ISLAMABAD: Prime Minister Imran Khan has directed the Privatisation Commission to resolve issues of RLNG power plants at the Economic Coordination Committee (ECC) of the Cabinet for smooth privatisation of both plants, well-informed sources told Business Recorder.
The issues are related to outstanding payment of Rs 10 billion, revision of Gas Supply Agreement (GSA), Power Purchase Agreement, political force majeure for non-supply of gas and confirmation of Gross Calorific (GCV) for future LNG gas supplies, the sources added.
Giving the background inclusion of National Power Parks Management Company Ltd (NPPMCL) on the active list of privatisation programme was approved by the Council of Common Interests (CCI) in its meeting held on November 19, 2018. Subsequently, the Cabinet Committee on Privatisation (CCoP) in its meeting held on December 26, 2018 decided that Financial Advisors would be appointed to advise on structuring keeping in view the financial/legal parameters, so as to optimize the prospective return from the project.
Process of hiring of Financial Advisor for privatisation of NPPMCL was initiated in January 2019 and the agreement with the FA consortium of Credit Suisse, Flixir Securities, Ernest & Young Ford Phodes, Akhund Forbes, Latharn & Watkins and Lummus Consultants International was signed on April 30, 2019.
FA Consortium has submitted a comprehensive due diligence reports i.e. technical, financial, tax, tariff methodology & regulatory, legal & employees related issues. The reports have been discussed by the Steering Committee/ Transaction Committee constituted by the PC Board under the chairmanship of Minister for Privatisation/ Chairman to oversee the privatisation process and to resolve the inter-ministerial outstanding issues for the successful completion of NPPMCL transaction.
The due diligence reports were also shared with all GoP stakeholders including Finance, Power, Petroleum, Law and Justice Division for their inputs. Five meetings of the Transaction Committee have been held and various issues of NPPMCL transaction highlighted in the GoP stakeholders for resolution.
The FA Consortium, in its letter of September 16, 2019 submitted the privatisation plan which includes proposed transaction structure and their recommended transaction structure options. Based on the due diligence exercise, the FA consortium explored the following three options for transaction structure for privatisation of NPPMCL for the consideration of the PC Board: (i) option A- combined divestment as a single power plant;(ii) option B- demerger/ carve out divestment as separate plants; and (iii) option C-hybrid option which runs two separate bidding processes for each plant and depending on whether separate investors win separate plants, a demerger is executed.
The sources said, hybrid option has been recommended by FA Consortium. Moreover, to maintain optionality in the privatisation process, with respect to transaction structure, the FA Consortium suggested floating a single Expression of Interest (EoI) where investors would have the option to show an interest in one or both the plants. Post qualification of investors, separate bidding processes will be conducted for each power plant. In case the highest bidder for both plants is the same, the bidder will be offered to buy the combined entity (NPPMCL) whereas in case of different highest bidders for both power plants, the demerger will become a Condition Precedent (PC) to transaction closing i.e. Sale Purchase Agreement (SPA). It was also decided to divest 100 per cent equity stakes of NPPMCL or both power plants.
The Privatisation Commission Board in its meeting held on September 17, 2019 reviewed in detail the transaction structure of privatisation of NPPMCL and recommended that: (i) 100 per cent of the company be divested as the strategic sale of the consideration that it would attract major investors in Pakistan’s power sector; (ii) first option is to demerge both the plants as per the Companies Act, 2017 preferably through SECP, instead of the existing agreement through the High Court, as it may save time; and (iii) second option is that both the plants be sold together. This time will take less time but it may reduce competition.
The PC Board further observed that the following key issues need urgent attention of the competent authorities before inviting EoI from potential investors: (i) Central Power Purchasing Agency Guaranteed Ltd (CPPA-G) should ensure that a certain reasonable percentage of off-take be contained in the revised Power Purchase Agreement (PPA); (ii) Gas Supply Agreement (GSA) with SNGPL be reviewed on the basis of observations from CPPA-G to mitigate their risk; (iii) existing risk matrix in relation to Pakistan political force majeure for non-supply of gas be retained in PPA; and ( iv) Gross Calorific Value (GCL) of future LNG gas supplied should be confirmed by SNGPL to the company and action take accordingly. —MUSHTAQ GHUMMAN
