THE government plans to divest Heavy Electrical Complex (HMC)(Pvt) Ltd on a fast track basis. The Privatization Commission (PC) through private consultants has done the valuation of its assets, and preparations are underway to invite the expression of interest (EOIs) from prospective investors, for its total sell-off, sometime in May/June this year.

The HMC has been established at Hattar Industrial Estate in the NWFP, with the economic and technical assistance of the People’s Republic of China, at a cost of Rs1,158 million. Its installed capacity is to produce 148 Nos. power transformers of capacity ranging from 6.3 mva to 40 mva for 132 and 66 kv electricity transmission systems, which is translated into factory’s total production capacity of 3,000 mva.

Spread over an area of 81 acres, the factory has integrated and largest engineering, production and testing facilities—-the only of its kind in the country—-procured from China, Germany and Switzerland.

The project suffered from its very initial days of conception at the hands of the vested interest, multinationals, and their lobbyists in our own country, that never wanted Pakistan to be self-reliant in the electrical capital goods required for power sub-sector.

The gross under-utilization of installed capacity, besides other impediments, played havoc with the financial health of the company that was already cash-starved, as it was not provided with any working capital by the government.

The situation today is different and the company has posted profits.

As a result of concerted marketing efforts in recent years, the company has now orders in hand for manufacturing and supply of power transformers to the Wapda and the KESC, valuing Rs757 million. In addition, these power transmission companies have placed orders on HEC for the repair and rehabilitation of old power transformers worth Rs52 million. The management is currently engaged in execution of these orders.

The government has done financial restructuring to great extent since it has recently picked up major portion of commercial bank loans and foreign currency loans, total amounting to Rs620 million approximately. The company has recently serviced commercial bank loan of Rs70 million through its own resources.

The overheads are minimal. There are 380 employees besides some 50 engineers, supervisors and other executives on permanent role, all others are on contract or on labour contract basis. Resultantly, there exists no workers’ union. There is no housing colony and no major welfare schemes either. The factory is located in a front-line industrial estate, with all requisite infrastructure facilities.

The present status of the complex makes it attractive for investment and domestic capital market mobilization. But the challenge lies ahead for the private sector investor to maintain market leadership thereby meeting future demand of higher voltage power transformers and cater to increased operational level accordingly. The future market prospects are promising, as demand is growing fast.

Wapda’s sixth power project envisages installation of power transformers of cumulative capacity of over 18,000 MVA during next five years. This means there would be a demand of about 580 transformer units valuing Rs14 billion at current market price. To connect new electricity generation capacity to the transmission grid, a number of 500 kv and 220 kv transmission lines are planned to be constructed either by the Wapda or the new iPPs.

It is important that the strong base created for the development of high voltage electrical equipment was not eroded and remains operational. Instead of privatizing the HEC as planned, the government ownership, say 51 per cent, may be divested through establishing joint venture with foreign company, or consortium of foreign and local firms.

It should be ensured that such prospective partners have background of similar products and a visible commitment to further develop these capabilities indigenously. The company later should be converted into a public limited company, and remaining government investment offered either to the joint venture partner or to the general public.