K-Electric deal waiting for govt's nod

MUSHTAQ GHUMMAN

ISLAMABAD: Federal Government is not yet ready to give its final nod to Abraaj Group and China's Shanghai Electric Power (SEP) to acquire 66.4 percent stake for $1.77 billion until Rs 75 billion dues of public sector entities are cleared, well informed sources told Business Recorder.

A team of Abraaj Group has held a number of meetings at different fora including with Prime Minister Nawaz Sharif, Finance Minister Ishaq Dar and Water and Power Minister Khawaja Asif to get clearance of their deal with SEP. However, the bureaucracy of concerned Ministries maintains that the deal between Abraaj and SEP cannot be approved until final reconciliation of liabilities.

The Sale Purchase Agreement (SPA) between Abraaj Group and SEP has not been shared with several government organisations.

"KE's management and NTDC team are engaged in reconciliation of claims of around Rs47-50 billion. Likewise, SSGC is also reconciling its gas bills claims with the KE," said an official on condition of anonymity.

He said KE's subsidy claims are being processed as per Standard Operating Procedures (SOPs) notified in 2007 by the Ministry of Water and Power applicable to all Discos including K-Electric. Competition Commission of Pakistan (CCP) has already cleared the deal with respect to competition but another key regulator i.e. Nepra is still engaged in internal discussions with respect to answers of 10-12 questions given by KE management; the regulator is dissatisfied with arguments of KE team during a recent meeting.

On February 15, 2017, the Finance Minister in a meeting with KE assured the delegation of full cooperation and support of Finance Ministry for settlement of outstanding issues between KE and various federal government entities. Dar said the government wanted to resolve the pending issues in fair and equitable manner and the company should reconcile their payables/receivables with the respective entities in a similar spirit.

According to sources, SEP argued that the government should sign Implementation Agreement (IA) with the new buyer but the government is unwilling to do so on the plea that since the pact would be between two private parties i.e. Abraaj Group and SEP, the GoP cannot give any such commitment. However, Abraaj Group and SEP are proposing to sign a facilitation agreement, which insiders claim would further increase the obligations of the federal government to discharge responsibilities.

SEP, sources said, will be deprived of exclusive rights of KE's jurisdiction, adding that any company which can generate electricity and supply to the consumers in Karachi will be allowed to enter the market. Net metering will also be allowed in KE, which implies that any consumer can generate electricity and sell surplus electricity to other consumers by using the KE network and paying fixed charges.

The sources said KE had to invest in distribution and transmission system to ensure its profit. Another official said there was no hurdle in approval of the agreement but government working took time, adding things could not be finalised overnight. KE is sold informally and now clarity has to be brought in liabilities i.e. reconciliation of figures, he said, adding the buyer wanted a clean chit on all financial liabilities.

Abraaj recently hosted Prime Minister Nawaz Sharif in Davos (Switzerland) to get his blessings for the transaction.

The new buyer (SEP) maintains that the government should not dispose off its existing shares in KE without the consent of the company. However, the government is not yet ready to accept this condition.

Meanwhile, Transparency International (TI) Pakistan has written a letter to Chief Justice of Pakistan Mian Saqib Nisar contending that whistle blowers wrote a letter to Chairman NAB to take action on the allegation of Secretary Water and Power that KE engaged in corruption in collusion with Nepra. The allegation was of misuse of power by the regulator in granting benefit to the power utility, which resulted in over burdening of Karachi consumers to the tune of Rs 62 billion which, according to the Secretary Water & Power was extra illegal charges received from the public by K-Electric during the last five years - Rs.12.91 billion in just 2015 alone.

It has been claimed that on late payment of even one day, K-Electric charges its consumers late payment surcharge of 8.5% per month, which is over 140% per annum. On a reciprocal basis, K-Electric shall pay 140% per annum interest of the money it collected illegally which may be over Rs 62 billion for 5 years.

The renowned energy sector lawyer, Anwar Kamal, who was Amicus Curie in RPP case, has been objecting to Nepras unconstitutional support to illegal tariff determinations of KESC/K-Electric for last three years and the latest objections sent to Nepra from Anwar Kamal Law Associates on January 26, 2017 include;(i) due to inaction of regulator the electric consumers, national exchequer and the economy continued to suffer adversely during December, 2016 as well;(ii) K-Electric continued to draw electricity from the CPPA basket while it kept its own plants either shut or underutilized. Due to this illegal purchase of electricity from the CPPA basket by K-Electric, the Discos consumers are not only facing load-shedding problem but this supply is also increasing the electricity tariff of the Discos consumers; and (iii) AKLA is completely unaware as to the reasons and circumstances due to which K-Electric is being favoured, that too by using non-prudent utility practices, at the cost of electricity consumers and the states economy.

TIP further contended that Nepra should have given the details of month-wise financial losses which are being incurred due to the operation of costlier power plans in the CPPA basket to supply electricity to K-Electric, while shutting down or under-utilizing the cheaper power plants in the K-Electric generation basket. If that has not been done up-till now, Nepra should now calculate the month wise financial losses on this account for the last six years and notify the same through its decision. If Nepra even after the repeated requests of the stakeholders is not going to mention month-wise financial losses, at least for the last six years, in its decision no further proof will be required to establish that Nepra is protecting K-Electric illegally, unethically, imprudently and at the cost of national resources and Pakistans economy.

Transparency International Pakistan has supported the directions of Secretary Water & Power and argues that Nepra in terms of Act, 1997 is mandated to safeguard the interests of the consumers, but the concerned officials of Nepra failed to perform their duties diligently, in connivance with K-Electric and have caused colossal loss to consumers.