ISLAMABAD: The government has incurred a loss of Rs1.95 billion in fees to a Financial Advisor (FA) for structuring a transaction that received a single bid of Rs10 billion against a reserved price of Rs85 billion for divestment of 60 percent shares of Pakistan International Airlines Company Limited (PIACL), besides Privatisation Commission completes process of hiring FA for privatisation of DISCOs even before completing prior actions.
On Monday, Minister for Privatisation Aleem Khan assured the Senate Standing Committee for Privatisation that the commission had learnt from the failure of the PIACL bidding and would hire more experienced FA than consortium led by Ernst & Young in future for the privatisation of state-owned entity.
Muhammad Tallal Badar chaired the committee meeting. The FA was selected after the Privatisation Commission Board approved the consortium on November 10, 2023.
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The board formed a negotiating committee to finalise the financial services agreement with the FA. The FA was responsible for: restructuring, carrying out legal, technical, and financial due diligence, fairly valuing PIACL etc.
As per the agreement with the financial advisor, Secretary Privatisation Commission Usman Akhtar Bajwa apprised the parliamentary panel that the payment was to be made in installments. So far, 45 percent of the total fee was paid to the FA for the services rendered.
Responding to questions of members, the official of PC said the pre-qualified bidders requested inter alia relating to various matters i.e., locking of percentage of shares for divestment, retention of PIACL employees, settlement of legacy tax liabilities, tax relaxation (abolishment of advance GST), funding of negative equity of Rs45 billion, lease of properties, lifting of ban of PIACL aircrafts in US, UK and EU regions (EASA issue) protection for privatisation transaction were deliberated in various meetings of an inter-ministerial committee chaired by the deputy prime minister/minister for foreign affairs.
While most of the bidders asked were accommodated during negotiations. However, no agreement could be reached with the five pre-qualified bidders on exemption of advance GST on induction of new aircrafts for commercial airlines, funding of negative equity of Rs45 billion prior to closing by carving out of legacy tax liabilities.
As a result only one bid was submitted by Blue World City Consortium.
An official of the Power Division briefed the members’ committee on the process for appointment of FA for privatisation of DISCOs. Two parties form the panel of pre-qualified seven FAs submitted their proposals which are under evaluation by the technical and financial evaluation committee of PC.
Out of nine, three prior actions have been completed so far for the privatisation of DISCOs, while, appointment of FA would be finalised by end of November 2024.
Outright privatisation of Islamabad Electric Supply Company (IESCO), Faisalabad Electric Supply Company (FESCO) and Gujranwala Electric Power Company (GEPCO) would be completed by November 2025.
Lahore Electric Supply Company (LESCO), Multan Electric Power Company (MEPCO), Hazara Electric Supply Company (HAZECO) have been approved for outright privatisation in second phase.
Hyderabad Electric Supply Company (HESCO), Sukkur Electric Power Company (SEPCO) and Peshawar Electric Supply Company (PESCO) have been approved for concession model through long term agreements in the second phase.
TESCO and QESCO due to their peculiar financial health and over reliance on government are planned to be retained by the government till they improved their financial health for consideration for outright privatisation or concession model.
Under non-lending technical assistance (NLTA), Power Division has engaged World Bank to assist in privatisation against agreed TORs.
The work is going in full swing in consultation with the Ministry of Privatisation, the WB and sector experts.
Copyright Business Recorder, 2024