Despite hurdles, Chinese firm keen to take over K-Electric

Published: February 6, 2019
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K-Electric CEO fears deal’s failure will hurt investor confidence in Pakistan. PHOTO: FILE

K-Electric CEO fears deal’s failure will hurt investor confidence in Pakistan. PHOTO: FILE

ISLAMABAD: Despite a long delay due to bureaucratic hurdles in some areas, Shanghai Electric Power (SEP) is still keen to acquire K-Electric, which may prove to be a game changer in efforts to transform Karachi’s power infrastructure in line with international standards for a smooth electricity supply.

Talking to The Express Tribune, K-Electric Chief Executive Officer Moonis Alvi, who took over the charge recently, said in case the proposed acquisition of K-Electric by China’s SEP failed, it would adversely affect the industrial and commercial potential of Karachi besides hurting investor confidence in Pakistan.

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“The government is fully aware that this transaction will strengthen Pakistan’s potential as an investment destination and it knows well that the acquisition will benefit not just Karachi, but it will also be a landmark development for the overall power sector,” he said.

Alvi said SEP had expressed interest in acquiring 66.4% stake in K-Electric and the $1.77-billion deal would be the largest in Pakistan’s private sector.

He revealed that SEP was expected to invest a further $9 billion in transmission, distribution and generation systems in Karachi over the next 10 years. “The investment will also have a significant impact on Pakistan’s GDP and greatly increase the country’s chances as a favourable destination for investors.”

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Despite the delay attributed to red tape, Alvi saw no reason why the deal should not go ahead. “So far, SEP has consistently maintained its interest in acquiring K-Electric for the last 27 months. The final deal is subject to regulatory approvals. We are constantly engaged with various stakeholders and two outstanding issues are a sustainable multi-year tariff, in the best interest of Karachi and K-Electric customers, and a national security clearance certificate,” he said.

About outstanding bills payable to K-Electric, Alvi was of the view that the dues were basically circular debt and should be treated as such. “This is clearly circular debt. The government and its entities have to pay around Rs70 billion over and above what K-Electric has to pay them,” he argued.

“(K-Electric) dues towards SSGC (Sui Southern Gas Company) cannot be viewed in isolation; the same treatment should be applied to all government entities that have payables towards K-Electric.”

The CEO voiced hope that following a series of meetings with the government and other stakeholders, the issue of circular debt would be addressed at the earliest.

Pointing out that K-Electric had to date not paid any dividend, he emphasised that the profit declared in annual accounts had been re-invested in the business. Since 2009, when Abraaj took over management control of KES Power – the holding company of K-Electric, the utility has invested over $2 billion across the value chain.

“This has helped add 1,057 megawatts to the generation capacity, enhancing transmission and distribution capacity by around 29% and 63% respectively and reducing transmission and distribution losses to 20%,” he said.

As a result, “over 70% of Karachi including all strategic installations has been exempted from load-shedding.”

Alvi called SEP an expert in its area with experience of scaling up from 3,000MW to 30,000MW in 10 years in Shanghai. “So, can you imagine what the city has already missed out due to the delay?”

He stressed that the government needed to remove all hurdles if it wanted to ensure there was no lasting negative impact on the development of Karachi and national economy.

“The delay in finalising K-Electric’s multi-year tariff and subsequent delay in SEP acquisition is already impacting Karachi’s power supply situation. Many of the planned investments in generation projects have been delayed. Our 900MW plant was planned for 2019 keeping in mind the growing demand,” he said.

The CEO was of the view that power shortfall was inevitable and K-Electric had informed the government that it anticipated a supply shortfall of around 600MW in the summer of 2019. It was the result of delay in the tariff decision which, in turn, affected the development of K-Electric’s 900MW plant. “We will engage closely with all stakeholders to address the impact of this shortfall.”

Published in The Express Tribune, February 6th, 2019.

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