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ISLAMABAD: The Chinese company, M/s Shanghai Electric Power (SEP), is reportedly now slightly hesitant in showing enthusiasm in acquiring 66.40 per cent stakes of M/s Abraaj Capital in Karachi Electric Limited (KEL) due to lackluster attitude of different Ministries/organizations of government.

Background interviews with officials dealing with the KE’s issues like Power Purchase Agreement (PPA), Transmission Agreement, Gas Sale Purchase Agreement (GSPA) and issuance of National Security Certificate (NSC) have confirmed that in some key areas a very slow progress is hurting the interest of Chinese company.

However, the overwhelming impediment remains fear of National Accountability Bureau (NAB) in smooth and speedy progress approval required to finalise the agreement.

“Having effectively performed our role, our responsibility was to find a reputable and long-term strategic investor to take over the reins of KE. This led to Shanghai Electric Power (SEP) agreeing, in October 2016, to not only purchase our stake but commit, as part of the process, to inject several billion dollars into the further development of Karachi’s infrastructure,” said KESP’s top man Shan Ashary, in a letter to the Minister for Privatisation, Mohammedmian Soomro last year.

Shanghai Electric transaction at mercy of KE’s markup issue

Arif Habib Limited informed the Managing Director, Pakistan Stock Exchange Limited and Chief Executive Officer, KEL, time and again that the original public announcement of intention made on behalf of Shanghai Electric Power Company Limited that the latter is still interested in acquiring up to 18,335,542,678 ordinary shares of K-Electric Limited representing 66.40% of the total issued share capital of the target company, subject to receipt of requisite regulatory and other approvals (transaction). However, the required approvals which are mandatory for smooth transaction of Abraaj’s stakes are yet be given by the concerned authorities.

Last year, in a letter to the Privatisation Commission, SEP’s Vice Chief Economist, Shi Mingwei stated that the Chinese company was ready to start discussion on the following issues through a conference call or exchange draft documents and written commitment: (i) National Security Certificate (NSC)- SEP has confirmed that in principle, the draft of the Deed of Undertaking (DoU) 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 and ;(ii) resolution of KE’s payable and receivable 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, need to be agreed between GoP, KE and KESP; and (iii) SEP says that it understands there are discussions on KE’s exclusivity right at 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 wrote in the letter.

Both KE and Power Division’s attached organizations’ had jointly prepared a draft agreement, after marathon deliberations, which has to be presented before the CCoE/ ECC and Cabinet, which is also sending negative signals to SEP.

Copyright Business Recorder, 2021

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