ISLAMABAD: An inquiry initiated by Senate Standing Committee on Finance, Revenue and Privatisation has revealed serious malpractices in the privatisation of the Heavy Electrical Complex, Taxilla, with a recommendation that the matter be referred to NAB and FIA.

The inquiry was conducted by a special committee, headed by Senator Kamil Ali Agha, which concluded in its report that the Privatisation Commission (PC) was responsible for wilful and criminal negligence in the HEC privatisation.

Commenting on the report, the Senate Standing Committee on Finance chairman Senator Saleem Mandviwalla said that the HEC privatisation case was a proof of complete failure of the PC.

“The Privatisation Commission dealt with the HEC transaction in a highly unprofessional, callous and reckless way,” Mr Mandviwalla said.

“It is strongly recommended to refer the matter to NAB/FIA to investigate the HEC transaction to determine whether the chairman/secretary, the top management and consultants were involved in corruption and embezzlement or not.”

He highlighted that the total sale proceed of the HEC was Rs435 million which as to paid to the Bank of Khyber (BOK) by the HEC and the same amount was the liability of the HEC against the bank.

“But what about the HEC’s current assets of Rs882 million, including Rs416 million stocks in trade, which means that even in case the bank’s liability is settled, Rs480 million will still be available with the company and the current assets would be transferred to the buyer for free,” Mr Mandviwalla said.

The report said that the HEC transaction lacked proper due diligence.

The transaction committee in its Jan 27, 2015, meeting, despite knowing that the Cargill Holding had been incorporated on Dec 10, 2014, with no prior background in the relevant industry, had approved the company as the qualified bidder without conducting proper due diligence.

The PC overlooked the fact that the bidder’s nominal share capital of the company is Kenya shilling 100,000 which came around $1,000 only into 1,000 shares.

This is the actual standing of the company in share markets which was considered for a multi-billion rupees’ transaction of the HEC.

Not only that, the report noted, the company’s article of association reflected that it was incorporated only for the reason of buying the HEC as its main partner, Sabur Rehman, had 990 shares and other members had 5.5 shares each and no-one knew who those two individuals were and what role they played with such minimal shares in the company.

The report further said that the bidder used the name of a US-based international company, Cargill Holding, which then sent a letter to the Privatisation Commission on March 12, 2015, that it had nothing to do with the bidder, but the Privatisation Commission still approved the bidder for the HEC privatisation.

When asked by the Senate committee as why such lapses in due diligence occurred, the PC chairman and secretary had no answer and on repeated requests of the committee, they never produced proper minutes of meetings and did not explain the PC’s decision-making process.

The committee also noted that a few of consultants at the transaction committee were against the selection of the Cargill Holding (the bidder), but their opinions were never considered for no proper reason and neither complete minutes of the meetings were properly documented.

The PC board in its meeting on Feb 4, 2015, approved the recommendation of Transaction Committee as it is and recommended the Cargill Holding as the qualified bidder for the HEC privatisation despite knowing that the company had no profile and no financial standing and had recently been incorporated.

The Senate committee recommended that the valuation process and particularly the determination of HEC liabilities were not as per market standards.

The pre-qualification criteria of the bidder should be updated as per international standards.

The PC must be told not to rehire the same financial/legal consultants for different privatisation deals repeatedly.

It also recommended that top management, including the secretary and the current team of consultants should be changed to avoid such criminal negligence and lacklustre approach in future privatisation deals and strategic assets such as Pakistan Steel Mills and PIA etc.

The committee also recommended that the matter be referred to NAB/FIA to investigate the HEC transaction to determine whether the chairman/secretary, the top management and consultants were involved in corruption and embezzlement or not.

Published in Dawn, February 20th, 2016