18 entities: Bottlenecks delaying privatisation

ISLAMABAD: The Privatisation Commission (PC) is reportedly facing several bottlenecks in finalising the transaction structures of 18 entities which are on the approved privatisation list, well-informed sources told Business Recorder.

The PC Board, sources said, has recently been updated on the current status of transactions, few of which are being removed from the approved list on the recommendations of concerned Ministries and other quarters.

Sharing details of divestment of up to 20 percent in Pakistan Reinsurance Company Limited (PRCL) shares, the sources said in December 2020 Offering for Sale Document (OFSD) was in approval process in Ministry of Commerce (MoC). On January 28, 2021 in a meeting held in PC, attended by Adviser for Commerce & Investment, it was agreed that “necessary action” will be taken at the earliest. During February-March 2021 there was regular follow-up with MoC. On April 22, 2021 PRCL shares certificate was received and on April 27, 2021, MoC authorized MD, PRCL to sign-off OFSD. Transaction completion is expected by end-August, 2021.

SME Bank: Three potential investors prequalified – Pak Kuwait Inv. Co and Pak Libya Holding Co, Saudi Pak Industrial & Agricultural Inv. Co and VEON Holdings B.V. In Jan 21, 2021, final drafts of Instructions to Bidders (ITB) and Share Purchase Agreement (SPA) issued to bidders. In Feb-March 2021 all 03 pre-qualified bidders expressed concerns – SME Bank is a loss-making entity (negative 3 billion equity). Consultations with pre-qualified bidders are under way to resolve issues in coordination with State Bank of Pakistan (SBP).

First Women Bank Limited (FWBL): Delay in publishing EoI due to non-completion of FWBL Board and non-appointment of regular CEO, FWBL. EoIs for investors will be published after appointment of FWBL BoD members. BoD approval required for audited accounts of 2018 and auditors are to be appointed for subsequent years. Finance Division has stated that the names of FWBL BoD members have been approved by Prime Minister and subsequently by the Cabinet.

House Building Finance Corporation (HBFC): There was delay in publishing an EoI due to non-completion of HBFCL Board and non-appointment of regular CEO, HBFCL which has now been expedited. FA also informed that response from potential investors is not encouraging due to large size of the transaction and equity of Rs.20 billion. Except Banks, investors’ universe is limited.

In March-April 2021 – SBP requested for incentivizing Commercial Banks. Relaxation provided not attractive for banks. This may be revisited by SBP. Minimum investment in equity shall be 20%. Post-acquisition, incremental deployment of advances in mortgage housing would be counted as 50% of such deployed funds towards target for housing sector.

Pakistan Steel Mills: Cabinet approved a government guarantee of Rs2.522 billion against outstanding liabilities of National Bank of Pakistan (NBP) on April 01, 2021. PSMC Board approved on May 06, 2021, audited accounts up to December 31, 2020, including valuation of core operating assets by the 3rd party (PC has strong reservations on this valuation) and 1228 acres land to be leased out to a new subsidiary. Weekly progress review meetings being co-chaired by Minister for Privatisation and Minister for Industries. Upon finalization of requirements, the matter will be placed before PC Board, CCoP/Federal Cabinet for approval, prior to inviting EoI from prospective investors.

National Power Parks Management Company (NPPMC): In January 2020, 12 potential investors pre-qualified. In March 2020, investors’ due diligence halted due to Covid-19 travel advisory restrictions, widely publicized IPPs (independent power producers) report, and sectoral issues like large delayed payments. On November 16, 2020, CCoP constituted a committee headed by Minister for Finance & Revenue to resolve issues hampering the privatisation process, including the following: (i) Take or pay framework (summary approved by Cabinet); (ii) Gas Calorific Value (GCV); (iii) arrangement of debt financing within Nepra's tariff limits; (iv) Income Tax exemption (yet to be resolved, FD, FBR & IMF involved); (v) dispute between NPPMCL and SNGPL; and (vi) issues related to the government of Punjab.

FA has noted that appetite of the Banks for the debt financing depends on settlement of overdue receivables of IPPs and GoP release of first tranche to the IPPs. On April13, 2021, meeting of the sub-committee held, concerned ministries/departments advised to expedite resolution of outstanding issues. On May 06, 2021, a meeting held by Minister Privatisation with SAPM Petroleum the following decisions were taken: (i) exact gas specification will be provided to NPPMCL by May 25, 2021; (ii) NPPMCL will get a response of GE in two weeks to resolve issue between NPPMCL and SNGPL in next week; and (iii) dispute under arbitration between NPPMCL and SNGPL will be carved out and placed in PHPL.

