While the KEL and SSGC scrimmage has been going on for long (Read: “The KE-SSGC row”, published on April 03, 2018), it is not the only tussle that the power utility and the government are entangled in. For almost the last one and a half years, K Electric Limited and the government have been unable to bring the Shanghai Electric Power deal to a conclusion.
Just a few days ago, Shanghai Electric Power Limited (SEPL) withdrew its offer to buy stake in KEL, according to a bourse filing. Recall that SEPL had offered to acquire all of the 66.4 percent shares of KES
Power Limited, the holding company of KEL back in October 2016 for around $1.77 billion. Since then, the deal offer has been withdrawn twice (once just recently) only due to the expiration of its public announcement of intention as all the regulatory approvals remained pending.
The Chinese firm isn’t backing out from the deal as right after the expiration of its last announcement, it again filed for a fresh intention to acquire KES Power stake in KEL and approached the government for fast-tracked regulatory process for the Sales and Purchase Agreement. Since then, the Cabinet Committee on Privatisation (CCOP) has approved the transaction and has decided to issue National Security Certificate to SEPL.
This might be seen as some advancement, but it is just one of the three barriers that the deal has been facing. And this too is not completely out of the way as the recommendation of the privatisation committee is subject to ratification by the Federal Cabinet. The other two barriers still hover; one, the deal has been hinged to KEL’s repayment of liabilities. The question, “who would assume the liabilities in the event of the transaction?” has met with some confusion.
Moreover, the Sales Purchase Agreement entered at the time the offer was made, has also been a bone of contention. Both these issues have highlighted the tussle between the government and the seller, and also varying views within the government, whether it is the case of issuing no object certificate contingent on resolving the issue with SSGC over liabilities, or the sharing of the SPA as a prerequisite to issuing the National Security Certificate.
The second and more important barrier that is left hanging in the air is KEL’s Multi-Year Tariff (MYT). The MYT fable is also full of conflict between the power company and the regulator. While the utility originally sought MYT at Rs15.57 per KWh, NEPRA came forth with some major alterations in the tariff structure including a seven-year period as against the ten-year period requested. It also revised the base tariff downwards to around Rs12.07 per KWh versus the existing Rs15 per KWh. In KEL’s review petition, the regulator increased the tariff marginally to Rs12.77 per KWh. The subsequent review hearings ended in Dec 2017, and since then the decision is pending with no word from the regulator.
The article will not debate which party is right in its approach to take the deal forward. However, this deal does not only highlight the lack of coordination and conflicting views within the authorities. In addition, the frequent withdrawal of intent just because of delayed regulatory examination reflect poorly on the country’s attitude towards whatever little foreign investment is coming into the country. It’s a test of patience for SEPL as the Chinese utility company still has a couple of big stumbling blocks in its way!
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