Shanghai Electric is still committed to the cause. The recent confusion over its supposed “withdrawal” has been cleared to good effect. That, it was blown to such proportions in the first place, raises some questions on the understanding of such issues at both the stock brokers and media levels. But that could be left to ponder upon some other time.
Shanghai Electric has not run away – not just yet. No guarantees that it would stay committed at all costs. Recall that much was said and written about Nepra’s multiyear tariff destination for KE, and how the company views it as a big negative. Things on that front have stayed the same. Sources at K-Electric say that the revised tariff is just not viable for Shanghai Electric.
Needless to say, the transaction would never happen, if Shanghai Electric views it unviable. It is anyone’s guess if government intervenes, or Nepra addresses some of the concerns in the review. What for now seems almost certain, is that Shanghai Electric would rather hold back before a decision on tariff is taken.
There are contrasting views as to Nepra’s multiyear tariff. Some believe it is net negative for K-Electric, others believe it could work well for the utility in the long run and it not as bad (Read: Of Nepra and K-Electric, published March 30, 2017). Whether a middle ground in the multiyear tariff determination could break the ice is the next big question. K-Electric does not seem to know the answer just yet, or at least not make it public even if it knows.
This column opines that a decline of Rs3 per unit from the earlier tariff may well be a significant change in terms of revenues, profitability, cash cycle and viability. Such a drop in tariff would mean a dent of no less than Rs40-43 billion on the top line, and then it surely gets difficult to stage a comeback from there, as the net cash margins do not look sustainable.
That said, Shanghai Electric may well be asking a little too much for Nepra to completely reconsider its call and revert to the earlier tariff. There are some incentives for KE in the revised tariff too, such as allowing for Karachi’s law and order situation in the T&D losses.
Shanghai Electric had shown intent of investing a massive amount in excess of $9 billion in the company over the course of ten years. KE surely needs constant investment to keep the system up and running. Shanghai Electric is a globally established name and has a handling experience of over 120,000 MW. KE only stands to benefit from the deal, should the right chords be hit. Rule of law and merit should not be compromised at any stage, but if there are genuine concerns, they must be looked into.
Comments
Comments are closed for this article.