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ISLAMABAD: The government hopes that mobilising foreign investment for the Heavy Electrical Complex (HEC) is likely to lay the foundation for the privatisation transactions in line in next couple of months. The Board of Investment (BoI) and the Financial Advisory Consortium FAC have been directed to extend maximum outreach to potential investors in the region, particularly the Middle East.

As a large number of manufacturers of transformers are based in the Middle East, the advertisement for calling expression of interests (EoIs) was also published in the Gulf News and the Khaleej Times on December 29, 2020, according to the documents of the Ministry of Privatisation.

The Ministry of Privatisation documents on the HEC privatisation for a parliamentary committee noted that the HEC transaction structure for privatisation was approved by the Cabinet Committee on Privatisation (CCoP) and was subsequently ratified by the Federal Cabinet in December 2020.

Under the structure approved, all the government shares (96.6 percent) in the HEC are to be offered for sale.

The CCoP has directed the Ministry of Industries and Production (MoIP) and the Power Division to resolve the matter pertaining to Type Testing License as well as the matter of 18 regular employees and accumulating liabilities towards the Khyber-Pakhtunkhwa Economic Zones Development and Management Company.

The HEC is owned by State Engineering Corporation (SEC), a full-owned company by the government and under the administrative control of the Ministry of Industries and Production.

Over the years, the HEC has continuously lost its market share in the transformers business, which is even less than five percent in the recent years.

In the last couple of years, only in 2016, company served around 30 percent of the market share in the power sector for transformers, primarily in the capacity of a sub-contractor to the PEL.

The documents also revealed that the company has been accumulating losses and consequently, the initially injected government equity of around Rs1.5 billion has been eroded to half.

The major factors attributable to these HEC continued accumulation of losses include; (i) no major capital investment has been made in the last several years and HEC has periodically lost market despite being largest purpose-built power transformer manufacturing facility; (ii) HEC has been provided funded and non-funded facility from the Bank of Khyber on the basis of letter of support from the Ministry of Finance but the bank credit facility was being utilised to meet its administrative and operating expenditure; (iii) with no major market share and revenue stream, the HEC is confronted with liquidity constraints and challenges in debt servicing as well; (iv) the main buyers, DISCOs, have been imposing LDs (penalties), which further impacted the revenue and cash stream. Moreover, there are receivable and that also stuck to be received from D1SCOs; (v) Khyber-Pakhtunkhwa Economic Zones Development and Management Company at the same time has been imposing penalty due to non-utilisation land and the current outstanding payables to the company is around Rs59 million including the compounding of the payable amount due.

The CCoP has directed the Ministry of Industries and Production on November 16, 2020 to address the matter; (vi) the issue of expiry of Type Testing License from NTDCL/Power Division in 2019 also limits the eligibility of the company to participate in bidding of different DISCOs, however, the matter is being following by the Ministry of Industries and Production as directed by the CCoP in November 2020.

Copyright Business Recorder, 2021