Govt issues national security certificate for K-Electric’s sale

ISLAMABAD: Government on Friday gave a security clearance to a proposed sale of K-Electric by its existing Dubai-based owner to a Chinese company – a move that would remove a major hurdle in the deal pending for almost two years.

Cabinet Committee on Privatisation, headed by the Prime Minister Shahid Khaqan Abbasi, took the decision during a meeting at the PM office.

“The meeting discussed the matter of the sale of its shares by KES Power Limited in K-Electric Limited to Shanghai Electric Power, and decided to issue the National Security Certificate subject to ratification by the federal cabinet,” a government statement said.

In October 2016, Abraaj Group announced that KES Power, owned by the group, entered into an agreement to divest its 66.4 percent shareholding in K-Electric (KE) to the Shanghai Electric Power Company Limited for a consideration of $1.77 billion.

According to the shareholding breakups, government holds 24.36 percent stake in KE, followed by foreign shareholders (3.09pc), local public (2.69pc), mutual funds (1.67pc), financial institutions, insurance Takaful, Modarabas and pension funds (1.48pc), others (0.18pc) and public sector companies and corporations (0.13pc).

Shanghai Electric Power Company has at least twice withdrawn its offer – first was made in August 2016 – to buy the majority shareholding in KE as it couldn’t convince government to approve desirable multiyear tariffs for the company, while the government is yet to issue the national security certificate, termed imperative to green-signal the resale of a country’s strategic power company. Abraaj bought KES Power from its joint owners: Saudi Arabia’s Al Jomaih Group and Kuwait’s National Industries Holding in 2008.

K-Electric was demanding a tariff increase of up to Rs15.57/unit for operational sustainability. National Electric Power Regulatory Authority (Nepra), however, turned down the request, fixing the tariff at Rs12.07/unit in March 2017. K-Electric filed a review petition and after conducting hearings, the regulator increased the tariff to Rs12.7706/unit in October 2017.

Subsequently, ministry of energy remanded back the tariff to Nepra for reconsideration. In December last year, the authority conducted a hearing on December 5, 2017 in this regard.

Analysts urged the authority to reconsider the tariffs, while expressing concerns over a possible termination of Shanghai Electric Power’s acquisition of KE due to tariffs difference and delayed approvals. They said the termination of acquisition could set a negative precedent in context of foreign investments coming into the country and damage investor confidence. Shanghai Power has already unveiled nine billion dollars of investment plan on the city’s power infrastructure after the takeover.

An official, privy to the development, told The News there has been no communication between Nepra and KE’s management since December last year.

Cabinet committee also discussed various issues related to the privatisation of Pakistan Steel Mills (PSM) and restructuring of Pakistan International Airlines (PIA). PSM has incurred a loss of around Rs188 billion in the last one decade, while PIA suffered more than Rs145 billion in losses during the last four years.

“The committee asked the sponsoring divisions to resubmit the proposals in a cohesive and comprehensive manner in light of earlier decisions on the subject,” the statement added.

Minister for Privatisation Daniyal Aziz told a press conference in January that the government would have to privatise the PIA by 15 April this year under a law.