Law Division finds Hubco undertaking inadequate

The Law Division has found the undertaking, submitted by Hubco in relation to transfer of Eni Pakistan’s assets to a new company, inadequate for future commercial operations and has called for seeking original undertaking.

In order to establish the financial strength of sponsors of Prime International Oil and Gas Company Limited (PIOGCL), the Petroleum Division asked Eni Pakistan to provide an undertaking of Hubco, saying if PIOGCL fell short of meeting financial obligations to running the operations in future, Hubco would provide such financial support.

PIOGCL is a consortium of Hub Power Holding Limited (HPHL) and Eni Employees Buyout (EBO) Group.

Transfer of Eni’s shares to PIOGCL had been delayed due to questions raised over financial health of the new entity. A deal between Eni and PIOGCL matured at $16.4 million.

Eni entered into a sale-purchase agreement with PIOGCL on March 8, 2021 for sale of its entire
share capital.

Hubco stated that they could provide support for PIOGCL including the EBO’s share with regard to the acquisition price, however, it did not provide an undertaking for future operations as, according to the company, giving such an open-ended undertaking was against the Companies Act 2017.

Following that, the Petroleum Division sought advice of the
Law Division.

“The referring division (Petroleum Division) is advised that the undertaking provided by Hubco (HPHL) is not adequate in respect of covering the future operation of petroleum exploration licences, development and production leases, etc, decommissioning cost to be incurred upon the expiry of licences and leases,” the Law Division said, adding that in case the undertaking was issued in favour of the government, the government should keep the original undertaking in its record.

In response to a letter sent by the Petroleum Division, the Law Division said “it is a norm in petroleum exploration and production business that companies holding petroleum rights dispose of their shares pursuant to their business planning, etc.”

Also, “the respective petroleum exploration and production rules do not provide for a mandatory lock-in period for holding interest in the companies for a certain time period”.

The Law Division said “it is in the interest of the government that if no viable option is available with the buyer, the shareholders must undertake to fund the shortfall. The government would have the option to enforce the undertaking against HPHL, if HPHL fails to meet the funding shortfall of the buyer.”

Published in The Express Tribune, July 22^nd, 2022.

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