Sell-off target revised upward to Rs300bn

The Ministry of Finance has revised upward the target of privatization proceeds to Rs 300 billion, while bidding process for privatization of two RLNG-based power plants and Pakistan Steel Mills (PSM) will be completed in the third quarter of current financial year.

In a parliamentary committee meeting held on Wednesday, the minister and secretary for privatization created confusion on the budgeted target of privatization of state-owned entities (SOEs) for current financial year. They came up with separate targets set by the federal government for financial year 2019-20.

Minister for Privatization Mohammed Mian Soomro informed the parliamentary panel that the Ministry of Finance revised the target of privatization as part of non-tax revenue to Rs 300 billion; however, Secretary Privatization Rizwan Malik claimed that still the target of privatization printed in national budget document 2019-20 is Rs 150 billion. Both gave different figures given by the federal government to generate revenue through privatization. Later, the secretary said the target might be Rs 300 billion.

The secretary privatization briefed the committee members that the process for privatization of 2/3 entities of total 18 state-owned entities on active list of privatization would be completed in the third quarter of current financial year. Syed Mustafa Mahmud chaired the meeting of the National Assembly Standing Committee on Privatization.

The Privatization Division will initiate the process for hiring financial advisor for privatization of two distribution companies (DISCOs) in mid 2021 after the completion of ongoing structural reforms in these DISCOs. Islamabad Electric Supply Company (IESCO) and Lahore Electricity Supply Company (LESCO) would be offered to international buyers in the first phase.

The Privatization Division will also sign Financial Advisory Services Agreement (FASA) with the consortium of Pak-China Investment Company & BOC International, Deloitte, Sinosteel, Cornelius Lane & Mufti, Abacus Consulting and Nanjee in a couple of days for revival of the Pakistan Steel Mills (PSM). The same consortium applied for FA during Pakistan Muslim League-Nawaz government in February 2015. Only two consortia applied in response to expression of interest (EOI) for the financial advisor in response to fresh advertisement.

The Privatization Division is optimistic for selling two RLNG-based power plants - Haveli Bahadur Shah and Balloki power plants - revival of PSM and other small transactions on advance stage like First Women Bank, Services Hotel Lahore and Jinnah Convention Center Islamabad in the third quarter (January-March 2020) of current financial year.

RLNG power plants

The secretary privatization informed the committee that Economic Coordination Committee (ECC) allowed to offer two RLNG power plants to international bidders on existing power purchase agreement (PPA) and implementation agreement (IA).

The secretary maintained that the fast-track privatization of two RLNG power plants was essential, otherwise it would lose its worth and efficiency in next one year. He said that two power plants ran in full capacity during peak demand in summer but reduced the capacity in winter. He maintained that these plants are on the lower side of the economic merit order and may reduce their financial worth by 50 percent in one year.

The chairman committee said that the existing agreement would allow the private buyers to claim capacity charges for unutilized power under the government's sovereign guarantee.

The Economic Coordination Committee will take up today (Thursday) the issues related to revision of gas supply agreement (GSA), power purchase agreement, political force majeure for non-supply of gas and confirmation of gross calorific value (GCV) for future LNG gas supplies.

The road shows for sale of two RLNG power plants will be held in Qatar, Dubai, China and Malaysia, he said.

Pakistan Steel Mills (PSM):

The secretary briefed the committee that the FA has been appointed which would present the transaction structure of the proceeds and expression of interest (EOI) and bidding process for revival of mills will be finalized by March 31, 2020.

The secretary said that various potential buyers visited the Privatization Division and showed interest in the revival plan of the PSM.

Eleven companies including Russian, American, Chinese and Ukrainian companies have shown interest in revival plan of the Pakistan Steel Mills keeping in view the steel demand in the country. Russian companies are Tyazhpr Omexport, Central Scientific Research Institute of Ferrous Metals, Metprom Group of Companies and State Scientific Center (Ministry of Industries & Trade). Chinese companies are Metallurgical Corporation of China Ltd (MCC), NHI International Trade Company, and M/s Sino Steel Equipment & Engineering Company Ltd. Ukrainian Companies are Ukrainian National Foreign Economic Corporation Vazhmashimpex and Hussian Concepts & Solutions Pvt Ltd (consortium of five companies) and Essa Corporation is American company.

The committee was informed that till June 2019, total assets of the PSM were Rs 149 billion, total liabilities were Rs 219 billion, accumulated losses reached Rs 207 billion and net worth was Rs 70 billion.

He further said that the process for appointment of new chief executive officer (CEO) of the PSM has been initiated. The relevant ministry has been directed to provide financial accounts of the PSM from financial year 2015 to onward years.

He further said that the government is also considering an option to find a strategic partner to enhance the capacity and business of the mills under government-to-government cooperation agreement.

DISCOs

Former Chairman Energy Task Force and Special Assistant to the Prime Minister (Petroleum Division) Nadeem Babar informed the parliamentary committee that the objectives of the report presented in April 2019 to the federal government recommended the government to address re-structural reforms in DISCOs before transfer of ownership to the private sector. Otherwise, he said, the performance and efficiency of DISCOs would not improve in the private sector ownership.

He said the government has set a target to bring the flow of circular debt to zero by December 2020 so that the power generation cost and recovery would be equalized. Currently, he said the government reduced the per day circular debt from Rs 38 billion to Rs 10 billion.

He said the government has launched a pilot project of $900 million with assistance of the Asian Development Bank (ADB) to address structural reforms in the worse circles in term of circular debt of Islamabad Electric Supply Company (IESCO) and Lahore Electric Supply Company (LESCO). The government also introduced ABC cable in interior Sindh and Peshawar Electric Supply Company (PESCO) to eliminate power theft and 'Kunda' trend.

He said they would address the fundamental flows hindering the performance of DISCOs by end-December 2021 and submit a report to the Privatization Division to further evaluate and decide transaction structures.

He further that the government is in the process to replace the government officials sitting on boards as members with experts in financial and legal matter in power sector.

Various options, he said, could be taken by Privatization Division regarding DISCOs including strategic partners and provincialization of these power distributions companies.

Sarmaya-e-Pakistan:

Nadeem Babar said fund would be revived with new objectives. He said he resigned as member of Sarmaya-e-Pakistan Board after taking the slot of special assistant to the PM on petroleum. He said that the fund had a number of issues related to enclosing of companies. He said the listed companies are not 100 percent owned by the government and sharing of private sector could not be found.

Services International Hotel, Lahore

The secretary privatization said that FA was appointed and privatization is at advance stage. He said that the land of hotel was registered as residential plot in the revenue record of the Lahore Development Authority (LDA) and Privatization Division is in a process to declare it commercial land by amending the revenue record of the provincial government of Punjab.

First Women Bank Limited:

The secretary said that the Privatization Division has no objection if First Women Bank comes up with its business plan to improve its financial health. The financial losses of the bank, he said, are reaching equal to SME Bank which soared to Rs 2 billion. He said a financial advisor was appointed. Interests of the employees of the bank would be safeguarded and special character while the soft image of the bank would be maintained.

He said that local investor or existing SME sector players would be more interested keeping in view the government's focus on growth of the SME sector.