The IFC offered to charge 0.35% or $7 million as success fee in return for advisory services and did not quote any retainer fee and out-of-pocket expenses in its revised bid, making it the cheapest deal for the govt. PHOTO: FILE
The IFC - an arm of the World Bank Group - had offered advisory services for the sale of two LNG-fired power plants that the Pakistan Tehreek-e-Insaf (PTI) government wants to privatise to raise at least $2 billion for budget financing.
“The IFC offered its services on a sole bid basis under the 2015 framework agreement,” said a senior official of the Privatisation Commission.
The IFC offered to charge 0.35% or $7 million as success fee in return for advisory services and did not quote any retainer fee and out-of-pocket expenses in its revised bid, making it the cheapest deal for the government. However, the PPRA refused to allow the Privatisation Commission to engage the IFC and instead asked it to go for competitive bidding, officials added.
Subsequently, the Privatisation Commission gave advertisements in local and international press and last week hired a consortium led by Credit Suisse and comprised Elixir Securities, Ernst & Young Ford Rhodes, Lummus Consultants International, Akhund Forbes and Latham & Watkins.
At a benchmark sale price of $2 billion, Credit Suisse will charge a minimum $11.6 million as success and retainer fees. It quoted 0.34% of the transaction value as success fee, $4.36 million as retainer fee and nearly $500,000 in out-of-pocket expenses. Had the PPRA allowed the government to engage the IFC, Pakistan would have saved nearly $5 million on account of retainer fee, they added.
In February 2015, Pakistan and the IFC signed the framework agreement for the provision of advisory services. Under the agreement, the IFC can provide assistance in project preparation including feasibility reviews and project tendering covering the aspects of prequalification, marketing to potential investors, bidding and signing of public-private partnership (PPP) contracts, asset sale and share sale/purchase agreements with successful bidders.
In April 2015, the Privatisation Commission hired the IFC as financial advisers for the privatisation of Gujranwala Electric Power Company (Gepco) and Jamshoro Power Company Limited. But these two transactions were subsequently cancelled by the then government after it shelved the privatisation programme. Pakistan is selling the National Power Parks Management Company, the state-owned firm which owns and runs the 1,230-megawatt Haveli Bahadur Shah plant and the 1,223MW Balloki plant. Both plants are located in Punjab.
Finance Minister Asad Umar is keen to close the transaction by June this year aimed at arresting a yawning budget deficit, which could touch 7% of gross domestic product (GDP).
The IFC offered to complete the privatisation process in six months while other bidders sought six to eight-month time to complete the transaction. The Privatisation Commission wrote two letters to the PPRA and sought its approval for inking the deal with the IFC. But on both occasions, the PPRA refused to accept the framework agreement.
In November 2018, the IFC submitted the single-source financial bid for providing advisory services, but the PPRA refused to allow the award of contract to the IFC without competitive bidding, said Privatisation Secretary Rizwan Malik.
He said the IFC had also not submitted the technical bid and it was risky to sign the contract without technically reviewing the IFC offer.
Malik revealed that the IFC had initially offered to charge $8.5 million as retainer fee, which it later decided to waive in late December. The IFC’s offer to waive the $8.5-million fee was subject to approval by its board, which could have wasted time, said the privatisation secretary.
PPRA rules, which had been framed to ensure transparency, have become obstacles instead of facilitating the public procurement process. The PTI government has now amended some of the rules.
During its conversation with the Privatisation Commission, the PPRA was of the view that the framework agreement between the IFC and the Economic Affairs Division was general in nature. The PPRA proposed that the commission would have to seek exemption from the PPRA board on the grounds that there was an unforeseen emergency or it was a matter of national interests.
The privatisation secretary said the government had run a transparent and competitive process to hire the financial advisers. Pakistan had received about 10 bids from groups seeking financial advisory role.
Published in The Express Tribune, March 28th, 2019.
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