Karachi: China’s Shangai Electric Power (SEP) communicated four conditions to acquire K-Electric (KE), including resolution of the pending issue of midterm review of Multi-Year Tariff & write-offs claim. SEP commented that once these conditions are met, “they will take two months to draft a business plan and share prices with KES Power Limited.”
These conditions were communicated in a meeting with the Minister for Privatisation and Minister for Energy, in early December. Shi Mingwei, representing Shanghai Electric, joined the meeting via Zoom video link from China.
Shanghai Electric Power representative, in response to the inquiry of when SEP will close the transaction and take control of the KE, stated four core issues:
1. Resolution of past receivables/payables of KE
2. Decisions from NEPRA on long pending issues of Midterm review of Multiyear Tariff and Write-Offs claims.
3. Certainty on exclusivity till the validity of existing license of KE (till 2030).
4. Certainty on configuration of future commercial agreements and tariff for KE.
“The Chinese officials shared that once they have clarity on the pending issues, they will take approximately two months to draft a business plan and agree on a share price with K-Electric,” according to documents shared with The Correspondent. Once that is done, it will take SEP approximately four additional months to complete all regulatory and administrative approvals, the documents added.
The meeting on December 8 had been called to deliberate and agree on a way forward on all pending issues relating to the issuance of National Security Certificate (NSC) for transfer of K-Electric shares and to engage SEP in this endeavour.
Meanwhile, Shanghai Electric may also indicate their readiness to acquire K-Electric shares and to chalk out a comprehensive business plan for improvement of the utility company. The meeting was informed that a draft have been agreed at the administrative level with K-Electric Power Limited and Shanghai Electric, respectively.
The Special Assistant to PM (SAPM) on Power stated that the government of Pakistan is making sincere efforts to holistically address the operational constraints of K-Electric. It is doing so by ensuring the availability of required gas to run K-Electric’s thermal plants and providing additional electricity from the national grid to meet the requirements of the company. The SAPM also expressed that it is important to understand the investment plan of Shanghai Electric after its acquisition of K-Electric.
According to a report, Shi Mingwei, who was representing Shanghai Electric, said that the SEP is aware of the discussions being held to address the previous receivables/payables of K-Electric, and hoped that all matters will be resolved amicably. He also remarked that in the future, they expect a clear arrangement about the principle of reciprocity on receivables/payables of K-Electric.
On the issue of a business plan, Mingwei stated that since 2016, further issues have surfaced due to which the business plan shared earlier with the government of Pakistan need to be updated. He also said that issues of mid-term review of multi-year tariff and write-offs are still pending with the National Electric Power Regulatory Authority (NEPRA).
He informed that in 2016, when they first expressed their willingness to acquire shares in the company, it was a profit-making entity. Whereas, as per the latest financial results, it is a loss making entity and thus a future business plan outlay will depend on the outcome of the resolution of all identified.
The meeting discussed at length the implications of appointing an administrator for K-Electric as per NEPRA Act, 1997.
Director K-Electric, also present at the meeting, said that this matter needs to be taken up with the existing shareholders and should not to be taken up with SEP at this stage—a view which was supported by SEP.
The representative of K-Electric and the company board chairman said that they are in close touch with Shanghai Electric, based on the periodic arrangements with the government of Pakistan. He expressed that a strategic investor like SEP can run K-Electric, and a required level of certainty is desired by any such transaction. The resolution of issues highlighted by SEP will be critical to any potential investor for an entity like K-Electric. He also expressed that, as observed by the Supreme Court, they are also committed to working along with the government to find an amicable resolution of all issues surrounding the K-Electric transaction.
The K-Electric CEO highlighted that besides addressing issues of receivables/ payables, the resolution of operational aspects, including commercial agreements with Sui Southern Gas Company and Central Power Purchasing Agency (CPPA), are imperative to avoid recurrence of problems countered by K-Electric.
He also stated that it is not easy to sustain smooth operations if there are extended delays in receipt of dues including subsidy amounts. He stressed that pursuant to NEPRA’s legal framework, they also expect regulatory predictability when planning for further investments in K-Electric’s infrastructure.
The Minister for Privatisation, in his closing remarks, said that the meeting has been very beneficial. He said that all stakeholders would have to move ahead with an open mind, ensuring sustainability and effective operation of K-Electric, which is in the best interest of all concerned.