Shanghai Electric agrees to share business plan with GoP

MUSHTAQ GHUMMAN ISLAMABAD: M/s Shanghai Electric Power (SEP), the new intended buyer of 66.4 per cent shares of K
05 Dec, 2016

MUSHTAQ GHUMMAN

ISLAMABAD: M/s Shanghai Electric Power (SEP), the new intended buyer of 66.4 per cent shares of Karachi Electric (KE) has agreed to share its top secret business plan with the government of Pakistan directly instead of through Abraaj Group of Dubai, well-informed sources told Business Recorder.

The sources said a meeting has been convened on December 6 (Tuesday) in the Ministry of Water and Power on the request of M/s Shanghai Electric, which would table its ten years investment and business plan.

M/s SEP would acquire 66.4 per cent stake in K-Electric for $1.77 billion and the authorities hope that the company would immediately invest $1.7 billion to upgrade the distribution and transmission system.

According to sources, the Chinese company has set a condition that GoP would not divest its 24 per cent shares but this condition would not be acceptable to Islamabad.

Sources close to Finance Minister told Business Recorder that on October 20, 2016, a meeting was held under the chairmanship of the Finance Minister at the Prime Minister House which was also attended by Minister for Water and Power Khawaja Asif, Secretary to the Prime Minister Fawad Hasan Fawad, Secretary Finance Dr Waqar Masood, Director General ERU, Finance Division, Special Assistant to the Finance Minister and Joint Secretary (PF), Ministry of Water and Power.

The meeting discussed issues related to K-Electric in detail. The meeting decided that Power Purchase Agreement (PPA) should be extended till December 31, 2019. It was also decided that the PPA with the new buyers of KE should be renewable subject to mutual consent and power supply agreement may be made irrevocable and on take-or-pay basis.

The meeting further decided that the price of power supply cost should be taken at marginal cost basis in the future.

Since KE was not paying the bill of 650MW electricity to the Central Power Purchasing Agency (CPPA) regularly on one or the other pretext, the meeting decided that Standby Letter of Credit (SBLC) mechanism should be implemented. And delay in payment by the KE should be subject to Kibour plus 300 bps as was already the case.

As Minister for Water and Power Khawaja Asif time and again warned that the KE management would have to sign new agreement to continue supply of 650MW from national grid, the meeting endorsed his viewpoint and decided that Implementation Agreement (IA) in the current form could not be executed.

The meeting decided that as an alternate, an MoU may be finalised containing restricted strategic customer list to entities as agreed in place of an IA and payment of subsidy as KE being a power utility.

The Finance Minister-led committee also decided that payment of Rs46 billion as principal and Rs5 billion as mark-up may be settled.

The sources said mark-up was contractual obligation as per PPA and needs to be settled in the same context before the new PPA and no cash will be adjusted against the mark-up accrued as per PPA.

Talking about payment to Sui Southern Gas Company (SSGC), the sources said the payment of principal and mark-up may be settled as per the GSA.

The meeting further decided that Rs12.6 billion may be recovered as arrears from the KE consumers and pending MoL opinion, and the NEPRA should be approached for adjustment of earlier restricted 4% capping allowed by NEPRA, although NWPRA has already rejected it.

The sources said rest of the issues including Rs10.3 billion (AGP), Rs4.4 billion (ISP) and current subsidies have been settled.

 

Copyright Business Recorder, 2016

 

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