Sale of Abraaj stake in KE: SEP, other stakeholders to sit together to resolve NSC issue

ISLAMABAD: The federal government has reportedly decided to convene a meeting of all stakeholders including Chinese company, Shanghai Electric Power (SEP) under one roof aimed at resolving all issues related to grant of National Security Certificate (NSC) for sale of 66.4 stake of M/s Abraaj in Karachi Electric (KE), well-informed sources told Business Recorder.

On November, 25, 2020, an inter-ministerial meeting was held to deliberate on the issues relating to grant of NSC and outstanding issues of KE payables and receivables. However, the meeting could not find any viable mechanism in this regard as neither any official from Privatisation Commission (PC) nor KE was invited to the meeting.

"The meeting went through a number of payables that are receivables of KE and other agencies/departments but no decision was taken," the sources added.

Though, there was no official confirmation about appointment of administrator in KE, it certainly came under discussion. However, the possibility of appointment of administrator was almost zero, the sources continued.

The purported author of this suggestion was also contacted for comments, but he preferred not to comment on it.

SEP, has already conveyed to the Government of Pakistan that its interest in acquiring 66.4 per cent shares of M/s Abraaj is linked to future of exclusivity of the power utility.

In a letter to the Privatisation Commission, SEP's Vice Chief Economist, SEP, Shi Mingwei appreciated PC for the productive meeting with KESP team to address KE's pending issues. The Chinese company said that it was ready to start discussion on the following issues through conference call or exchange of draft document and written commitment.

National Security Certificate (NSC) - SEP has confirmed that in principle, the draft of the Deed of Undertaking is in agreed form post several discussions between SEP and the Privatization

Commission team. SEP looks forward to early approval of it by the GoP to proceed with its execution.

KE's Payable and Receivable Issue - The resolution of KE's payables and receivables issue is very important for this transaction. SEP is expecting a clear settlement for KE's past dispute, and a reciprocity principle to settle future dues. Since payable and receivable issue is between KE and Ministry of Finance, and two entities under Ministry of Energy (SSGC and NTDC), SEP still hopes Government of Pakistan (GoP) can coordinate the settlement.

If GoP insists to use arbitration to settle this issue, then a fair arbitration ToR, including but not limited to the reciprocity principle, needs to be agreed between GoP, KE and KESP.

Regarding all other pending issues, SEP argued that in order for the company to conclude this transaction with KESP, there few other issues also need to be resolved either by GoP or Nepra.

SEP has sent its draft Facilitation Agreement (FA) long time ago and attached it again, requesting PC to provide comments, if any so that the company can proceed. SEP has forwarded the following conditions for the deal: (i) GoP's commitment not to sell its 24% KE share following a MTO waiver from SECP; (ii) Nepra's decision on KE's tariff mid-term review und write off; (iii) considering KE's current Multi Year Tariff (MYT) will be expired in June 2023, SEP also wants to understand Nepra's plan for KE's future MYT and; (iv) SEP expresses the hope that Nepra can give a stable long term tariff mechanism for KE.

KE's exclusivity right - SEP states that it understands there are discussions on KE's exclusivity right at the level of the judiciary and regulatory organization in Pakistan.

"We have to make clear that whether KE can maintain its exclusivity right, will heavily affect SEP's interest to consume this transaction," Shi Mingwei said in the letter.

The Chinese firm further maintained that although KE transaction has taken more than four years it remained interest to conclude this deal.

"Please understand we can only resume our discussion though this method due to the global pandemic. Hope we can find some common understanding in principle, and look forward to hearing back from you soon," the SEP representative added.

The Power Division, sources said, maintained that such transaction cannot be allowed without a solid conclusion to the payables by KE amounting to an amount of Rs 305.8 billion which if written off, shall result in a huge irrecoverable loss to the national exchequer.

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 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 principle whereas Rs 55 billion is mark-up.

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

However, KE is of the view that due to the compounded markup, liabilities of SSGC have increased to about Rs 116 billion which includes Rs 94 billion markup. On the other hand, KWSB has not made payment of Rs 28.9 billion to KE since long, besides delayed payments by the government. As on August 31, 2020, TDS claim amounting to Rs 205.100 billion is outstanding against GoP.

KE further stated that it will be bankrupt, if it pays mark up to SSGC or CPPA-G and does not receive same treatment with respect to receivables from KWSB.

A senior member of the federal cabinet wants SC to give an order on settlement of receivables and payables to avert political repercussions or be taken notice by the NAB.

A senior official of Petroleum Division told this scribe that work is underway on figures of gas bill and mark up, which would be submitted to the Supreme Court of Pakistan next week. The Attorney General for Pakistan is closely working with the concerned stakeholders to finalize the report to be submitted to the SC.

Copyright Business Recorder, 2020