China’s Shangai Electric Power (SEP) has expressed a commitment to complete transaction of K-Electric within six months subject to resolution of issues.
A meeting, chaired by the minister for privatisation and minister for energy, was held in the second week of the ongoing month on the way forward on issues related to the transfer of K-Electric shares to SEP. Officials from SEP also joined the meeting through Zoom.
The Chinese officials shared that once they have clarity on the pending issues, it will take approximately two months to draft a business plan and agree on a share price with K-Electric. They added that once that is done it will take them approximately four additional months to complete all regulatory and administrative approvals.
The meeting had been called to deliberate and agree on a way forward on all pending issues relating to the issuance of National Security Certificate (NSC) for transfer of K-Electric shares and to engage SEP in this endeavour.
Speaking on the occasion, minister for energy expressed that an early resolution of all the issues pertaining to K-Electric is being explored. Meanwhile, Shanghai Electric may also indicate their readiness to acquire K-Electric shares and to chalk out a comprehensive business plan for improvement of the utility company.
The meeting was informed that a draft Deed of Extinguishment (DoE) and Deed of Undertaking (DoU) have been agreed at the administrative level with K-Electric Power Limited and Shanghai Electric, respectively.
The Special Assistant to PM on Power stated that the government of Pakistan is making sincere efforts to holistically address the operational constraints of K-Electric by ensuring availability of required gas to run K-Electric’s thermal plants and providing additional electricity from the national grid to meet the requirements of the company. He also expressed that it is important to understand the investment plan of Shanghai Electric after its acquisition of K-Electric.
Shi Mingwei, who was representing Shanghai Electric, said that the SEP is aware of the discussions being held to address the previous receivables/payables of K-Electric and hoped that all matters will be resolved amicably. He also remarked that for future, they expect a clear arrangement about the principle of reciprocity on receivables/payables of K-Electric.
On the issue of a business plan, Shi stated that since 2016 further issues have surfaced due to which the business plan shared earlier with the government of Pakistan needs to be updated. He also stated that issues of mid-term review of multi-year tariff and write-offs are still pending with the National Electric Power Regulatory Authority (Nepra).
Likewise, the issue of K-Electric’s exclusivity and uncertainty on new multi-year tariff structure have implications for the development of a new business plan.
He informed that in 2016, when they first expressed their willingness to acquire shares in the company, it was a profit-making entity, whereas as per the Iatest financial results it is a loss making entity and thus a future business plan outlay will depend on the outcome of the resolution of all identified.
The meeting discussed at length the implications of appointing an administrator for K-Electric as per Nepra Act, 1997.
Also present in the meeting, the K-Electric director said that this matter needs to be taken up with the existing shareholders and should not to be taken up with SEP at this stage, a view which was supported by SEP.
The SAPM on petroleum enquired about the expected timelines for SEP to close the transaction with existing shareholders and to take control of K-Electric affairs.
Responding to this, the SEP officials said that it is dependent on the following four core issues; resolution of past receivables/payables of K-Electric, decisions from Nepra on long pending issues of mid-term review of multi-year tariff and write-offs claim, certainty on exclusivity till the validity of existing license of K-Electric (till 2023), certainty on configuration of future commercial agreements and tariff for K-Electric.
The representative of K-Electric and the company board chairman said that they are in close touch with Shanghai Electric based on the periodic arrangements with the government of Pakistan. He expressed that a strategic investor like SEP can run K-Electric and a required level of certainty is desired by any such transaction. The resolution of issues highlighted by SEP will be critical to any potential investor for an entity like K-Electric. He also expressed that as observed by the Supreme Court, they are also committed to working along with the government to find an amicable resolution of all issues surrounding the K-Electric transaction.
The K-Electric CEO highlighted that besides addressing issues of receivables/ payables, the resolution of operational aspects including commercial agreements with Sui Southern Gas Company and Central Power Purchasing Agency (CPPA) are imperative to avoid recurrence of problems countered by K-Electric.
He also stated that it is not easy to sustain smooth operations if there are extended delays in receipt of dues including subsidy amounts. He stressed that pursuant to Nepra’s legal framework, they expect regulatory predictability as well when planning for further investments in K-Electric’s infrastructure.
The minister for privatisation in his closing remarks stated that the meeting has been very beneficial and all stakeholders would have to move ahead with an open mind, ensuring sustainability and effective operation of K-Electric, which is in the best interest of all concerned.
Published in The Express Tribune, December 27th, 2020.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