The Privatisation Commission (PC) and International Power, of UK, are at loggerheads over the de-materialisation and transfer of shares in Kot Addu Power Company (Kapco) without any restriction, official sources told Business Recorder.
The company wrote to the Minister for Privatisation and Investment, Zahid Hamid, and Shahid Akbar, PC consultant, but the issue is still unresolved which may discourage international investors.
"The current condition attached to our shares is that we must seek GoP''s approval, not to be unreasonably withheld, and only in relation to national security. It is difficult to contemplate how Kapco could influence Pakistan''s national security at this time," sources quoted the company as saying in its letter.
According to sources, International Power had requested for consent, as required by the shareholders'' agreement of January 11, 2005, to the unconditional de-materialisation and transfer of its Kapco shares, without restriction, as is appropriate for a shareholder in a company whose shares are listed and therefore (under normal circumstances) freely transferable.
They said that in an e-mail from Shahid Akbar, which was received on April 12, 2007, GoP stated the intent to give ''conditional consent'', subject to restrictions, but the company said that such restrictions and conditions were not acceptable.
"International Power has been consistent in its request for unconditional consent to de-materialisation and transfer of its shares in Kapco without restrictions," sources said.
The firm said that the suggestion to apply for granting of consent to it, as contained in Akbar''s email of April 12, 2007, was inappropriate, and not acceptable to it.
The company is of the view that its role in the management of Kapco has, over the years, been substantially diminished. "In our original letter of September 12, 2006, and again in our letter of April 30, 2007, we stated that the result of the initiatives, taken by Wapda, through the dispute with Kapco to reduce the tariff, was the termination of both the Operation and Maintenance Agreement (OMA) and the Technical Support Agreement (TSA) between Kapco and International Power, and consequent termination of the provision of services under each of these agreements by International Power to Kapco," sources quoted the company as conveying to the government.
Pursuant to the OMA, International Power acted as operations and maintenance contractor to Kapco, and was therefore directly responsible for day to day operations and maintenance of the plant, including dealing with all routine maintenance, planned maintenance, outages, repair and reinstatement, development programs and budgets, operating plans, spares procurement, and the provision of an O&M Manager, Operations Manager, Maintenance Manager, and Technical Manager.
Under the TSA, International Power provided detailed technical support to Kapco in relation to specific technical issues on a call-off basis for a retainer fee so that Kapco had the benefit of technical expertise where this expertise was not available on site.
However, termination of these agreements was accepted by International Power following the five years of improvements made in Kapco through the OMA and the TSA, in terms of best practices and new procedures, the company claimed.
With the termination of the OMA and the TSA, Kapco has now made alternative arrangements, so that the operations and maintenance function is now carried out in-house by Kapco using its own staff. International Power has no further involvement in operations and maintenance of the Plant, and International Power no longer provides technical services to Kapco in relation to the plant.
International Power further said that Kapco has robust management structure in place, which allows it to run successfully without any shareholder support.
For a further five years period from termination of the OMA and the TSA, an International Power representative, acting as CEO, to ensure that the improved practices and procedures put in place during the first five years were being robustly followed by the management team and employees.
After this period, International Power was willing to reduce its managerial control to producing a shortlist for the CEO position. And now this position is filled by a locally recruited, non-International Power person and through the board.
With effect from the end of 2006, International Power''s nominee to the post of CEO of Kapco retired from that position and it has no longer any full time staff at the Kapco site or in Kapco.
The incumbent CEO position is now filled by Rizwan Ali Shah, a locally recruited, non-International Power person, and through the board.
International Power''s only influence in the project is through its minority involvement on the board of directors, and in relation to provision of a short list of candidates for the post of CEO, as provided for in the shareholders'' agreement.
The number of directors on the Kapco board that International Power is able to nominate is in line with its shareholding in Kapco and its influence at board level is similar.
Based on past involvement in the management of Kapco, which is now substantially diminished, International Power does not believe that a de-materialisation and possibility of a subsequent sale entails any grave risk or a disorderly change in management control in Kapco that GoP previously raised as a concern, sources quoted the firm as writing to the Minister for Privatisation.
The shareholders'' agreement specifically contemplates that where International Power owns less than 26 percent shares in Kapco, the shareholders'' agreement would come to an end. It was therefore never in contemplation that a transferee of International Power''s shares would be subject to the shareholders'' agreement.
In addition, the company said that it could not see how it was appropriate in any way for it to only be able to transfer shares to a transferee with technical and financial capabilities comparable to that of International Power''s.
"The new condition proposed by the GoP is more onerous than the requirement currently in place to obtain GoP consent; so it is difficult to agree with the proposal," said Vince Harris, Regional Managing Director Asia, in a letter to Shahid Akbar.
This letter constitutes International Power''s formal written request for consent to transfer its shares pursuant to clause 2.5(a)(vi) of the shareholders'' agreement. GoP has 90 days in which to refuse this request (acting reasonably), sources added. "Should we not hear back from you with a refusal by the end of 90 days, then (under the terms of the shareholders'' agreement) approval to a transfer is deemed to have been given," sources quoted the company as saying.
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