Sale of two LNG-fired power plants may get delayed

ISLAMABAD: With the possibility of accomplishing three transactions, including sale out of SME Bank till June 30, 2021, one of the major transactions for sale out of two Liquefied Natural Gas (LNG) fired power plants might get delayed and they may not be privatized by the first half of next fiscal year 2021-22, it was learnt. The sale out of SME Bank is on the cards with the expectation that its bidding will be done within the next couple of months. The possibility of sale out of Jinnah Convention Center, Islamabad, and Services Hotel, Lahore, are also on the cards within the current fiscal year. But all these three transactions cannot be completed without the support of the parent ministry or department.

The Cabinet Committee on Privatization in its meeting held last week had deferred decisions on sale out of two combined-cycle gas-fired power plants, namely Haveli Bhadur Shah and Baloki Power plants by constituting a sub-committee to finalize structure of the transaction. Some unresolved issues have re-surfaced including debt-equity ratio, granting income tax exemptions and some other issues as the potential buyers conveyed to the government to resolve outstanding issues and then provide them six months period for execution of this big transaction having the possibility to fetch over $2 billion.

“Keeping in view all these possibilities, the Privatization Commission conveyed to the government that this delayed transaction might be accomplished in the first half of next fiscal year 2021-22,” said the top official.

Regarding refinancing at rate of KIBOR Plus 1.8 determined by regulator NEPRA, the minister for privatization has convened an important meeting of bankers next week to convince them for re-financing of debt at fixed limit of NEPRA because in case of more rate, it would be made part of the power tariff.

The second outstanding issue is related to granting income tax exemptions provided to all Independent Power Producers (IPPs) for a period of 30 years that would expire by 2023. Now after the sale out of these two power plants, it would be converted into IPPs but the IMF is opposing to extend any further exemptions.

There is dichotomy in IMF’s prescriptions as privatization of LNG plants was a part of the Fund program but for fulfilling one of its prerequisites, the IMF is creating a stumbling block because it would not be possible to treat in discriminatory manner those who are going to join the club of IPPs in the country. The government will have to treat equally all concerned private parties falling into IPPs.

“We hope that these outstanding issues will be resolved within the next couple of months,” said one top official of the Finance Ministry and added that efforts would be made to privatise LNG power plants by September or October 2021.

It is relevant to mention here that the ECC in its decision on November 8, 2019 had directed the Privatization Commission (PC) to expedite the privatization of National Power Parks Management Company (NPPMCL). On November 17, 2019, the PC floated an invitation seeking expression of interest (EOI) from interested parties to acquire up to 100% of the equity stake with management control in either NPPMCL (in case both power plants will be acquired by the same investor) or two companies each of which will own one of the power plants (in case different investors will acquire the power plants).

The last date for submission of EOI was to end in December 2019. As per the Ministry of Privatization in July 2020, the NPPMCL had an unprecedented interest and 12 out of the total 23 parties were pre-qualified for bidding, which was previously scheduled to take place in mid-April 2020 this year, but due to pandemic and international travel advisory restrictions, the timelines could not be materialised. Now efforts are underway to accomplish this much-awaited gigantic task by next fiscal year. The high profile local and international potential investors, including Qatar Investment Authority, EDRA, GPSC, Jera and KAPCO, Atlas Power, Asma Capital, Nebras Power, among others showed interest in the said transaction.