Chinese power giant shows renewed interest in KE

Deal faces obstacles due to debt-laden balance sheets

KARACHI:

China’s Shanghai Electric Power Company (SEP) has expressed renewed interest in acquiring K-Electric (KE), the integrated power firm based in Karachi, Pakistan. This latest submission comes after the previous intention to buy the company lapsed in June, due to unresolved issues that have persisted for eight years.

SEP had first expressed its intention to buy KE in 2016 and has since submitted fresh intentions multiple times every nine months. However, several challenges have prevented the deal from progressing. One major hurdle is the heavily debt-ridden balance sheet of KE, which the Chinese firm demands to be cleared before proceeding. Additionally, pending payment issues between KE, Sui Southern Gas Company, and government institutions need resolution.

The initial offer made in 2016 to buy KE for $1.77 billion has now become void. The changing values of both KE and the dollar over the past few years necessitate a fresh valuation of the company, which would result in a new offer to existing investors.

Efforts have been made in the past to resolve the disputes and clear the way for the deal. Prime Minister Shehbaz Sharif formed a task force in June 2022, headed by former premier Shahid Khaqan Abbasi, to resolve pending issues. However, the task force’s given time frame has since lapsed without visible progress.

Another factor complicating the deal is the unattractive power tariff for end-consumers, as the National Electric Power Regulatory Authority (Nepra) reduced the tariff through a change in formula. Nepra allowed KE to recover only its cost and the estimated cost of new projects, eliminating the recovery of unknown future investments from consumers.

 

Published in The Express Tribune, July 22^nd, 2023.

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