ISLAMABAD: The Privatisation Commission (PC) board has put the government’s decision-making powers to test as it has recommended two options for the privatisation of billions of dollars worth of LNG-fired power plants, which revolve around the theme of “show patience and get the best price”.
The board once again came to the conclusion that State Life Insurance Corporation (SLIC) could not be offered to the private sector until its law was amended. SLIC was also on the board’s agenda, which met on Tuesday under the chairmanship of Privatisation Secretary Rizwan Malik.
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On the issue of LNG power plants’ privatisation, the board recommended options to sell the Haveli Bahadur Shah and Balloki power plants as one unit under the existing legal structure or split the parent company and sell these plants separately.
Now, the Cabinet Committee on Privatisation will take the final decision whether to go for the privatisation of the power plants as a single entity or demerge the company to get a good price.
Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh said on Sunday that the privatisation of LNG power plants was critical to get Rs300 billion in non-tax revenues aimed at achieving the overall Rs1 trillion non-tax collection target for the current fiscal year.
The board picked two out of the three options that a consortium of financial advisers submitted for finalising the transaction structure for the privatisation of the National Power Parks Management Company Limited (NPPMCL).
In case the government decided to privatise the two power plants under the existing legal structure, it would be able to quickly conclude the transaction but that would reduce the bid price, sources in the privatisation ministry told The Express Tribune after the meeting.
In the case of a split, the process will be long but the government will get a good price, according to an assessment of the consortium of financial advisers.
The Pakistan Tehreek-e-Insaf (PTI) government decided to sell NPPMCL in the hope of earning Rs300 billion as non-tax revenue. The financial advisers were hired to suggest the transaction structure while keeping in mind the financial and legal parameters.
NPPMCL owns the two power plants located at Balloki and Haveli Bahadur Shah, having a combined power generation capacity of 2,453 megawatts.
The financial advisers have submitted comprehensive due diligence reports that cover technical, financial, tariff, regulatory and legal aspects of the company.
The consortium recommended three options which included selling both the plants as a combined entity, separating both plants and picking a hybrid option which runs two separate bidding processes for each plant and depending on if separate investors win separate plants, a demerger is executed. The board rejected the hybrid option.
The consortium was of the view that the combined sale would be relatively quickly as it would not require demerger of the company through a high court – a process that may take months before the plants were legally separated.
However, the consortium cautioned that in case the government decided to sell both the plants as a single entity, it would reduce the number of prospective bidders, which would also lead to a lower bidding price. Also, it will be difficult for buyers to get liquidity from local banks.
However, the interested parties have given preference to buying both the power plants as one entity, which will reduce competition.
In the case of demerger, NPPMCL would cease to exist and Pakistan Development Fund Limited would incorporate the two separate companies to own these plants. However, this will offer better returns to the government due to the participation of more buyers and flexibility in the privatisation process, according to the PC officials.
The PC board rejected the consortium’s preferred option of selling the plants under a hybrid option.
The consortium recommended that in order to get leverage in the privatisation process, the government should float a single Expression of Interest where investors would have the option to show interest in one or both plants. Post-qualification of investors, separate bidding processes will be undertaken for each power plant.
It suggested that in case the highest bidder for both the plants was the same, the bidder would be offered to buy the combined entity, the NPPMCL. In case the highest bidder for both the plants is different, the demerger will become a “condition precedent”.
However, the board members were of the view that the hybrid option would take a longer time in case the highest bidders were two different parties.
(This news/article originally appeared in The Express Tribune on September 18th, 2019)