from the sale of these two plants.

Saudi Arabia has already expressed interest in acquiring these plants but only under a government-to-government deal. Finance Minister Asad Umar chaired the CCOP meeting.

The cabinet committee also decided to constitute another committee for resolution of the issue of nearly $1.5 billion in outstanding liabilities of K-Electric which was hampering the issuance of a national security clearance certificate to the Abraaj Group.

Just before the CCOP meeting, Prime Minister Imran Khan chaired a meeting on the K-Electric issue where he decided to set up the committee. Privatisation Minister Muhammad Mian Soomro would chair the sub-committee and give his report on establishing a mechanism to settle these liabilities.



“The committee will look at all the aspects of the K-Electric deal,” said Privatisation Secretary Rizwan Malik while talking to The Express Tribune. He said things were moving positively.

The delay in issuance of the national security clearance certificate has blocked the sale of Abraaj Group’s majority stake in K-Electric to a Chinese firm. Both the seller - the Abraaj Group - and the buyer - Shanghai Electric Power (SEP) - have already eased their earlier positions aimed at addressing concerns of the Government of Pakistan.

The Abraaj Group has also shared the draft sale-purchase agreement with the Privatisation Commission.

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.

The CCOP took up summaries for the sale of two power plants and divestment of government shares in Mari Petroleum Company Limited (MPCL), Lakhra Coal Development Company and Services International Hotel.

Power plants

With a view to facilitating simultaneous and smooth privatisation of both RLNG plants, the CCOP gave its nod for the privatisation of National Power Parks Management Company Limited (NPPMCL), which owns both the plants, according to a press release issued by the finance ministry.

NPPMCL was of the view that both plants were legally one entity. The process to separate two plants from the parent company will require demerger of the plants from NPPMCL, through carving out respective assets, but the process will be time-consuming.

However, if both the power plants are to be privatised as a bundle package, the process will be simple, however, attracting investors will be difficult as it involves enormous investment, according to NPPMCL.

MPCL

The CCOP gave the go-ahead for divesting government’s 18.39% stake in MPCL, according to the finance ministry. The CCOP turned down the Ministry of Energy’s request to delist the company.

The Ministry of Energy had recommended the removal of MPCL from the privatisation programme, terming it a well-managed asset. The ministry had taken the position that being a strategic investor, the government should not privatise MPCL that gave Rs330 million in dividends over the past three years.

The Privatisation Commission has estimated proceeds of roughly Rs30 billion by divesting 18.4% stake in MPCL, according to officials.

Lakhra coal mines

In the case of Lakhra Coal Mines, the CCOP directed that since the matter was sub judice, its privatisation process may be pursued only after a decision by the Supreme Court, according to the finance ministry’s handout.

The CCOP had in October approved the privatisation of Lakhra Coal Development Company as part of the active privatisation programme. The company is the sole supplier of coal to the Lakhra power plant. The commission had expressed its inability to go ahead with the Lakhra mines’ privatisation due to a dispute with the Sindh government over renewal of the lease agreement of the mines.

The Sindh government has declined the request for renewal of the lease that expired in 2015 and the matter is pending before the Supreme Court.

Services International Hotel

The CCOP also turned down the commerce ministry’s request to delist the Services International Hotel, Lahore, from the privatisation programme. The commerce ministry took the position that due to depressed real estate market conditions, the property might not get a favourable response from investors.

Published in The Express Tribune, December 27^th, 2018.

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