SOEs: PM irked by inordinate delay in sell-off process

ISLAMABAD: Prime Minister’s Office (PMO) has reportedly expressed displeasure over the delay in removal of hurdles in processing of SOEs’ transactions scheduled since long including power distribution companies (DISCOs), which are now being offered to the provinces, sources in the Privatisation Commission told Business Recorder.

PMO's concerns were conveyed by Special Assistant to Prime Minister on Effective Governance, Jehanzeb Khan, who is in-charge of PM’s Strategic Roadmap, while presiding over a meeting on July 19, 2022 in Ministry of Privatisation regarding “session on privatisation”. It was decided that privatisation policy should be updated and included in PM’s Strategic Roadmap.

The meeting discussed current status of Heavy Electrical Complex (HEC), Pakistan Steel Mills Corporation (PSMC), two RLNG-fired power plants owned by National Power Parks Management Company Limited (NPPMCL), House Building Finance Company Limited (HBFCL), First Women Bank Limited (FWBL) and DISCOs.

Secretary, Privatisation Division, Dr. Iram A. Khan highlighted that the initiatives and the activities pertaining to the approved privatisation of State Owned Enterprises are dependent upon resolution of pre-requisite and associated issues by the concerned administrative Ministry/ Division/ SOE.

This dependency and pace of resolution of these matters by the relevant offices hamper the privatisation process and in certain cases the transaction cannot proceed unless these issues are resolved.

He apprised that he had talked to the Secretary and Additional Secretary concerned of each concerned Division on all these pending issues in order to highlight the significance of the outstanding issues and the urgency to resolve them.

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The meeting discussed the following transactions which are in the pipeline since long: (i) Heavy Electrical Complex (HEC) - it was briefed that HEC transaction is on the verge of financial close after a successful bidding process. Certain ‘Condition Precedents’ (CPs) relating to payment of mark-up dues by HEC to Bank of Khyber and payment of gratuity to retired employees are yet to be concluded by the Ministry of Industries and Production (MoI&P)/ HEC.

Mol&P has committed to resolve them by July 30, 2022. A major progress has been the approval by ECC regarding payment of mark-up dues by HEC to the Bank of Khyber, which has been ratified by the Federal Cabinet. For the outstanding issue of payment of gratuity due to the employees that have left HEC, Mol&P committed to settle by the timeline, i.e., July 30, 2022.

(ii) Pakistan Steel Mills (PSM):- The chair was informed about the pending issues lying with Mol&P/ PSMC, Ministry of Maritime Affairs (MoMA) / Port Qasim Authority (POA) and Petroleum Division/ SSGC.

It was briefed that Mol&P vide its letter of July 15, 2022 has provided the draft(s) of the agreements, duly approved by the PSMC Board and vetted by its legal counsel, pertaining to Indenture of Core Land Lease Deed by PSMC for lease of core land measuring 1,229 acres to Steel Corp and supply of water to Steel Corp.

It was further noted that Ministry of Maritime Affairs, in its letter of July 15, 2022 has also provided Draft Agreement for use of Iron Ore & Coal Berth (IOCB) and Right of Way (RoW). It was highlighted that the provided Draft Agreement of Indenture of Core Lard Lease does not contain the commercial terms & conditions and valuation of land without them the said draft remains incomplete.

The chair was further appraised that PSMC is in receipt of requisite NOC(s) from the commercial banks consortium.

However, attention was drawn to continued delay for the resolution of settlement of SSGC liabilities by PSMC and issuance of requisite NOC by SSGC, despite numerous commitments made by Mol&P/ PSMC and Petroleum Division/ SSGC. It was also highlighted that Petroleum Division and SSGC have also not yet provided draft Gas Supply Agreement (GSA).

Foregoing in view, SAPM issued following directions:(a) Mol&P and PSMC to review and provide revised draft of the Indenture of Core Land Lease Deed latest by July 30, 2022, duly incorporating commercial terms & conditions and land valuation ; and (b) Federal Secretary(ies) of the Industries Production Division, Petroleum Division and Law & Justice Division will hold a meeting to resolve the outstanding issues pertaining, to settlement of outstanding liabilities by PSMC towards SSGC to facilitate issuance of NOC by SSGC besides withdrawal of litigation/court cases by SSGC against PSMC.

