ISLAMABAD: Internal conflict between M/s Al Jomaih, KE’s existing investors, and M/s AsiaPak, the new investor, which procured stakes of KESP, has reportedly landed in Prime Minister’s office as both sides have wrangled with each other during a meeting in Power Division in December 2022.
Shan AAshray (Ex-Chairman KE) emphasized that the reason Al Jomaih has approached the court is that the Shareholders Agreement that was signed in Oct 2008 among KES Power, Original shareholders and IGCF SPV 21, was violated during this process.
He further noted that the recent change has had direct implication on KESP directors in the KE Board as under the existing agreement out of 13 Board members, 9 are nominated by KESP out of which 5 are nominated by IGCF SPV 21 (including CEO) and 4 by Al Jomaih & Denham. The changes in the KE Board are thus in violation of the agreement between the shareholders of KESP.
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AsiaPak Investments Limited, which is also a leading investor in Pakistan having brought in close to $3billion in investment in landmark projects such as Thar Coal Block 1, acquired Daewoo Pakistan, and Liberty Daharki Power Limited promptly sent a letter to Principal Secretary to Prime Minister, Minister for Investment, Minister for Power Chief Minister Sindh and other concerned officials.
According to the letter, AsiaPak maintains that as a leading investor in Pakistan’s energy sector, it was impressed by the significant turnaround in K- Electric Limited (KE) achieved under Abraaj’s leadership (after an initially disastrous post-privatisation period when KE was in dire straits by 2009 and required a rescue by Abraaj). In 2009, the Al- Jomaih consortium ceded majority shareholding of KES Power Limited (KESP) (a Cayman Islands company that holds 66.4% stakes in KE)
To M/s Abraaj that undertook on a significant reform program overhauling KE management and setting target cost saving programs and growth initiatives. To date, the $360 million invested by Abraaj in KE (routed through KESP) remains the only equity FDI invested into KE as new capital, used principally to fund capital expenditures.
Abraaj’s investment in KE was undertaken through the Infrastructure & Growth Capital Fund L.P. (IGCF), a $2 billion Cayman Islands private equity fund with investment contributed by over 100 different international investors managed then by Abraaj Investment Management.
The amounts invested by the Al Jomaih consortium in 2005 were paid directly to the GoP for purchase of existing shares with nil proceeds actually being invested into KE.
The remainder of $4 billion invested by KE post-privatisation was through retention of profits (zero dividends paid to any investors, including the GOP, since 2005) and debt borrowed on KE’s balance sheet without guarantees from shareholders.
AsiaPak, in its letter says that it observed that the progress made by KE started reversing after the Abraaj bankruptcy in 2019 when senior KE Management officials left the company, the board lacked a common vision for growth and oversight of management from day to day was reduced, and KE started making a series of strategic blunders, including: (i) a quixotic 900 MW gas power plant in a country that has no more gas to give; (ii) failure to procure LNG when rates were compellingly low; (iii) a failed attempt to build an imported coal power plant, ignoring alternative domestic coal reserves; (iv) failure to secure electricity from Thar coal at a time when the federal government managed to set up over 3,000 MW of Thar coal based capacity; (v) failure to develop renewable power (except for 100 MW solar IPPs) at a time when the federal government has managed to secure over 1,100 MW of wind power right on Karachi’s door-step; (vi) failure to address operating inefficiencies, adopt modern technologies and control ballooning generation and operating costs and thus significantly increasing the burden of subsidies on the government and tax payers; (v) failure to continue improving the distribution network and service quality, reduce load shedding, facilitate new connections, etc.; (vi) ballooning of debt to over Rs 300 billon vs approx. Rs 70 billion in 2018; and (vii) failure to prepare for impending competition in the electricity market.
The result is that KE now has the highest cost generation fleet in Pakistan and is almost wholly dependent on imported fuels. Were it not for lower-cost electricity purchases from the national grid and subsidies from the federal government, Karachi consumers would have to pay the highest electricity prices not just in Pakistan but also in the region.
According to AsiaPak, post the Abraaj bankruptcy, KESP and its joint shareholders were only focused on an exit to Shanghai Electric Power whose interest had waned following lack of regulatory approval and a changing investment climate. KE was left rudderless without KESP having a strategic operational vision and not having the resources for further financial commitment. It was at this point AsiaPak saw an opportunity to get involved in turning around KE.
Accordingly, AsiaPak, through an off-shore subsidiary, acquired certain rights and interests in IGCF from the liquidator of the former Abraaj fund manager appointed by the Cayman courts. Al Jomaih was also provided an opportunity to acquire the same but was unable to present a compelling proposal or certainty of execution and hence its proposal was accepted and approved by the Cayman courts in October 2022.
“Indeed, Al Jomaih and the other KESP investors were requested at numerous points to make an offer to IGCF, but they only took this seriously after we had completed significant due diligence and at that point their offer lacked compelling terms,” said CEO AsiaPak Shehryar Chishty in the letter.
AsiaPak has clarified that Al Jomaih’s ownership stake and rights in KESP (and indirectly in KE) remain exactly the same as before, and have neither been acquired nor diluted by AsiaPak.
“Despite what has been alleged in the press, we have not acquired ‘control’ over either KESP or KE. We simply aim to protect our rights as interested shareholders and investors, and we believe that as Pakistan focused energy and infrastructure investors, operators and builders, we have significant relevant experience to bring to bear and assist KE and its management to overcome the company’s many challenges,” Chishty maintained.
Copyright Business Recorder, 2023
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