Govt moves to resolve issues creating hurdles in selling KE’s shares to Shanghai Electric

Islamabad-The privatisation ministry is likely to seek the cabinet approval for the grant of National Security Certificate (NSC) and resolution of KE’s payables and receivables issues, which will pave the way for the sale of 66.4 per cent shares of the KE to Shanghai Electric.

In its working paper, available with The Nation, to be tabled before the Federal cabinet for the grant of National Security Certificate (NSC) and outstanding issues of KE’s payables and receivables the ministry of privatisation has proposed that dispute regarding KE’s payables/receivables may be settled through arbitration as per draft Arbitration Agreement duly vetted by Law & Justice Division. Proposal at 5(b) may be considered/discussed by IMC for proposing appropriate course of action to resolve the issue. The Prime Minister of Pakistan Imran Khan, on 15 Feb 2021, directed the Minister for Privatisation to resolve KE’s transaction issues in consultation with the other concerned Ministers and Attorney General

Following the directives, the Ministry of privatisation has prepared a summary and proposed that draft Arbitration Agreement may be submitted in the Supreme Court in pending case of KE and incorporation of directions of Supreme Court, if any, in the proposed scheme; and the Secretaries of Power and Finance Divisions may be directed to sign the Arbitration Agreement on behalf of the President of Pakistan, the working paper proposed.

As required under clause 5.3 (b) of the Share Purchase Agreement dated 14 Nov, 2005  the application for grant of National Security Certificate (NSC) regarding transfer of its 66.4 per cent shares in KE to Shanghai Electric Power Company Limited (SEP), was submitted by in November 2016.

At that time, it was estimated that the price of the share would be around $ 1.7 billion; due to depreciation of Pakistani rupee against the dollar in 2018, the cost of the share was $1.4 billion. However, since 2018 no fresh estimates of the 66.4 per cent share has taken place, said a source privy to the development.

The summary said that requisite NSC could not be issued due to KE’s pending payables/receivables to/from other Federal/Provincial government Entities. In order to resolve the issue Inter-Ministerial Committee (IMC), headed by the Minister Privatisation was constituted by the Prime Minister on 26 Nov, 2018 (Annexure-ITI), but due to its complexities, the issue could not be resolved during this period.

These payables/ receivables issues pertain to the Implementation Agreements dated 14.11.2005 and dated 13.04.2009 to the extent of tariff subsidy and defaulting strategic customer Karachi Water Supply Board (KWSB), Gas Sale Agreements/ arrangements and Power Purchase Agreements/ arrangements.

In the meeting of the key stakeholders held on 24 Feb 2020 , it was, inter alia, decided that the Ministry of Privatisation to coordinate with the concerned parties for agreeing on a draft Arbitration Agreement for settlement of pending payable/ receivable issues of KE. ToRs for the proposed Arbitration Agreement were agreed by the concerned parties in the meeting held on 29 June 2020 except KE’s dissent on the issues of seat of arbitration and reciprocity. As per IMC’s recommendations made in its meeting held on 10 Sep,2021 a Summary for the Cabinet  was also initiated by Privatisation Division on 28 Sep, 2020 through the concerned Divisions, which was not returned to PC due to ongoing consultative process of the stakeholders on the matter.

In early February 2021, KE sent a letter to Power Division agreeing to withdraw from  its stance on international arbitration and reciprocity but principle of reciprocity was still built-in the draft Arbitration Agreement shared by KE. Following the PM directives draft was negotiated by the parties on day-to-day basis and in the last meeting of KE and Government Parties held on 17 Feb 2021, inter-alia, attended by the Minister for Privatisation, SAPM Petroleum and Attorney General wherein consensus has been reached on the following.

Revised draft Arbitration Agreement has been agreed by the parties. In order to resolve the existing and future issues of payables and receivables, a policy direction to NEPRA may be issued by the Power Division to allow addition of cost of funds in the tariff of an electricity distribution company, including KE, in case the Federal government fails to make payment of any agreed subsidy in time and additionally, if there was no plausible reason for such delay, NEPRA may also advise the government to hold inquiry and fix responsible for the delay in the payment of subsidy.

The summary said that some objections raised by Power Division on 11th March, 2021 were verbally addressed. Before acting upon approval of the Cabinet, the proposed scheme of settlement will also be submitted in the Supreme Court in the pending case of KE and directions of Supreme Court, if any, will also be incorporated in the proposed scheme, the summary proposed.

It is worth mentioning here that currently, the payable of KE to NTDC and SSGC based on the compound interest is around Rs 385 billion, whereas based on the same principle the company receivables are more than Rs 400 billion.KE on the other hand has countered that SSGC and NTDC amounts are “unduly” inflated with markup while on a net principal basis, KE stands to receive Rs 80 billion from various federal and provincial government entities. All entities acknowledge the strain on their financials on account of these outstanding payments, which take a toll on investment ability and routine operations.