The chair also issued directions to Mol&P and Petroleum Division to provide defined timelines for provision of NOC and withdrawal of court cases/ litigation by SSGC after the said meeting.

(iii) National Power Parks Management Company Limited (NPPMCL): The chair was informed about the pending issues lying with Ministry of Energy (Power & Petroleum Divisions) and Finance Division. It was pointed out that no concrete timelines had so far been provided by Minister of Energy and Finance Division for resolution of issues.

The key pending issues discussed were (a) amendment in Implementation Agreement by PPIB;(b) amendment in GSA by SNGPL :(c) receivables of approx. Rs. 200 billion to be brought down to Industry norm by CPPA-G / Finance Division; and (d) rescheduling of PDFL Loan by PDFL, Finance Division.

It was added that CCoP had constituted an Inter-Ministerial Committee under Minister for Power to resolve sectoral and transaction related issues. It was highlighted that a number of decisions were made in the past by the Cabinet or Cabinet Committees in relation to revised risk matrix, i.e., adjustments in take or pay mechanism of NPPMCI. However, they were being ignored for one reason or the other. The Chair showed his displeasure for not following the decisions made by the highest forums in the country.

SAPM directed that a meeting of the inter-ministerial Committee constituted by the CCoP under Minister for Power may be convened at the earliest whereas Secretary, Petroleum Division was directed to submit a report to the SAPM on non-implementation of Cabinet decisions at the earliest. In case of any reservations on previous decisions, the concerned quarter shall take-up the matter with relevant Cabinet Committee(s) for way forward.

(iv) House Building Finance Company Limited (HBFCL): The meeting was informed that currently there is no identified dependency for privatisation of HBFCL and the transaction is targeted for conclusion by end of Q3 of FY 2022-23.

(v) First Women Bank Limited (FWBL): The meeting was briefed that in order to move ahead with FWBL transaction, the primary issue was non-availability of audited accounts since 2018. The Auditor (KPMG) has conducted the audit of 2018 accounts but has incorporated qualified opinion in its report due to breach of MCR.

Further, FWBL Board has not yet approved it. In this regard, FWBL has approached SBP to seek a Letter of Comfort (LoC) over the breach of MCR. Moreover, Finance Division has rejected a request for equity injection in FWBL. Secretary, Privatization Division emphasized that there was need to sensitize Finance Division to facilitate in the resolution of issues enabling FWBL’s privatization.

The chair directed that the Finance Division may also look into other options for the Bank, including calling of AGM for approval of the audited accounts.

According to sources, later World Bank officials, who had participated in the meeting on the invitation of the PM Office, highlighted that the issue of private sector participation in power Distribution Companies (DISCOs) has to be expedited. Secretary, Privatisation Division highlighted that matter has been taken up with CCoP.

In its meeting held on June 24, 2022, CCoP had directed the Power Division to contact all the provinces through IPC Division to buy the concerned DISCO(s). Power Division has established a working group with the Sindh Government on the matter.

It was also highlighted by Privatisation Commission that provincialization is in its self a separate transaction with its own dynamics and parameters to be agreed between Power Division and Provinces. Once the response from Provinces is received, the scope will be defined for the transaction and the Financial Advisor would be appointed.

Furthermore, there have been changes in the Policy and Regulatory framework related to the DISCOs which are to be addressed by DISCOs, Power Division and NEPRA to structure the concession contracts and management contracts.

The WB was requested, in view of their global portfolio in energy sector, to provide a model Concession Contract and Management Contract to be submitted to CCoP. However, WB conveyed their inability to provide it.

After detailed deliberations, the SAPM on Effective Governance issued the following directions (a) Power Division shall complete consultative process within one month’s time for the provincialization of DISCOs in line with the CCoP decision held June 24, 2022. Thereafter, the matter shall be taken up with the CCoP for decision/ way forward;(b) necessary actions are taken by DISCOs, Power Division and NEPRA as per the National Electricity Policy and NEPRA Act on the matters that are core to this transaction ;(iii) Privatisation Commission, in the meanwhile shall prepare necessary documents for the hiring of Financial Adviser, to be advertised after CCoP decision ; and (iv) private sector participation in DISCOs may be incorporated in the PM’s Strategic Roadmap.

Copyright Business Recorder, 2022