The Pakistan Tehreek-e-Insaf (PTI) government is working on multiple plans to ensure sale of shares in K-Electric.

Under plan A, the government is working to complete the transfer of K-Electric’s share to China’s Shanghai Electric Power, however, there are some pending issues that the Chinese company wants to settle before the transaction is complete.

Earlier, Shanghai Electric Power had expressed a commitment to complete the utility company’s transaction within six months subject to resolution of issues.

In a meeting chaired by the ministers for privatisation and energy, held in the second week of December, SEP representatives had desired clarity on the pending issues.

At present, there is a dispute between K-Electric, gas and electricity suppliers on the issue of pending payments. K-Electric is seeking a waiver from gas and electricity suppliers on the late payment surcharge. However, the regulators have allowed the gas and electricity companies to charge late payment surcharge.

The dispute between K-Electric and Sui Southern Gas Company (SSGC) has intensified now.

In October, Pakistan LNG Limited (PLL) and K-Electric had inked agreement to supply 150mmcfdregasified liquefied natural gas (RLNG) to 900MW Bin Qasim Power Station-III (BQPS-III) power plant. For this, PLL has to use the network of SSGC for supply of gas to K-Electric. Therefore, K-Electric and SSGC need to sign an agreement.

However, SSGC has refused to sign the gas supply agreement to distribute LNG to K-Electric’s new power plant due to dispute on pending payments.

The SSGC management and board of directors have sought guarantee from the federal government or a payment plan from K-Electric to pay Rs103 billion dues before signing the gas supply agreement (GSA). However, K-Electric says that it included about Rs90 billion compound interest whereas the principle amount stood at Rs13 billion.

K-Electric also has to pay dues to the National Transmission & Despatch Company (NTDC) on account of electricity supply from the national grid. So, there is also an issue of late payment surcharge.

The Cabinet Committee on Energy (CCOE) had also approved to enhance electricity supply from the national grid to 1,400MW. But the NTDC management wants to pay it Rs170 billion dues before entering into a power purchase agreement (PPA) for additional power supply.

NTDC also wants settlement of these dues before signing the agreement relating power purchase agreement (PPA) for additional supply of electricity from national grid to the power utility company.

However, K-Electric claims that it has to receive Rs220 billion as tariff differential claims and another Rs12 billion from the federal government. Further, it is to receive another Rs29 billion from Karachi Water and Supply Board, Rs3 billion from Balochistan and Rs12 billion from Sindh.

K-Electric stated that it will receive over Rs80 billion after both parties – K-Electric and SSGC, net off their amounts. So, K-Electric is entitled to receive more money than it needs to pay to SSGC or NTDC.

So, arbitration may be one option to resolve the payments issues between K-Electric, SSGC and NTDC. The government had worked on this option for several months but this did not yield any result.

Now, K-Electric is seeking a reciprocal settlement, which means that it wants to net off the late payment surcharge being claimed by the state-run gas and electricity suppliers.

In this scenario, Shanghai Electric Power wants the settlement of these issues before acquiring shares.

Moreover, Shanghai Electric Power has also come up with some reservations on tariff notified by the National Electric Power Regulatory Authority (Nepra).The Chinese company had also sought clarification from the government on what would be the tariff in 2023 for K-Electric. Officials say that the federal government did not know what tariff the power regulator would notify for K-Electric in 2023.

Now, the government will hold a meeting on Monday with representatives of K-Electric, Shanghai Electric Power and other stakeholders to consider the issue.

Plan B

Considering how the issue has stalled, the officials said that the government was considering following ‘Plan B’ if it fails to settle issues between K-Electric and the gas and electricity suppliers.

At present, government holds 26% shares of K-Electric and the remaining are held by private shareholders. The officials said that the government had considered a plan to acquire the shares held by private shareholders under plan B.

Officials said that it would be able to deal with the state run companies like SSGC and NTDC if K-Electric becomes an entirely state-run entity after acquiring the shares.

The government may operate K-Electric after acquiring shares held by private shares holders for one year. Following settlement of payments dispute with other state-run companies, the government may privatise the entire company after one year. So, it will make payments to K-Electric’s shareholders at the time when it privatises the power utility firm.

Published in The Express Tribune, January 24th, 2021.

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