SPO for OGDCL, PPL expected to fetch Rs88bn

The federal government is anticipating generating Rs 88 billion from secondary public offering (SPO) of two stated-owned listed oil and gas companies, including Oil and Gas Development Company Limited (OGDCL) and Pakistan Petroleum Limited (PPL) by the end of current fiscal year 2019-20. The Privatization Division has set a target to divest 7 percent government shares in the OGDCL and 10 percent in the PPL offered to strategic partners with one seat in the board of directors of these two mega oil and gas companies.

The government has estimated to generate Rs 48 billion through divestment of 7 percent (301 million shares) of the OGDCL and another Rs 40 billion from 10 percent (226 million shares) which the Privatisation Division has planned to offer by the end of current financial year. However, no reference prices or discount on shares has been decided yet.

The federal government has revised the target of revenue to be generated through privatization of state-owned entities from Rs 150 to Rs 300 billion for current financial year 2019-20. The proceeds of divestment of these shares will be 30 percent of total targeted revenue to be collected through the privatisation in 2019-20.

The National Assembly Standing Committee on Privatisation met under the chairmanship of Syed Mustafa Mahmud and discussed in length the privatisation of the OGDCL, PLL, Guddu Power Plant and Nandipur Power Plant.

Secretary Privatisation Division Rizwan Malik briefed the committee on the status of privatisation of these entities which have been placed in the active list of privatization.

He said that the divestment of shares of OGDCL and PPL would be completed by June 2020; however, the sale of two Gencos, Guddu Power Plant and Nandipur Power Plant, would be completed in the first or second quarter of financial year 2020-2021.

The secretary said that the Privatization Commission invited expression of interest for appointment of Financial Advisory Consortium and issued request for proposal (RFP) to three interested parties - CLSA Limited, Alfalah Securities and UBL; Credit Suisse, Arif Habib Ltd and AKD Securities; Citi, HBL and Next Capital. Due date for submission of technical and financial proposal is December 09, 2019. "A strategic partner is required to discover the true profit of its privatization," he added.

The chief financial officer (CFO) informed the committee that the OGDCL is the market leader in almost all the aspects of up-stream sector including acreage, seismic, reserves and production. The OGDCL is a debt free company, contributing Rs 160 billion to national exchequer. The government of Pakistan holds 74.97 percent interest while 10.05 percent shares are with Benazir Employees Stock Option Scheme. The OGDCL is producing 47 percent of oil and 29 percent of gas out of the total country's production during 2019-20. Its net sale was Rs 261.481 billion and profit after tax was Rs 1,178.3 million during financial year 2018-19. During the fiscal year 2018-19, about 16 wells were drilled including nine exploratory and seven development wells.

In his briefing, Chief Financial Officer (CFO) of PPL Ihtisham Ahmed said that Privatization Commission Board approved divestment up to 10 percent share of the PPL held by the government to the institutional investors through block sale. The PPL is the pioneer in oil and gas field in the country. It has 10 board members including managing director, four government directors and five independent directors. The government of Pakistan holds 67.5 percent while 7.4 percent shares are held by Benazir Employees Stock Option Scheme and their remaining 25 percent shares have been offered for free float.

The Privatisation Commission issued the RFP to two interest parties: CLSA Limited and Alfalah Securities; and Credit Suisse, Arif Habib Ltd and Topline Securities.

The committee deferred the remaining agenda regarding Guddu and Nandipur Power Plants and decided that a separate meeting would be convened to get the full spectrum on the detailed discussion.

Earlier, the secretary privatization said that both the power plants were running into profit of Rs 4 billion which turned into Rs 11 billion loss due to non-adjustment of fuel charges. The matter was under consideration of the National Electric Power Regulatory Authority (Nepra).

He further elaborated that four inquiries related to corruption in Nandipur Power Plant have been pending in the National Accountability Bureau (NAB). "We don't know how much time the NAB takes to complete the investigation," he said. In such scenario, he said, the privatization of these two Gencos is not possible in current financial year.