K Electric stake sale – any chance?

The stake sale of K Electric to China’s Shanghai Electric Power has been in limbo for over 4 years, which to a certain extent might have also stalled the company’s investment in generation and distribution. Recall that Shanghai Electric Power had offered to acquire 66.4 percent shares of K Electric from Abraaj Group back in October 2016. Though the Chinese company is not backing out just yet, the interest by SEP has been withdrawn and renewed a couple of times over these years and the issues and uncertainties that have delayed the investment have remained unaddressed.

K Electric has come under spotlight for the right reasons as the issues pertaining to the utility as well as issues between the utility and the government must be resolved as they add to the piling of the circular debt. Problems have kept mounting for K Electric. From excessive billing to breakdowns, system constraints, and unannounced load shedding to safety mishaps – all have brought the utility’s performance into question. In a recent interview with BR Research, SAPM on Power, Tabish Gauhar pointed out that the issues related to KEL must be resolved to address circular debt challenge and that the government is seriously taking up the task.

Delay in approvals has been a bone of contention in the deal, which might be addressed under the government’s recent efforts to chalk down a long-term circular debt management plan. Talking to BR Research recently, K Electric CFO Muhammad Aamir Ghaziani said that despite a lapse of four years since the signing of Definitive Agreement, required GoP approvals are still awaited, for which discussions are in progress.

However, key factors behind the delay like the payable and receivable scenario and the power tariff will still be hurdles. The deal has long been hinged to uncertainties regarding KEL’s repayment of liabilities and the Multi-Year Tariff (MYT) that is expiring in 2023. Not only will these have to be discussed and agreed upon, but also the government’s alleged plan to introduce a uniform tariff and competition by allowing more companies to enter the power distribution segment and improve efficiency could scare away the Chinese power company to move on with the deal.