Sale of LNG-based power plants faces delay

Only one foreign investor submits documents amid uncertainty

ISLAMABAD: Pakistan’s plan to raise around $1.5 billion from the privatisation of two power plants is facing delay as only one foreign investor has submitted documents amid uncertainty caused by Prime Minister Imran Khan’s decision to skip the Kuala Lumpur Summit 2019.

Foreign investors of Malaysia, China, Qatar, the United Arab Emirates and Saudi Arabia had initially shown interest in taking part in the international competitive bidding for the sale of two liquefied natural gas (LNG)-fired power plants.

About 19 firms procured documents from the Privatisation Commission including around 14 foreign firms after the government invited Expressions of Interest (EOI) in early November and set the deadline of December 23.

However, before the deadline, only one foreign firm submitted the statement of qualification, prompting the government to extend the date to January 17, 2020.

Petroleum Division seeks Rs6.6b for LNG supply

The tepid response is partly attributed to PM Imran’s sudden decision to pull out of the Kuala Lumpur Summit, which kept Qatari investors away, though they had obtained EOI documents from the Ministry of Privatisation, according to government sources.

Till Friday, the government received one statement of qualification from a Malaysian energy firm, which also had Chinese stakes, they added.

The pullout from the Kuala Lumpur Summit came at a time when Pakistani authorities were meeting prospective investors in Gulf countries. A Pakistani delegation held road shows abroad from December 14-18 to woo credible international investors.

“Due to requests from interested parties, the deadline for the submission of EOI and statement of qualification has been extended by the Privatisation Commission to January 17, 2020,” said the Ministry of Privatisation.

This has pushed the transaction to at least the fourth quarter of the current fiscal year.

On December 16, the Ministry of Privatisation had informed the National Assembly that the government wanted to conclude the privatisation transaction of National Power Parks Management Company Limited (NPPMCL) “in the third quarter of the fiscal year 2019-20”.

The transaction had already been delayed by three months as Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh was keen to conclude it before the end of December. When contacted, Privatisation Secretary Rizwan Malik said the deadline was extended due to Christmas and New Year holidays.

Responding to a question about the extent to which the withdrawal from the Kuala Lumpur Summit undermined the transaction, Malik said Malaysian and Qatari investors were still very enthusiastic and hoped that they would submit documents by the end of the extended deadline.

Malik was also of the view that the prevailing political uncertainty would die down soon and bidding would be completed by the end of March.

NPPMCL owns two power plants located at Balloki and Haveli Bahadur Shah with a combined generation capacity of 2,453 megawatts. The Pakistan Tehreek-e-Insaf (PTI) government wants to sell NPPMCL in the hope of fetching a minimum Rs300 billion or $1.5 billion in non-tax revenue.

As of the end of the fiscal year 2018, the value of total assets of NPPMCL had been estimated at Rs212 billion against Rs92 billion in liabilities. The power plants offer a 16% dollar-based internal rate of return on equity based on the National Electric Power Regulatory Authority’s (Nepra) approved tariff with an assumed debt-to-equity ratio of 70:30.

The Rs300-billion revenue is very crucial for the finance ministry, which is already struggling to manage budget books due to an anticipated shortfall of Rs500 billion to Rs700 billion in the Federal Board of Revenue’s (FBR) annual tax collection target of Rs5.5 trillion. The FBR has already suffered a shortfall of Rs210 billion in five months of FY20.

Officials of the Ministry of Privatisation said international and local investors had expressed keen interest in acquiring the lucrative power plants.

They said about 19 local and foreign parties bought EOI documents from the ministry but only one came back. Among the local investors are Fauji Fertiliser, Fauji Foundation and the Atlas Group.

Even if the process of seeking investors’ interest culminates by January 17, the investors will need at least two months to complete due diligence before they submit technical and financial bids.

The high and low of LNG market

Qatari investors had also shown initial interest in acquiring the power plants. Qatar, along with Turkey and Iran, attended the Malaysian summit. The Pakistani delegation met with leading Saudi Arabian firm ACWA Power during the road shows. But chances of Saudi firms becoming a party remained low as Riyadh was already in the process of building similar type of LNG-based power plants in Bangladesh, said the sources.

A few months ago, representatives of Japanese, Malaysian and Qatari companies met with Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh and Privatisation Minister Mohammad Mian Soomro.

The LNG-power plants get the fuel bought from Qatar. Last month, the government decided to continue supplying imported LNG to the two power plants, even after their privatisation, for six more years, which the Power Division claimed would place an extra burden of Rs471 billion on consumers due to the high fuel cost.

Published in The Express Tribune, December 22^nd, 2019.

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