MURREE: Pakistan said on Wednesday it was considering releasing Rs57 billion ($202 million) to utility company K-Electric, a move that will resolve the company’s cashflow situation and pave the way for its long-delayed sale to China’s state-owned Shanghai Electric.
Shanghai Electric has been in talks to acquire a stake in KE for more than half a decade, delayed due to regulatory approval and liquidity constraints as a consequence of mounting circular debt plaguing the country’s power sector. The government of Pakistan owns a 24.4 percent stake in K-Electric, which powers the country’s largest city and commercial hub of Karachi.
In June, Shanghai Electric reiterated its commitment to the deal, which was worth approximately $1.77 billion in 2016 but may change.
On Wednesday, the Economic Coordination Committee (ECC) of cabinet, chaired by Finance Minister Dr. Shamshad Akhtar, said it would consider releasing a subsidy to KE to improve its cash flow.
“ECC considered a summary of Ministry of Energy (Power Division) regarding release of Rs57 billion advanced subsidy for payment of K-Electric arrears and approved the Technical Supplementary Grant in order to meet the operational requirements of power sector,” the ministry of finance said in statement released after the ECC meeting.
The power utility suffered post-tax loss of Rs30.90 billion in the last fiscal year due to a number of factors including surging inflation, a policy rate hike, the devaluation of the rupee and a contraction in economic activity.
In 2005 a consortium comprising Abraaj Group and Saudi Al-Jomaih group and the National Industries Group (NIG) of Kuwait had bought a 66.4 percent stake in K-Electric through a privatization process.
In 2016, the consortium decided to sell the stake to China’s Shanghai Electric Power and submitted an application for a National Security Certificate (NSC) to the Privatization Commission.
However, the group still awaits approval of the deal due to long-standing issues of the company’s payables and receivables with various government entities.
The process was expedited after visits to Pakistan in the last few years by Abdulaziz Hamad Al-Jomaih, MD Investments at Al-Jomaih Holdings, one of the largest business groups in Saudi Arabia and a major investor in KE, who met with then Prime Ministers Imran Khan and later Shehbaz Sharif to get the issue resolved.
Last week, the ECC took up the matter of the approval of the draft of various mediation agreements to be signed with K-Electric whose completion could resolve the long-standing issue of its share transfer to Shanghai Electric, the government said.