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ISLAMABAD: Prime Minister Imran Khan has directed Privatisation Commission (PC) to move a summary to the Economic Coordination Committee (ECC) of the Cabinet on issuance of National Security Certificate (NSC) for KE transaction and future line of action, well informed sources told Business Recorder.

These instructions were issued by the Prime Minister on September 16, 2020 at a meeting held on power sector issues including circular debt, the sources added.

The government was reluctant to issue NSC for KE transaction due to disagreement between the power utility, CPPA-G and SSGC and Karachi Water and Sewerage Board (KWSB).

The NSC is mandatory to sell 66.4 per cent stakes of M/s Abraaj to Chinese firm, Shanghai Electric Power (SEP), which is reviewing its interests time and again.

According to official documents available with Business Recorder, the stock of KE receivables on account of tariff differential from Finance Division stood at Rs 200.7 billion ( principal) whereas KEs' payables to SSGC are Rs 107 billion, of which Rs 93.3 billion is markup while Rs 13.7 billion is principal.

However, according to SAPM on Petroleum, Rs 107 billion comprises of Rs 29 billion as base amount and Rs 78 billion mark up on Rs 29 billion base. Approximately Rs 12 billion was adjusted by SSGC earlier as interest while KE argued that it be treated as principal before the court, which implies that the agreed principal amount is Rs 17 billion and agreed interest amount Rs 78 billion. KE was agreed that payment of Rs 12 billion was made but the dispute is on how that was to be treated. KWSB payables are Rs 28.3 billion without markup (principal) from 2005 to 2016 and from March to August 2020.

KE's payables to NTDC is Rs 198.8 billion of which Rs 143.8 billion is principal whereas Rs 55 billion mark-up.

The documents show that KE's total receivable stood at Rs 229.03 billion (principal) while its payables are Rs 305.8 billon with mark-up.

These figures were firmed up at a meeting on September 10, 2020, presided over by Minister for Privatisation.

The minister apprised the meeting on the progress made by PC on the matters associated with the issuance of NSC for transfer of 66.4 per cent share of KES Power in KE to M/s SEP. He apprised that Draft Deed of Undertaking (DoU) was agreed with SEP China after a series of meetings and Chinese were properly engaged in keeping their interest alive despite the delay in issuing of NSC. Validity of offer is regularly being extended on quarterly basis. Director General (Power) PC made a brief presentation and apprised that at the behest of a few Ministries/ entities issuance of NSC was linked to settlement of KE's payables and receivables due to which the matter is still unresolved.

Chairman Board explained that due to the compounded markup, liabilities of SSGC have increased to about Rs 116 billion which includes Rs94 billion markup. On the other hand, KWSB has not made payment of Rs28.9 billion to KE since long, besides delayed payments by the government. As on August 31, 2020, TDS claim amounting to Rs205.100 billion is outstanding against GoP. He highlighted the earlier delays in the notification of KE Multi-Year Tariff (MYT) and the Mid-Term Review of KE tariff is still pending with the regular adding the accumulated receivables. Resultantly, KE is on the verge of bankruptcy and its deal for selling 66.4 per cent share to M/s SEP is not likely to mature in these circumstances.

The KE Board Chairman also highlighted their stance and concerns on the issue of reciprocity and seat of arbitration respectively.

Minister for Planning, Development and Special Initiatives, Asad Umar stated that the government is well aware of the importance of the matter and its resultant impact at the highest level. He stressed that subsidy should be paid timely which otherwise causes accumulation of overall circular debt. SAPM on Petroleum apprised that the delay due to tariff related matters also caused delay in release of the TDS to K-Electric which had added to the accumulation of circular debt. The Finance Division maintained that post 2018, the subsidy related matters stand delegated to Power Division.

SAPM on Petroleum, Nadeem Babar also indicated that to the extent GoP decides to waive interest on all sides, then as for SSGC the full amount of interest may not be waived since SSGC borrowed from banks and paid listed company with private shareholders as well.

While discussing possible options to move forward, Privatisation Commission identified that issuance of NSC is pending due to unresolved claims of the receivables and payables from and to KE despite the fact these matters are related to entities which are still going concerns with perpetual existence. It was also discussed that issuance of NSC can even be considered irrespective of payables/receivables but no decision was taken in this regard.

Finance Division highlighted that the principal amount along with interest accrued by all entities involved in all these cases is not backed by formal commercial agreements as most of these agreements had expired without renewal. It was accordingly, decided that the matter be reviewed and commented by Law and Justice Division, particularly in the context of the remarks made by Chief Justice of Pakistan during the hearing on KE recently.

Minister for Planning, Development and Special Initiatives proposed that the following options be presented to the Prime Minister ;(i) ECC/ Cabinet to approve write-off of the interests accrued on the principal amounts to be settled for which a summary would be moved by the Power Division;(ii) arbitration agreement to be agreed between stakeholders for settlement of the payables/ receivables ( to be coordinated by the PC) ;(iii) invoking of legal action as per applicable regulatory framework will be responsibility of Law Division, Power Division and Nepra) and ;(iv) Finance Division and Power Division will identify the cost of this long outstanding issue and its impact on the overall economy, accumulating circular debt and consumers of KE.