Mari Petroleum Company Limited (MPCL): Nov 2018 – Cabinet approved divestment of 18.39% GoP shares in MPCL. As per requirement of Share Purchase Agreement, a notice was twice served to JV partners [OGDCL & Fauji Foundation (FF)] for NOC or exercise of option for purchase of shares. The response of JV partners was delayed due to non-agreement on the cost of audit to determine the value of shares. On November 28, 2019, it was decided that divestment of shares will be processed after removal of cap on the dividend. On January 06, 2021 – Chairman PC held a meeting with JV Partners who agreed for pro-rata sharing of cost for audit to determine fair value of MPCL shares. In Feb 2021, a summary for de-capping of dividend approved. On February 19, 2021, a meeting held with Petroleum Division and JV partners. A committee was constituted to finalize ToRs (terms of reference) for appointment of a technical firm for reservoir study of MPCL. The company has obtained proposals from the shortlisted firms. A contract for reservoir study is being awarded. Study will be finalized in three months after appointment of a technical firm.

Subject to exercise of acquiring interest by JV Partners, transaction can be concluded in 2nd quarter of FY 2021-22. Petroleum Division, however, asked on April 05, 2021 for delisting of MPCL from Privatisation. On May 06, 2021 – the SAPM on Petroleum apprised that a summary is being submitted to CCoP for delisting of the entity.

Pakistan Petroleum Limited (PPL): October 06, 2020, FA ToRs circulated for input by stakeholders. On November 16, 2020, input from PPL received on ToRs. On February 22, 2021, Petroleum Division while rendering comments on ToRs, proposed divestment contrary to the approved divestment strategy of Secondary Public Offering (SPO). On March 18, 2021, CCoP reiterated that divestment of PPL shares shall be processed as already approved. On April 12, 2021, on another request, Petroleum Division reiterated earlier stance on ToRs. On May 21, 2021, on a summary submitted by Petroleum Division, CCoP decided that divestment of shares of PPL at current share price level is not feasible.

Oil and Gas Development Company Limited (OGDCL): As per CCoP decision, divestment of up to 7% OGDCL shares shall follow the divestment of PPL’s shares.

Petroleum Division, however, does not support divestment of GoP’s shares in OGDCL at the current low price of the share. May 21, 2021, in response to a summary submitted by Petroleum Division, CCoP decided that divestment of shares of OGDCL at current share price level is not feasible.

Nandipur Power Plant (NPP): In Feb 2020, an FA (UBL & EY) appointed whereas in September 2020, draft due diligence reports were submitted and shared with stakeholders for review. The following pending issues to be resolved by Ministry of Energy: (i) corporate carving out of NPP from NPGCL; (ii) separate power generation licence for NPP by Nepra; (iii) Power Purchase Agreement (PPA) and Implementation Agreement (IA); (iv) assets/liabilities to be transferred in name of new entity; (v) separate Gas Supply Agreement (GSA) for NPP and (vi) Income Tax and HR issues of NPP; and (vii) transfer of land by Wapda in the name of NPP/lease issue.

On March 18, 2021, in response to PSO’s claim over NPP in lieu of its recoveries, CCoP directed the Power Division to place a summary before CCoE for its decision. On April 21, 2021, Power Division requested to update on progress made in this respect. On May 06, 2021, all pending issues taken up with SAPM on Power and Petroleum, after which a committee is being constituted in Ministry of Energy for resolving all issues on fast-track basis.

Guddu Power Plant (GPP): Hiring of an FA is being finalized. On March 18, 2021, CCoP directed Power Division to submit a summary to the CCoE, in light of the PSO’s claim over GPP in lieu of receivables.

The sources said that the following pending issues to be resolved by the Ministry of Energy (Power Division): (i) corporate carving out of GPP from CPGCL; (ii) charge created on GPP assets to be removed; (iii) separate power generation licence for GPP by Nepra; (iv) assets/liabilities of plant are to be transferred in the name of entity; (v) gas supply and Power Purchase Agreements to be signed; and (vi) transfer of Wapda land in the name of NPP/lease issue.

