ISLAMABAD: The Privatisation Commission (PC) Board which is scheduled to meet on Thursday (toady) is all set to approve Reserve Price of Heavy Electrical Complex (HEC) to be based on Discounted Cash Flow (DCF), Comparable Market Multiple and Net Asset Value (NAV), sources close to Secretary Industries told Business Recorder.

“The FA consortium has again proposed DCF method with the justification that the return on the assets for transformer making entities is not very high with maximum capacity utilization of 60% in the leading companies which will make NAV method not suitable thereby requiring further adjustment also,” the sources added.

The Committee held extensive discussions on the components of DCF model used. The ‘Terminal Growth Rate’ of 2.9% used by FA Consortium in DCF was discussed at length. FA Consortium elaborated that they have used the annual growth factor less the inflation factor for a period beyond ten year projection as perpetual growth factor for HEC.

Khurrum Shehzad highlighted that GDP growth and inflation have to be both considered in the Terminal Growth Rate. He emphasized that the basis used implies that HEC’s future growth will not be consistent with GDP growth and inflationary factor beyond 10 years.

Ashfaq Tola was of the view that it would not be appropriate to discount (reduce) real GDP growth with inflationary impact as proposed by FA Consortium. He proposed a minimum terminal value of 4.5% instead of 2.9%.

Etrat Rizvi noted that it is important to emphasize that despite all those challenges countered by HEC, as highlighted by FA Consortium, HEC is being sold as a ‘going concern’ and this assertion made in the annual accounts has also been endorsed by the statutory auditors of HEC.

DG (I&T) PC expressed his serious reservation that this is the third TC meeting being held on the same matter (Reserve Price). He pointed out that the pre-bid meeting was held on August 10, 2021 and such extended delays have a negative impact on privatisation transaction. He supported the valuation and assumptions used by FA Consortium.

During the last Transaction Committee (TC) meeting, the representative from MoI&P revealed that ECC’s approval is being sought for release of funds for settlement of liabilities towards Bank of Khyber and for payment of salaries to HEC employees. Moreover, another summary is also being submitted by MoI&P to ECC to ensure that HEC is not blacklisted at this stage by any Distribution Company (Disco). PC had already given its views to MoI&P on the referred draft summaries. On the issue of pending transfer of 513 kanals of land in Taxila, which is still in the name HEC, MoI&P was again requested to move a summary for ECC consideration without further delay as title of this land needs to be transferred from HEC to avoid any complications during privatisation, as well as, post-privatisation.

The Company is owned by State Engineering Company (SEC), working under the administrative control of Ministry of Industries and Production (MoIP). HEC manufactures power transformers of 132kV & 66kV with units ranging from 6.3 – 40 MVA (high voltage) along with services for testing, repairs and onsite commissioning of transformers. HEC is located in Hattar Industrial Estate, Haripur on the land leased by Khyber Pakhtunkhwa Economic Zones Development and Management Company (KPEZDMC), formerly SDA, for a period of 99 years.

Earlier, the attempt to privatize HEC was made in 2014; however, due to poor response the process was annulled in Decembger 2014. Last attempt to privatize HEC was carried out in March 2015, wherein three parties were pre-qualified out of which only one party deposited the earnest money. Later CCOP approved the bid offered by M/S Cargill Holding Limited but privatization did not materialize. The bidder’s earnest money of Rs.25 million was accordingly forfeited.

The other items to be discussed by the PC Board are as follows: (i) hiring of financial advisor for sale of 17 properties owned and controlled by the Federal Government; (ii) update status of privatisation of SME Bank; (iii) update status of divestment of 20 per cent GoP shares in Pakistan Re-Insurance Company Ltd (PRCL); (iv) report of audit committee meeting held on September 29, 2021; and (v) confirmation of minutes of 198th PC Board meeting  held on September 21, 2021.—MUSHTAQ GHUMMAN