ISLAMABAD: As the previous government failed to resolve the issue related to the divestment of K-Electric to Chinese company Shanghai Electric (SEP), the Pakistan Tehreek-e-Insaf led government will try to resolve the issues hindering contracts between the two power companies.
However, Privatization Commission of Pakistan says that the issues related to receivables and payables of K-Electric before its sale and requirement of National Security Certificate etc are yet to be resolved to pave way for the sale.
A delegation of SEP is currently visiting Pakistan to investigate the issue, officials of Privatization Commission informed Senate Committee on Privatization.
The delay in KE-SEP deal was affecting the overall confidence of foreign investors in the country and early conclusion of the deal could boost the confidence of investors, said the officials adding that the federal cabinet of incumbent government would be discussing the matter soon.
The major issue related to the deal was dues of KE worth billions of rupees and requirement of the security certificate from the Government of Pakistan.
According to the documents, the holding company of KE, KES Power Limited (Abraaj Investment Management Limited), a company incorporated under the laws of the Cayman Islands, which currently owns 66.40% shareholding in KE, has entered into a sale and purchase agreement dated October 28, 2016 (SPA) with Shanghai Electric Power Company Limited.
In terms of the SPA, KES Power has agreed to sell all of its 66.40% stake in KE to SEP.
The progression of the said transaction is subject to issuance of National Security Certificate from the GOP represented through the Privatisation Commission in accordance with the Original SPA signed on November 14, 2005.
On receipt of an application by KES Power seeking NSC of the GOP in November, 2016, the PC as due diligence process wrote to all possibly relevant Ministries / Regulatory Bodies, Power Division and Petroleum Division have not given their No Objection Certificate (NOC), whom few have granted consent and in some cases conditional NOC for issuance of NSC.
The PC has examined the issue and is of the view that the issuance of NSC by the PC is governed by the provision 5.3 (b) of the original SPA.
This clause makes it incumbent upon the KES Power to obtain the seller’s (PC) certification that the proposed transfer/transaction does not affect the national security interest of Pakistan and that the said agreement signed between KES Power and SEP on October 28, 2016 is a main constituent document of the proposed transfer/transaction.
The PC requested KES Power for the provision of SPA between KES and SEP signed on October 28, 2016.
The Minister of Defense (MOD) and National Electric Power Regulatory Authority (NEPRA) have also requested for the same.
KES Power’s stance is that the said SPA is between two offshore companies. The SPA does not contemplate, or govern the affairs of KE and cannot serve to extinguish KE’s obligations. Therefore, KES Power has refused to share a copy of said SPA to the PC.
According to PC, the legal team of KES Power, SEP China and PC is working on a legal framework i.e. Deeds or Agreements.
Drafts of which have been under discussion between the PC, KES Power and the proposed purchaser SEP signing of which would extend the provisions of the Original SPA to the current purchaser as well.
The ECC of the Cabinet in its meeting held on October 02, 2018 considered the update on KE shares purchase by SEP and constituted a Committee under the Chairmanship of Adviser to the Prime Minister on Commerce, Textile, Industry & Production and Investment, to look into the issues of K-Electric in a holistic manner and submit viable recommendations for their solution to the ECC for consideration by 25th October, 2018.
The Committee had four meetings on October 11, 16 & 26, and November 28, 2018, respectively, wherein, it was discussed that, finalization of TORs for settlement of outstanding receivables and payables by the KE in relation to GoP entities i.e. SSGC, NTDC/CPPA and KWSB, Karachi by the Power Division, Petroleum Division with the support of Finance Division.
In the previous meetings, it was also discussed that services of a reputable chartered accountancy firm may be obtained for a third party independent audit to reach out a consensus for final settlement.
However, PC official says, Petroleum Division and Power Division are of the view that netting off is not workable due to a contractual obligation between KE and SSGC as well as KE and NTDC.
Finalization of Deed of undertaking and extinguishment Deed with SEP and KES Power before issuance of the security certificate was under consideration with SEP and KES Power.