For this purpose, a committee is being constituted in Ministry of Energy for resolving all issues on a fast-track basis.

Sindh Engineering Ltd (SEL): The process for hiring of an FA has been reinitiated and on May 06, 2021, EoIs for FA published.

Issues to be addressed are as follows: (i) constitution of SEL Board to ensure corporate structure and take decisions on matters related to privatisation; (ii) auditor to be appointed to get audited annual accounts up to date (from FY 2016-17 onwards); (iii) clarity on title of properties and possession; and (iv) mutation of property located at Mall Road Lahore (Chopra Building) and whether it will be sold as entity and real estate assets.

Pakistan Engineering Company (PECO): The issues require resolution prior to initiation of privatisation process: (i) pending case of alleged illegal sale of shares by NIT, resulting in NAB investigations and a PAC review/directions since 2011; (ii) GoP payables of Rs7.2 billion (Rs2.3 billion of PC and Rs4.9 billion of Finance Division); (iii) the land held by PECO is not said to be fully mutated in entity’s name; (iv) pending case in IHC filed by PECO; (v) “default” on repayment of a NBP loan by PECO and ‘defaulter’ status on Pakistan Stock Exchange; (vi) non-availability of approved audited financial statements; (vii) current management control, “unauthorized JV” in place at PECO between MD and a private firm; and (viii) inquiry initiated by SECP for non-compliances (March 26).

On March 18, 2021 – CCoP directed MoI&P to resolve all pending issues of SEL & PECO, at the earliest. PAC also directed on March 11, 2021 not to privatise PECO till final disposal of audit paras.

The government is expected to delist PECO from privatisation list as GoP liabilities outstanding against PECO stand at Rs7.2 billion. PC wants that GoP may settle its outstanding receivables by selling PECO’s land and privatisation may be considered when the entity is free from inherent issues and all encumbrances.

State Life Insurance Corporation (SLIC): The process of privatisation is contingent upon necessary legislation and pre-requisites of corporatization (pending with Ministry of Commerce). SLIC is proposed to be delisted from privatisation list till completion of corporatization process.

PIA - Roosevelt Hotel: Aviation Division in consultation with the Office of Attorney General for Pakistan has requested to put the transaction on hold.

Sale of identified properties: February 2020 - Reserve Price of properties and Bidding process approved by the Cabinet. Sep 2020 - 23 out of 27 properties auctioned, against a total bid amount Rs1.113 billion. Four properties remain unsold. Rs920 million received by PC in respect of 10 auctioned properties. Bidders for 13 properties failed to deposit sale proceeds. Earnest money (Rs13m) was forfeited.

Current status - (i) two pent houses in Islamabad Country Club Apartments (ERRA); (ii) nine flats at Shama Apartments, Lahore (ERRA); (iii) 33 kanals 19 marla land at Tehsil Burewala, Vehari (CAA); (iv) 48 kanals at Rahim Yar Khan (CAA); (v) six kanals-08 marlas at Mansehra (WAPDA Rest House); (vi) 6 kanals at Swat (WAPDA Rest House); (vii) 120 kanals at Multan (TCP); and (viii) 42 kanals at Lahore (Republic Motors/ MoI&P).

FAC has shown unwillingness to continue after expiry of FASA on April 18, 2021. A meeting of IMC/AMC was held on May 19, 2021 wherein a decision was taken to hire FAC for the auction for the remaining properties.

Services International Hotel (SIH): In Dec 2020 – six potential investors pre-qualified and in Feb 2021 buyer-side due diligence completed (04 bidders). In Mar 2021 – reserve price approved by Cabinet and on April 08, 2021 – pre-bid meeting held; bidders showed inability to participate in the bidding. Transaction is being placed before PC Board for reconsideration.

Heavy Electrical Complex (HEC). On December 22 and 27, 2020 – An EoI for investors was published. On Feb 19, 2021 – 12 parties prequalified for RSOQ. On March 18, 2021 – CCoP directed MoI&P to remove all identified bottlenecks. In March 2021, six parties prequalified. During April-June 2021 buyer-side due diligence/pre-bid meeting. Pending issues are yet to be resolved by the Ministry of Industries and Production (MoI&P).

Copyright Business Recorder, 2021