ECC may okay SSGC, K-Electric deal

Arbitration agreement will pave way for issuing NSC for sale of K-Electric shares


Zafar Bhutta May 19, 2021

ISLAMABAD:

The Economic Coordination Committee (ECC) is likely to approve the signing of an arbitration agreement between Sui Southern Gas Company (SSGC) and K-Electric as well as some other entities like NTDC, a move that will pave the way for the issuance of a national security certificate (NSC) for acquisition of the power utility by a Chinese firm.

In 2016, KES Power (Pvt) Limited submitted an application for NSC to the Privatisation Commission for the transfer of 66.4% shares in K-Electric to Shanghai Electric Power (SEP).

The arbitration agreement will settle the dispute over receivables between SSGC and K-Electric. The ECC will meet on Wednesday to deliberate on the issue. Sources told The Express Tribune that the management of SSGC had recommended entering into an arbitration agreement with K-Electric under the auspices of the federal government.

The board of directors has also authorised the SSGC managing director to sign the arbitration agreement under the umbrella of the federal government.

However, the SSGC board has advised the management to properly document and communicate the qualifiers to the authorities including the ministers concerned and special assistants to the PM involved in the arrangement.

The company wants the ECC to give directive to SSGC to enter into the arbitration arrangement as there is no clause of arbitration in the duly executed gas supply agreements (GSAs) with K-Electric for the supply of 10mmcfd of gas.

Officials said that there were multiple entities involved in the proposed arbitration process but it would be conducted through a single arbitrator.

ECC mulls action against K-Electric 

Since it is a complex matter, the option of more than one arbitrator should be considered to protect the interest of parties involved, SSGC said in response to a summary prepared by the Power Division.

It says that the federal government must ensure in writing that K-Electric should execute GSA with SSGC for gas supply after the conclusion of arbitration proceedings.

There should be a principle based approach for treatment and determination of late payment surcharge (LPS) payable to SSGC by K-Electric viz a viz LPS to be paid by SSGC to federal government-owned E&P companies. SSGC has further said that in order to get clarity on different matters, the board asked the management to consult its legal counsel for providing opinion on aspects of the arrangement.

The board deliberated on the matter along with salient features of the draft arbitration agreement and proposed ECC summary and observed that the dispute between SSGC and K-Electric is a long outstanding issue, which could not be settled through bilateral negotiations or in court.

Since both the entities are utility companies, it is in the public interest to resolve the matter as soon as possible but without compromising the interest of SSGC. The issue may be settled through arbitration on the directions of the ECC, however, since there is no arbitration clause provided in duly executed GSA between SSGC and K-Electric, the admissibility of arbitration arrangement needs to be checked with the dealing legal counsel.

Furthermore, SSGC’s Board of Directors in its 492nd meeting held on March 4, 2017 reiterated that no partial settlement with K-Electric should be made ie the matter of principal and LPS be settled simultaneously.

In initial meetings at Privatization Commission, SSGC strongly showed its reservations on K-Electric’s approach for disclosing amount owed to SSGC under the contingent liabilities in its financial statements and emphasised implementation of Cabinet Committee on Energy’s decision dated April 23, 2018 regarding the engagement of a third party (Chartered Accountant Firm) and signing of TOR to arrive at the figures of principal and LPS acceptable to both SSGC and K-Electric.

Published in The Express Tribune, May 19th, 2021.

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