CCoP seeks early transaction of Kapco

Cabinet Committee on Privatisation (CCoP) has directed Privatisation Commission and Ministry of Water and Power to finalise a detailed comfort letter for early transaction of Kot Addu Power Company (Kapco), well-informed sources in Water and Power Ministry told Business Recorder. Sources stated that the Privatisation Division recently revealed that on the recommendations of the Privatisation Commission (PC) Board, the CCoP, in its meeting held July 14, 2016 had approved the transaction structure of 1600MW Kapco.
The CCoP was also informed that while presenting the transaction structure, the Financial Advisors had highlighted the following key issues to be resolved by the GoP to attract investor interest: (i) comfort from GoP on the renewal/extension of major agreements expiring in 2021, including, but not limited to the Power Purchase Agreement (PPA), generation licence, Gas Supply Agreement (GSA), Fuel Supply Agreement (FSA) and Facilitation Agreement(FA); (ii) comfort from GoP on the fate/resolution of Liquidated Damages (Rs 27 billion) that are appearing on the financial statements of Kapco; and (iii) request for incoming investor to have greater involvement in key decisions in relation to 600MW coal expansion project envisaged by Kapco.
Privatisation Division stated that non-resolution of the issues, despite keen investor interest in the transaction, eventually led to a poor response from the investors as only four interested parties had requested EoI, and none of the four parties had submitted the SoQ document by October 13, 2016. It was also stated that the Financial Advisor had conveyed that in the absence of such guarantees, the GoP might have to significantly compromise on the value of the transaction.
After detailed deliberations on all issues the Finance Minister, in a meeting held on October 13, 2016, directed PC to explore other possible options for the transaction. The matter was, thereafter, considered by the PC Board in its meeting held on November 14, 2016. The PC Board was unanimously of the view that without provision of adequate comfort to the investors on the matter of renewal/extension of PPA and resolution of Liquidated Damages ( Rs 27 billion), etc, the bidding price for the transaction might be significantly impacted as the investors were likely to bid after heavily discounting for the risks associated with the transaction.
Additionally, the PC Board was of the opinion that this will be the case whether the Government of Pakistan decides to go for strategic sale of Kapco's 40.25% shareholding or its divestment through the capital market. Accordingly, it was proposed that the transaction be either scrapped or the issues should be resolved. According to sources, recommendations of the PC Board were again deliberated in a meeting chaired by the Minister for Finance, held on January 03, 2017, wherein PC was directed to bring the issues of the Kapco transaction before the CCoP, with clear recommendations on the way forward.
Privatisation Division submitted the following proposals for consideration of the Cabinet Committee on Privatisation: (i) implement the previous CCoP decision of July 14, 2016 by reinitiating the Kapco transaction, subject to Ministry of Water and Power providing the requisite comfort letter for the extension of PPA; and (ii) subject to PC receiving the requisite comfort letter from Ministry of Water and Power, allow extension in the deadline for the EoI from investors, enabling any other interested party(ies) to participate in the transaction.
The case was discussed in detail in CCoP meeting on January 27, 2017. Minister for Petroleum and Natural Resources observed that it was a huge issue and not just the one related to extension of the PPA. He said that the economic life [aspects of new technology] of the power plant should be kept in view. Representative of the Ministry of Water and Power said that the exact timelines and terms and conditions to be stated in the comfort letter need to be finalised. Different options/possibilities of the transaction viz. strategic sale or divestment through capital markets were also discussed.
After a detailed discussion, the CCoP directed the Privatisation Division and the Ministry of Water & Power to immediately finalise the comfort letter after settling all the issues regarding terms and conditions, timelines of extensions and other modalities to be stated in the comfort letter. CCOP would be updated after issuance of the comfort letter by Ministry of Water and Power.
In February 2005, the Privatisation Commission (on behalf of WAPDA) sold another 18% of WAPDA's shareholding in the Company to the General Public. On April 18, 2005 the Company was formally listed on the Pakistan Stock Exchange (formerly the Karachi Stock Exchange, the Lahore Stock Exchange and the Islamabad Stock Exchange).