The government has decided to cancel the deal with Kanooz Alwatan, the bidder for Karachi Electric Supply Company (KESC), if payment is not made by June 15, sources in the Privatisation Commission (PC) told Business Recorder. The decision was taken by the Cabinet Committee on Privatisation (CCoP) in its last meeting, wherein it was also suggested that Hasan Associates Consortium should be invited for negotiations to match the price offered by Kanooz, sources added. Kanooz Alwatan's bid at the rate of Rs 1.65 per share was accepted on February 7, but the company did not make payment by the due date and requested for extension in time. At first, extension was given till March 20.
When the company was unable to pay the amount, Secretary Privatisation Commission, Tahseen Khan Iqbal visited Saudi Arabia where he was assured that payment would be made by April 30. For this, a supplementary agreement was signed on April 13, which included payment of balance bid price of KESC in two equal instalments.
The first instalment was due by April 30, and the second by June 10. After that Privatisation Commission would transfer the corresponding number of ordinary shares to the buyer on the receipt of each instalment and a contribution by the company of Rs 60,000,000 for Poverty Reduction Alleviation Fund (PRAF) in lieu of the mark-up.
However, the company did not pay the instalment but kept on assuring that it would pay, and requested that Secretary PC be directed to assist it in processing the bank transfer of the amount.
Sources said that Price -Waterhouse Coopers, Financial Adviser for the transaction, said that the company was in default and the PC had discretion to revoke the Letter of Acceptance (LoA), forfeit the earnest money and undertake negotiations with other bidders on such terms and conditions as it deemed fit.
"FA says that the Privatisation Commission retains the right to cancel the bid process entirely, without specifying any reason," sources added.
They said that Hasan Associates Consortium has also asked for refund of their earnest money of Rs 100 million, with accrued profit, without any delay. They said that return of the earnest money to Hasan Associates Consortium might entail winding up of the privatisation process if Kanooz does not make payment, and the PC might have to re-advertise and reinitiate the process.
PC has recommended that Hasan Associates Consortium may be invited for negotiations to match the price offered by Kanooz while ensuring that the existing members of their consortium have not left it, though it may strengthen the consortium by including new members. In the meantime, Kanooz Alwatan may be facilitated as far as possible to make the payments and close the transaction.
One CCoP member was of the opinion that the issues raised by Kanooz Al Watan were those, which could have been raised prior to the bidding; notwithstanding that, the company may be given a final notice to make payment by June 15, 2005. If the company fails to do it, LOA given to it may be cancelled and its earnest money forfeited.
The interest of second bidder may be revived by assuring him that he would be paid interest on his bid money for the period it stayed with the government beyond normal time. Minister for Privatisation may consider the matter of a visit by Privatization Commission authorities to resolve the issues with Kanooz.
On a point that Karachi may face shortage of electricity in the months of June/July and the decision about installation of 220 generators received as donation awaited the outcome of privatisation, it was observed that these generators could be installed by another company structured for the purpose. KESC could purchase electricity from this generation company. It was pointed out that this entailed a commitment by KESC for arranging supply of gas for electricity generation by it.
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