30 percent Shell shares of PRL: PSO raises concerns over buying process

The Pakistan State Oil (PSO) has raised serious concerns over the bidding process in respect of acquiring Shell shares in Pakistan Refinery Limited (PRL), sources told this correspondent. PSO has reportedly deferred its plan to buy 30 percent shares of PRL till completion of groundwork and necessary procedures.
PSO was in the process of buying shares of PRL from Shell Pakistan Limited. PRL is a listed company in private sector with following shareholders: Shell 30 percent, PSO 18 percent, Chevron 12 percent, National Bank of Pakistan (NBP) 8 percent, National Investment Trust (NIT) 6 percent and individual shareholders 26 percent.
"If PSO acquires additional 30 percent from Shell then its holding will increase to 48 percent, making it the largest shareholder, with control over PRL," sources added. PSO, National Bank and NIT are public sector entities run by the management appointed by government. Therefore, PSO's 48 percent, together with NBP and NIT, would give the government a position of majority in the Board of Directors and the management of the company (PRL).
According to sources, PSO has completed the so-called 'due diligence' exercise required for the acquisition of shares of Shell Pakistan Limited and, in this regard, a report containing value assessment had been submitted to the PSO's Board of Management for decision in its 194th meeting.
"Value approved by PSO is far more than real value of a loss making refinery. This high price is being paid at the behest of pressure to accommodate Shell as well as prominent broker shareholders of PRL as controlling stake of PRL that would result in a mandatory bid for minority shareholders as well," said one oil industry's stakeholder.
"In the 194th board meeting PSO management shared the progress report of due diligence with the board of management. In the meeting the progress of due diligence exercise was presented to the board and the decision to approve the purchase of 30 percent shares in PRL was reserved once all groundwork and necessary procedures are complete," the minutes of the Board of Management say.
Per se this is a business deal between two parties where one party is selling its shares to the other at a mutually agreed price and terms. However, two important factors make this deal not so simple: PSO, being a public sector entity, is bound to conduct all its transactions in a competitive and transparent manner and that there is no other bidder for the shares being offloaded by Shell Pakistan. PSO, like all public sector organisations, is bound to follow Public Procurement Rules set by PPRA according to which transparency based on broad based competition are mandatory in all transactions, the insider commented on the proposed transaction.
"The point of concern for the general public in this case is that, in the absence of any other bidder, PSO will be the single bidder and its price would not be comparable for establishing its reasonability thus burdening a public sector enterprise with further losses," he maintained. According to him, how it would be ensured that public money is being used for buying these shares at a right price and that unfair means are not used by the officials involved in this process.
"This transaction begs to ask what is really motivating PSO for acquisition of a loss making private sector company by using public sector funds," he questioned. A company which owes over Rs 90 billion to the local refineries is not justified to misuse taxpayer money in purchase of a completely loss-making entity and the most basic form of refinery which, without huge investments, is not likely to become profitable at all, said another stakeholder.
According to PSO, in the Board meeting, the management had taken the opportunity to explain the process followed to carry out the due diligence of the refinery in association with independent third-party consultants. The Board appreciated the work done so far on this project, and also reviewed alternative scenarios and way forward strategies presented by the management.
Regarding the due diligence and acquisition process, PSO management is cognisant of the fact that the exercise is a time-consuming procedure and requires a series of deliberations and discussions to maintain transparency and accountability. PSO, in its role of being both a public sector and the largest energy company in Pakistan today, is dedicated to upholding ethical values and ensuring that the highest standards in business practices are followed at all times, PSO concluded.