EDITORIAL: The federal government has reportedly decided to get all stakeholders on one table to resolve outstanding impediments to the sale of 66.4 percent Abraaj shares in K-Electric (KE) to the Shanghai Electric Power (SEP). SEP remains interested in purchase of Abraaj shares more than four years after its interest was first reported; however, disturbingly, the list of its concerns is getting longer by the day for some arguably plausible reasons.
The most recent concern voiced by SEP relates to credible reports that the government maybe considering ending the exclusivity of K-Electric premised on demand from consumer groups, largely representing affluent neighbourhoods as well as some federal ministers, angered at long hours of load-shedding, deaths due to electrocution associated with maintenance failures and inability to restore electricity promptly during the monsoon rains this just past summer. Competition after ending K-Electric's exclusivity would improve performance greatly, they further argue. However, this rationale does not take account of the fact that there is uniform tariff within K-Electric's jurisdiction which does not take account of the fact that in relatively poorer areas receivables are markedly less (due to non-payment of bills and theft/kundas) relative to affluent areas and therefore cost of supply much higher. Thus if K-Electric's exclusivity is ended then it stands to reason that cross subsidization would not be possible and consequently SEP's interest in purchase of the shares would naturally evaporate.
The second-long standing major stumbling block in the sale of shares by Abraaj has been the inability of K-Electric to clear its Sui Southern Gas Company Limited (SSGCL) bills. However, what has been ignored to-date is the fact that SSGCL while insisting its dues be cleared, has been slapping interest charges on the unpaid amount, with K-Electric justifiably claiming that if the mark-up is to be payable in what it owes to SSGCL then a markup must also be allowed to what is owed to K-Electric. In this context, it is relevant to note that K-Electric's payables to SSGCL are to the tune of 107 billion rupees; of which, the actual amount is said to be only 13.7 billion rupees while 93.3 billion rupees is accumulated mark-up while the Finance Division owes 200.7 billion rupees principal (with no mark-up calculated) to K-Electric on account of tariff differential. K-Electric further maintains that due to SSGCL's compounded mark-up, its liabilities have risen to 116 billion rupees which includes 94 billion rupees mark-up, and that it would be bankrupt if it is forced to pay the compounded mark-up. In addition, K-Electric owes 198.8 billion rupees to NTDC, of which 143.8 billion rupees is principal and 55 billion rupees mark-up while KWSB's outstanding to K-Electric is 28.3 billion rupees without mark-up.
In total, K-Electric's payables are 305.8 billion rupees (including mark-up) while its receivables are 229.03 billion rupees (without mark-up). The matter is in the Supreme Court, which has granted K-Electric leave to appeal against a Sindh High Court verdict.
To ensure its interest in the purchase of Abraaj shares, SEP has requested: (i) resolution/rationalization of KE's payables and receivables (with Ministry of Finance and two entities under the Ministry of Energy notably SSGCL and NTDC) and a reciprocity principle to settle future dues. In the event that arbitration is the way forward the company has urged fair terms of reference including though not limited to reciprocity; (ii) the government's pledge not to sell its 24 percent share in KE given it has received an MTO from the SECP; (iii) Nepra's decision on KE's mid-term tariff review and write-off; (iv) Nepra's future plan on Multi-Year Tariff as the current one expires in June 2023; and (v) to request for a stable long-term tariff mechanism for KE.
It is hoped that SEP's seemingly reasonable conditions are met. It is quite likely that the meeting of all stakeholders can successfully reach the resolution of the matter once and for all for the alternative is the status quo which may be unacceptable to all the stakeholders, including KE's consumers.
Copyright Business Recorder, 2020
Comments
Comments are closed.