ISLAMABAD: In a major development, Karachi Electric (KE) has agreed to drop the conditions of reciprocity included in its earlier draft TORs and also accepted local arbitration, well-informed sources told Business Recorder.
This development was evident after an exclusive meeting of KE officials with Secretary Power, Ali Raza Bhutta, on January 25, 2021, convened in the backdrop of directions issued by Prime Minister Imran Khan.
As per the discussion, KE is in the process of updating draft Terms of Reference (ToRs) to resolve the receivables/ payables dispute through arbitration.
KE has informed the Power Division that within its updated draft ToRs, in line with Secretary Power's guidance on January 25, it has agreed, in principle, to incorporate the following concessions: (i) remove the "principle of reciprocity" included in previous draft ToRs and; (ii) arbitration to take place in Pakistan rather than in London, as stated in its previous ToRs.
"KE has agreed on landmark concessions, ball is now in the GoP’s, CCPA-G’s and SSGCs' court," said an insider on condition of anonymity.
The power utility, sources said, in a letter to the Federal Government has conveyed its willingness to drop the two conditions, which were not being accepted by the decision makers in Islamabad.
According to sources, on ToRs, K-Electric has remained closely engaged with all stakeholders, including the Federal Government, to resolve the long-standing issues of over-due payables and receivables which also resulted in delay in sale of 66.40 per cent stakes of M/s Abraaj in KE to a major Chinese player, the Shanghai Electric Power (SEP). The sources said, Power Division, Planning Division, Petroleum Division and Finance Division have recently been making real efforts to resolve this decade-old issue.
"This concession from K-Electric is a landmark development to accelerate the progress of dispute among the gas and power utilities. We have yet to see whether the SSGC will respond to this new development with same level of enthusiasm to resolve outstanding issues to support the growing energy needs of Karachi," said an insider.
At a recent meeting held in Privatisation Commission and co-chaired by the Minister for Privatisation and Minister for Energy a way forward was discussed on all pending issues relating to the issuance of National Security Certificate (NSC) for transfer of KE shares and to engage SEP in this endeavour. Federal Minister for Energy Omar Ayub noted that an earliest resolution of matters pertaining to K-Electric is being explored; meanwhile SEP may also indicate its readiness to acquire KE's shares and to chalk out a comprehensive business plan for improvement of KE.
The meeting was apprised that Draft Deed of Extinguishment (DoE) and Deed of Undertaking (DOU) have been agreed at administrative level with KES Power Limited and Shanghai Electric Power, respectively. The SAPM on Power Tabish Gauhar stated that the Government of Pakistan is making sincere efforts to holistically address the operational constraints of KE by ensuring availability of required gas to run KE's thermal plants and by providing additional electricity from national grid to meet the requirements of KE. He also stated that it is important to understand the Investment Plan of SEP post-acquisition of KE shares.
Shi Mingwei, representing Shanghai Electric Power (SEP), appreciated Minister for Privatisation for providing the opportunity to discuss and share their views. He stated that SEP is aware of discussions being held to address the previous receivables / payables of KE and hoped that all matters will be resolved amicably. He also stated that for future, they expect a clear arrangement about the principle of reciprocity on receivables / payables of KE.
On the issue of Business Plan, Shi stated that since 2016 further issues have surfaced due to which the Business Plan shared earlier with Government of Pakistan (GoP) needs to be updated. He also stated that issues of mid-term review of multiyear tariff and write-offs are still pending with NEPRA. Likewise, the issue of KE exclusivity and uncertainty on new multiyear tariff structure have implications for development of a new Business Plan. He further noted that in 2016, when they first expressed their willingness to acquire shares in KE, it was a profit-making entity, whereas as per the latest financial results it is a loss-making entity and thus a future Business Plan outlay will depend on the outcome of the resolution of all identified matters.
Copyright Business Recorder, 2021
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