ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has approved Rs80.988 million mark-up payment of the Heavy Electrical Complex (HEC) as it was told that failure to pay the amount to the Bank of Khyber (BoK) could potentially jeopardize its privatization process once again.

The meeting of the ECC presided over by Finance Minister Ishaq Dar dated January 11, 2023 was informed by the Ministry of Industries and Production that the HEC engaged in the manufacturing and supply of power transformers was placed in the active privatisation list by the federal cabinet for the fifth time, due to inefficient operations and huge financial liabilities.

In the latest attempt, the Privatization Commission held bidding on February 21, 2022 against a total purchase price of Rs1.4 billion, wherein, IMS Engineering (Private) Limited emerged as the successful bidder.

“As a part of financial arrangement, HEC has been availing facilities from BoK which include running finance facility and Bank Guarantees. However, due to non-performance of contracts and inability to reach a mutual consensus between Power Division and this Office, the bank guarantees were en-cashed by different Discos.” Consequently, the principal amount along with mark-up became due.

The ECC was further informed that since the HEC is being privatized as a “going concern”, hence, the principal amount is payable by the buyer, whereas, the mark-up is to be paid by the HEC till the transfer of shares.

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While salaries and other operational expenses are being met by HEC out of its own limited resources, adequate funds to meet the mark-up expense are not available with the entity.

The privatization process of HEC is nearing completion and the ECC has also approved the transfer of HEC land as necessitated by the Share Purchase Agreement (SPA) clause to Strategic Plans Division (SPD) to secure the national asset in its meeting held on November 14, 2022.

Now, in order to enable the closure of the transaction, a No-Objection Certificate (NOC) is to be issued by BoK. However, the same is contingent upon settlement of the principal amount exposure by the buyer, i.e., IMS Engineering and payment of up to date mark-up by HEC, government.

The mark-up payment for second, third, and fourth quarter of the calendar year 2022 has become due which amounts to Rs23,495,179, Rs28,438,160, and Rs29,054,288, respectively.

The meeting was also told that Rs20.085 million had earlier been released by the Finance Division for payment of first quarter mark-up, after the approval of the competent forum. As a part of overall deal, failure to pay the aforementioned amount to the bank could potentially jeopardize the privatization process once again and render all the efforts futile which have been made so far in this regard.

Therefore, the ECC was requested to approve Rs80.988 million for HEC for payment to Bank of Khyber in lieu of mark-up amount for second, third, and fourth quarters of the calendar year 2022 as technical supplementary grant (TSG), since there is meagre budgetary provision for the Ministry of Industries and Production in fiscal year 2022-23, and principal approval of provision of funds for the remaining period, i.e., till the completion of transaction of HEC.

Copyright Business Recorder, 2023