Says finalisation of a ‘right tariff’ is the most important factor for the proposed dealPHOTO: REUTERS
ISLAMABAD: The federal government’s inability to give regulatory approvals to Shanghai Electric Power for taking over K-Electric would be a huge blow to Karachi’s future and cause a serious dent in investors’ confidence, said the Abraaj Group on Monday.
“The federal government is left with only 12 weeks in governance to complete this [K-Electric] deal,” said Abraaj in a statement as it stepped up lobbying to get the necessary approval. Abraaj Group founder Arif Naqvi met with government ministers on Monday.
The group noted that if the deal fell through, investor confidence would suffer serious deterioration, which may take several years or may be a decade to recover. “Attracting a similar power house to invest in Pakistan’s power sector on such a scale will then be near impossible,” it added.
Shanghai Electric Power had expressed its intention to acquire a 66.4% stake in K-Electric in October 2016 and subsequently renewed its intention during the stipulated time period under prevalent rules. However, the deal requires regulatory and other approvals.
The federal government has expressed confidence in the proposed deal and has taken a keen interest in its completion based on merits of the impact on Karachi as well as the country’s overall power sector, the statement said.
Pakistani authorities held a meeting last week to find ways to remove irritants in the way of the proposed transaction. However, the privatisation ministry asked the Abraaj Group and Shanghai Electric Power to share the sale-purchase agreement, terming it a requirement under the law.
The Abraaj Group voiced hope that the matter would be resolved soon as the government had given it priority and expressed keen interest in its progress.
“We should not lose such an exciting opportunity,” it said, adding Karachi, as a mega industrial city, must not be ignored and action must be taken immediately for its current and future power requirements.
It noted that the positive precedent set by Shanghai Electric Power, besides being critical for Karachi and Pakistan, would also serve as a catalyst to meet the government’s agenda of privatising power distribution companies in the long run.
It reiterated that the most important factor for the deal to proceed was “the right tariff to be finalised by the regulator”, which would facilitate an enabling financial environment and incentivise investment.
K-Electric has requested for continuation of its previous tariff to ensure sustainability of operations. The tariff is currently being reconsidered by the National Electric Power Regulatory Authority (Nepra) on the request of the federal government through the Ministry of Energy.
Without the tariff revision, the construction of K-Electric’s upcoming projects in generation, transmission and distribution may be in jeopardy, it added. Shanghai Electric Power is Shanghai’s largest electric energy company and is a subsidiary of the State Power Investment Corporation, one of China’s largest power enterprises.
Abraaj pointed out that the acquisition was facing certain hurdles, which were being resolved by the institutions concerned. Key bottlenecks include re-consideration of K-Electric’s multi-year tariff by Nepra and settlement of K-Electric’s receivables and payables with relevant organisations. K-Electric claims that its receivables exceed its payables by almost Rs100 billion.
However, officials of the Petroleum Division told The Express Tribune that its consent for the deal was linked with the clearance of Rs79 billion in outstanding bills.
However, K-Electric claims that all reconciled current payments were being made by the utility.
“Completion of the acquisition will highlight Pakistan’s potential as a welcoming investment destination and will encourage other companies to come forward with plans for other such investments in Pakistan,” said the Abraaj Group.
March 13th, 2018.
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