Sale of Abraaj Consortium's stake in K-Electric to Shanghai Electric Power

Kindly note that under the Share Purchase Agreement dated 28 October 2016 with Shanghai Electric Power (SEP), Abraaj is required to obtain all the Pakistan government consents and approvals within the next few weeks, otherwise, it is liable to pay US dollar 83 million "break fee" to SEP; hence, we believe that government will undoubtedly uphold the supreme national/public interest vis-a-vis Abraaj Consortium before granting its various consents and approvals, while at the same time, welcoming this non-CPEC Chinese state investment into Pakistan:
Responsible GoP CONDITION
Government PRECEDENT to approving Agency the Abraaj/SEP Deal
NEPRA 1. Please audit and refund to KE consumers (and/or Ministry of Finance) the RUPEES 15-20 BILLION OF EXTRA "41.33 PAISAS" OVER-BILLING ref: KBI letter dated 29 October;
2. Please end KE's Monopoly in Karachi (and connected areas of Interior Sind & Baluchistan) bv unbundling it into separate distribution, generation, and transmission companies to increase competition/consumer choice, and automatically reduce consumer tariff by at least 13% (ref: KBI letter dated 7 Oct). Please either ask KE to resubmit its 10-year "Integrated" Multi-Year Tariff (l-MYT) Petition on an unbundled basis, or unilaterally do so accordingly;
3. Please REDUCE/CLAWBACK the consumer tariff immediately in view of the tax-free US DOLLAR 1.1 BILLION PROFIT made by Abraaj consortium in this sale transaction on the assumption that the existing MYT formula would continue for the next 10 years too;
4. Please get "GUARANTEE" from Shanghai Power on FUTURE CAPITAL INVESTMENT IN K-ELECTRIC (new transmission & distribution lines, transformers, power plants, etc) with a CONTRACTUAL FIRM DEADLINE TO ELIMINATE LOAD SHEDDING IN KARACHI WITH AN AFFORDABLE TARIFF AND IMPROVED CUSTOMER SERVICE;
5. Please ensure that all pending legal cases in which KE has sued NEPRA, or taken stay orders against its various regulatory decisions in favor of KE Consumers, should now be withdrawn and settled "out of court" to benefit the public interest.
Privatisation 1. PC: please also tag-along/force-sell Commission/ GOVERNMENT'S 25% SECP/ SHAREHOLDING IN KE TO SBP SHANGHAI POWER, WORTH US DOLLARS 650 MILLION in FDI for the national economy. Just like its 40% minority shareholding in KAPCO, Government's 25% stake in KE is of no strategic value for the State since all control now lies with the majority private owner & operator of the company;
2. SECP: please do NOT give an exemption on Abraaj/SEP's incoming request to waive the statutory Mandatory Tender Offer (MTO) requirement to purchase at least 50% of Government's shares in KE worth US Dollars 325 million in FDI. If for whatever reason Shanghai Power cannot fund more than US Dollars 1.77 billion in aggregate, then that amount should get split "pro rata" between KES Power/Abraaj Consortium (66pct), Federal Government (25pct), and Public Shareholders (9pct);
3. State Bank (SBP): please note that Shanghai Power is financing this US Dollar 1.77++ Billion deal with foreign currency denominated acquisition debt financing (80%) and its own equity (20%) and therefore "expects" a steady and significant receipt of "ANNUAL DIVIDENDS" from KE in US Dollars - KINDLY EVALUATE THE NET IMPACT OF THIS PRIVATE TRANSACTION ON PAKISTAN'S NEAR-TERM FX POSITION PLEASE;
Ministry 1. KE owes Rupees 51 Billion and of Finance/ Rupees 67 Billion to NTDC and SSGC, FBR respectively, in unpaid liabilities. Abraaj Group Consortium is selling its 66.4pct shares in KE for Rupees 184 Billion with a Tax-free Profit of Rupees 115 billion. THEREFORE, MOF MUST DEMAND "AT SOURCE" UPFRONT DEDUCTION OF RUPEES 51+67 = 118 BILLION AGAINST THE RUPEES 115 BILLION PROFIT OF ABRAAJ CONSORTIUM (NET OF ANY RECONCILED OUTSTANDING FED GOVT PAYABLE TO KE), AND NOT PER SOME LONGTERM PAYMENT PLAN WHICH WOULD INSTEAD BECOME KE & SHANGHAI POWER'S LIABILITY GOING FORWARD;
2. There are several cases of unpaid taxes (aggregating billions of rupees) in which KE has taken "stay orders" - FBR should now consolidate all these in an "out of court" upfront settlement "at source" against the sale proceeds;
MW&P/ 1. Please negotiate a new Power Purchase NTDC Agreement with KE on its 650 MW import from NTDC/national grid (the previous agreement expired in January 2015), including at-source settlement of KE's Rupees 51 Billion unpaid liabilities as mentioned above;
2. Please negotiate a new AMENDED IMPLEMENTATION AGREEMENT with KE/Shanghai Power (the previous agreement expired in April 2016), and kindly make it publicly available on your website, that:
-- Contractually guarantees the US Dollars 5 Billion capital investment into KE's infrastructure over the next 5-10 years as "committed" by the current Abraaj-led KE Management to NEPRA in their latest MYT tariff petition;
-- Ensures that Shanghai Power does not use KE as a "dumping ground" for its own hardware & services without competitive international tendering process;
-- Defines Shanghai Power's future policy & approach on (1) KE's incumbent leadership team; (II) handling 22 Million "Distribution" consumers since it has no prior experience in electricity retail & distribution segment; (III) future Load Shedding Policy - whether segmented or uniform? (IV) future Disconnection Policy toward Defaulters including Public Sector Customers such as KWSB; (V) revival of Labour Unions/CBA and previously dismissed hundreds/thousands of employees who now want to come back; etc.
Ministry Please negotiate a long-term GAS of SUPPLY AGREEMENT with KE Petroleum on behalf of SSGC, including at-source settlement of KE's Rupees 67 Billion unpaid liabilities as mentioned above; Ministry Please advise on whether this "change of Law control" (under the 28 October 2016 Share Purchase Agreement) is potentially CONTEMPT OF COURT in the following two sub-judiced legal cases where the Federation is also a party (respondent):
1. CP-1511/2005 in Sind HiRh Court;
2. CP-59/2015 in Supreme Court;
All other pending legal/arbitration cases in which KE has sued the Federal Government (through one of its departments] as a respondent should also be settled/withdrawn now as part of the package deal.
Government 1. Please proactively request for an of Sindh OPEN HOUSE / PUBLIC HEARING in Karachi, administered by NEPRA and to be attended by the Chairmen of SEP (and its parent company, SPIC), for due consultation of all key local stakeholders on this transaction and future expectations;
2. Please finalise with Federal Government how many of the 3 Government seats on KE's Board could be reserved for GoS-nominated representatives.