ISLAMABAD (October 05 2007): The International Power (IP) of UK has given 90 days to Government of Pakistan (GoP) for settlement of Kapco shares dematerialization or face legal proceedings, sources close to Privatisation Minister Wasi Zafar told Business Recorder here on Thursday.

"Should we not hear back from you by the end of 90 days, then under the terms of shareholders' agreement, approval to transfer is deemed to have been given by the GoP," the sources quoted ASJ Ramsay, director and company secretary, National Power (Kot Addu) Limited (NPKAL) as saying in a letter to Privatisation Minister Wasi Zafar.

The letter had been written on September 4, and the government has yet to finalise its strategy to deal with this serious controversy with the IP, which can drag Privatisation Commission (PC) to court of arbitration, the sources added.

The NPKAL had approached the GoP in May for dematerialization of their 26 percent shares in Kapco under section 2.5 (a) (vi) of the Shareholders Agreement (SA), but since then the government has failed to agree on one strategy for avoiding litigation.

The Privatisation Commission (PC) has already planned GDR offering of Kapco shares, as decided by the Cabinet Committee on Privatisation (CCoP), which has been delayed due to political uncertainty.

"We are writing to request for the formal unconditional consent of the GoP to dematerialise and subsequently transfer NPKAL shares to Kapco without any restriction," the sources quoted Ramsay as saying.

He is of the view that this letter contains NPKAL's formal written request for consent to transfer its shares pursuant to clause 2.5(a)(vi) of the Shareholder's Agreement(SA) within 90 days or otherwise.

"For removing any doubt, until NPKAL's request is resolved to its satisfaction, NPKAL and its parent International Power plc are unable to consider any possible waiver of first offer right contained in clause 2.6 c of the SA and accordingly NPKAL has not waived it and retains its right of first offer until notified otherwise," the sources quoted Ramsay as further elaborating the letter.

Earlier, the government was of the opinion that the IP wanted exit from Kapco immediately as the units were getting older and require investments to retain its usual earnings, while the other argument was that the IP did not intend to exit immediately keeping in view their substantial investments in Pakistan, but wanted GoP's approval for dematerialization and transfer of their shares in order to maintain the corporate flexibility to withdraw whenever such a move was deemed expedient.

One interpretation was that section 2.5 governed transfer of IP shares in Kapco while section 2.9 governed transfer of ownership interests in IP (acquisition of IP). In terms of SHA, the GoP did not have a strong case for refusing IP's request.

It was also believed that in case of refusal to IP's request, it could trigger expensive arbitration proceedings in London, therefore, the GoP must objectively assess legal maintainability before taking a position to deny the IP's request, the sources added.

Copyright Business Recorder, 2007