The Shanghai Electric Power Company Ltd (SEP) has reportedly indicated it would purchase 66.4 percent share of Abraaj Group in K-Electric through a Dubai-based Special Purpose Vehicle (SPV), well-informed sources told Business Recorder.
On May 25, 2018, Secretary, Privatization Division informed the Cabinet Committee on Privatisation (CCoP) through a presentation that it was decided by the Cabinet in its meeting held on April 19, 2018, that the National Security Certificate (NSC) will be issued to the transaction of KE shares from Abraaj to Shanghai Electric without any delay, after ratification by the Federal Cabinet, subject to the following: (i) M/s Shanghai Electric Power Company Ltd will give an undertaking to the Government of Pakistan to ensure uninterrupted electric supply to all Armed Forces/Military installations/infrastructure at Karachi, especially during emergencies/war and training/operational periods in/outside cantonments; and (ii) M/s Shanghai Electric Power Company Ltd. will be the legal successor in interest of KES Power Ltd; hence, it will give an undertaking to the Government of Pakistan that all existing financial liabilities of K-Electric Ltd. shall be the responsibility of M/s Shanghai Electric Power Company ltd in accordance with the laws of Pakistan. Similarly, M/s Shanghai Electric Power Company will continue to be responsible to pursue all existing cases of K-Electric ltd and abide by all legal, national and international requirements as per law.
Secretary Privatization Division further informed that SEP's preliminary objections to the Cabinet Decision/deed of undertaking are as follows:
Issue 1: SEP as successor in interest of KES Power.
Cabinet Decision: SEP will be the legal "Successor in -interest" of KES and give under taking to GOP that all existing financial liabilities of KE shall be the responsibility of SEP in accordance with the laws of Pakistan.
SEP views: SEP is not the legal "Successor in-interest" of KES Power Ltd. Issue 2: Purchase of shares through affiliates. Original SPA/Deed of Undertaking: Transfer of shares to Affiliates permitted subject to provision of NSC.
SEP views: Best international practices do not require such approvals, which result in inordinate delays. We want to restrict this to a notice to the GoP and GoP's satisfaction as to the comparable financial strength and ability of the affiliate.
Issue-3: Ability to ledge.
Original SPA: Creation of encumbrance allowed subject to issuance of NSC.
SEP views: NSC shall not be required on creation of any lien, pledge or other encumbrance but would be required on enforcement by the third party holding that pledge/lien.
Secretary, Privatization Division apprised that meetings were held with SEP by Minister for Privatization, Advisor on Law and the PC team, to resolve the issues.
The sources said Shanghai Electric gave their formal response on May 8, 2018. They expressed their intention to complete the transaction and then use one of their overseas subsidiaries to replace SEP. They reiterated their intent of pledge over sale shares without asking for National Security Certificate (NSC). NSC would be required by the creditor if enforcement is required. He stated that SEP acknowledged that as part of the transaction it has undertaken extensive due diligence on the company and was aware of its assets and liabilities on the basis of the documents and information provided or made available.
SEP represented that the transaction shall not in any way have impact on any obligation and commitment applicable to the company subject to the applicable laws of Pakistan. The purchaser further acknowledged that upon completion of the transaction, it will be majority shareholder of the company and agree to bear all responsibilities of a majority shareholder in accordance with the laws of Pakistan. The purchaser will continue to be responsible to pursue all existing cases of the company and abide by all legal, national and international requirements as per applicable law. He pointed out that to avoid any doubt, as it may have, any responsibilities of the purchaser shall mean the responsibilities of a shareholder of the company pursuant to the laws of Pakistan but by no means any liabilities or obligations of the company.
Secretary, Privatization Division further apprised that the SEP's response of May 8, 2018 was shared with Special Assistant to the Prime Minister on Law division, Finance Division, Power Division and Petroleum Division.
The SEP in a meeting stated that they were going to complete the transaction through a Dubai-based Special Purpose Vehicle (SPV). A subsequent meeting was held with Shanghai Electric Power by the Minister for Privatization in which SEP was requested to reconsider its position. He stated that Ministry of Law was requested to re-draft the Deed of Undertaking. The last draft was prepared on May 24, 2018 which requires further intensive working to give it final shape. A decision on the term "National Security Clearance Certificate" and its proposed replacement by NoC with a deeming clause is also required. This is with reference to pledging sale shares and transferring to affiliates. Privatization Commission is of the view that the term "NSC" has a clear connotation of National Security and should not be replaced. The Power Division & Petroleum Division should examine the proposed clause relating to liabilities and give a formal concurrence to the same or suggest appropriate amendments, if any. The purchase of sale shares through an SPV is a new proposal which does not appear in SEP's letter of May 8, 2018. All diligence for NSC was done with reference to SEP and not its subsidiaries. The Privatization Commission was of the view that in case purchase through SPV is formally proposed fresh diligence at least by Mol may be required. A final draft may be forwarded to SEP for its response before it is submitted to the competent forum.
During ensuing discussion, the Minister for Power Division stated that draft Deed of Undertaking is required to be forwarded to all concerned Ministries/Divisions/Departments for their views/comments prior to considering it for approval the Minister for Privatization Division, Secretary, Privatization Division and Secretary, Law & Justice Division expressed same views and suggested that the draft should be examined holistically to avoid any complication in future.
Prime Minister directed Privatization Division to officially share the proposed draft with all stakeholders and solicit their comments today [i.e. 25.5.2018) to consider the draft Deed of Undertaking pertaining to privatization of K-Electric holistically, and submit a summary with agreed proposals to the CCoP in Its next meeting for consideration.
The Cabinet committee on Privatization (CCoP) considered the "issues of K-Electric" submitted by the Secretary, Privatization Division through a presentation and directed the Privatization Division to immediately circulate the draft Deed of Undertaking for privatization of K-Electric to all stakeholders.
All stakeholders must prepare their response and share it with Privatization Commission. Accordingly Privatization Commission will bring a consolidated summary to the CCoP/Cabinet containing final views of all stakeholders with agreed proposal(s)/way forward in its next meeting for consideration.
The sources said, Power Division allegedly delayed the process despite pressure from Prime Minister Shahid Khaqan Abbasi as it does not want to issue NSC until CPPA-G dues of Rs 69 billion are cleared.