Hyderabad and Sukkur: Minus losses, Sindh wants control over power entities

Both entities on active list of privatisation, advisers already hired

ISLAMABAD:

Amid calls to nationalise K-Electric after its inability to meet Karachi’s bulging demand, the Sindh government has also asked the federation to let it take over the other two power distribution companies currently serving the province.

Sindh Chief Minister Syed Qaim Ali Shah has written a letter to Prime Minister Nawaz Sharif for the acquisition of Hyderabad and Sukkur power distribution companies, said Privatisation Commission Chairman Mohammad Zubair during a meeting of the Senate Standing Committee on Finance and Privatisation.

Ironically, both entities are on the active list of privatisation and the government has already hired financial advisers to sell these utilities within a year.

In the present form, the offer was not acceptable to the federal government, as the provincial government was not ready to take responsibility of line losses, said Zubair.

He said the Sindh government also wanted the federal government to take responsibility of subsidies for the next five years.

The revelation came on the day the Leader of the Opposition in the National Assembly Khursheed Shah urged the government to take over K-Electric as the death toll from the heat wave surpassed 780 in Karachi.

Read: Reforming the power sector: IFC hired financial adviser for GEPCO, Jamshoro Power Company privatisation

“The provinces should have some stake in public utility companies, as the federal government washes its hands off after selling the enterprise to a private party,| said Senator Saleem Mandviwalla, chairman of the standing committee.

Zubair said in February last year that the federal government had offered provinces to take ownership but they showed reluctance. The Khyber-Pakhtunkhwa government had also shown interest in acquiring Peshawar Electricity Supply Company (Pesco) but later backed out.

The members of the committee once again questioned transparency in the K-Electric privatisation besides its rationale when the federal government was providing 650MW electricity along with paying subsidies.

“The K-Electric was buying 650MW electricity at a rate of Rs1.50 per unit from the federal government and selling it at exorbitant rates,” said Senator Kamil Ali Agha of PML-Q.

However, the Privatisation Commission chairman defended K-Electric’s performance and termed it the best among the power utility companies.

Privatisation deals

The parliamentary committee put a question mark over the way the commission was handling privatisation deals.

The outburst came after the government cancelled the Heavy Electrical Complex (HEC) privatisation deal.  “All suspicious activities are undertaken from the pre-qualification stage of prospective bidders to pre-bid conference,” said Senator Agha.

He said the pre-qualification process was a grey area and the government should make it more transparent.

The parliamentary committee sought a role in the privatisation process aimed at ensuring transparency - an element that is so far missing in the government’s privatisation policy.

The committee grilled the PC for a slack due diligence of Cargill Holdings Limited - the dubious buyer of Heavy Electrical Complex, which resulted in cancellation of the HEC deal.

Read: Two power companies: PC appoints financial advisers for privatisation

“How can you clear a company in due diligence that does not have the ability to honour its cheque?” questioned Senator Saleem Mandviwalla.

Zubair insisted that due diligence was done on the basis of available information. However, what he did not tell the committee was that Cargill Holdings did not have its own balance sheet and won the HEC deal on the strength of its parent company -Cargill Progressive Group, which also appeared dubious.

There is no web presence of the Cargill Progressive Group.

After the standing committee meeting, Mandviwalla said the committee would thoroughly investigate the HEC deal to ascertain facts about the buyer.

Meanwhile, it seems the PC is not learning lessons from its mistakes, as it has cleared Frontier Works Organisation (FWO) for taking part in National Power Construction Company privatisation despite knowing the fact that the law bars a government entity to bid.

The members also questioned the rationale of pumping in more money in Pakistan Steel Mills (PSM) and Pakistan International Airlines (PIA) when both entities are up for grabs.

However, Zubair maintained that a privatisation process takes about two to three years and during this period the government cannot allow these entities to deteriorate further.

He said the PSM was running at 3% of its capacity when the PML-N came into power and after the Rs18.5-billion bailout its capacity has been increased to 25%.

However, the achieved capacity is three times lower than what the PSM management had claimed at the time of seeking Rs18.5 billion bailout package. It had promised to enhance the production capacity to 77%.

Zubair said the PSM will be privatised by August this year while the due-diligence of PIA was in process.

Published in The Express Tribune, June 25^th,  2015.

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