Muzaffargarh: Power station to be up for sale with clean balance sheet

Govt will keep liabilities of billions with company that controls the plant

Our Correspondent September 16, 2015
Govt will keep liabilities of billions with company that controls the plant. PHOTO: FILE

ISLAMABAD: The government may keep billions of rupees worth of contingent liabilities including circular debt payables in a bid to hand over a clean balance sheet to the buyer of 1,350-megawatt Thermal Power Station (TPS), Muzaffargarh, which is likely to be privatised this fiscal year.

On a proposal floated by financial advisers, the Privatisation Commission (PC) board has agreed to carve out the Muzaffargarh power plant from Northern Power Generation Company Limited (NPGCL), officials say. This proposal, which will be adopted by establishing a subsidiary, also includes keeping liabilities of billions of rupees with NPGCL.

TPS Muzaffargarh, known as Genco-III, is controlled by NPGCL, which also owns the controversial Nandipur power project.

The move to sell TPS Muzaffargarh marks a contrast in government’s policies. On the one hand, it is selling existing power generation plants while on the other hand four new electricity plants are being developed. Three of them will be powered by liquefied natural gas (LNG) while the fourth will run on coal.

In order to market TPS Muzaffargarh in a better way, trade and other payables that form part of circular debt should be left in NPGCL and not be transferred to the company being privatised, according to the financial advisers proposal taken up in the PC board meeting.

The advisers also recommended that ‘debtors’ and other receivables that were disputed or may possibly not be recoverable should be excluded from the assets to be transferred to the buyer.

It was not immediately clear how much debt would remain on NPGCL’s books. However, according to the TPS Muzaffargarh’s end-December financial statement, total trade and other payables stood at Rs112 billion. Similarly, total trade debtors, which are part of the assets, stood at Rs67.5 billion.

Total assets of TPS Muzaffargarh were valued at Rs85 billion against liabilities of Rs113.4 billion as of December last year.

The transaction marketability could be improved as contingent liabilities, circular debt balance, disputed balances, Wapda loans, tax exposures and other items that could potentially distort the transaction value would be excluded from the assets and liabilities transferred to the new subsidiary, said the proposal.

The liabilities on the new subsidiary’s balance sheet might affect the buyer’s leverage capacity besides affecting the price that the government could earn without transferring some of these liabilities, said Mohammad Zubair, PC Chairman, while talking to The Express Tribune.

According to another critical aspect, the privatisation proceeds of TPS Muzaffargarh will not go to the federal government, rather these will be given to NPGCL.

The PC board also approved a proposal that suggested that the newly carved out subsidiary should be treated on a par with independent power producers and the government would offer the buyer similar preferential arrangements.

The advisers proposed that the cost of creating the new subsidiary and transfer of assets may be funded by the Ministry of Finance as a loan to NPGCL, which could be subsequently settled through the privatisation proceeds.

Published in The Express Tribune, September 17th,  2015.

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Saud | 8 years ago | Reply Good move, power plants can be run more efficiently by the private sector. As for the contradiction, the writer points out, in building new plants and selling old ones, I am sure the new plants being built will also be put up for sale or contracted out once they are in production.
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