KARACHI: KESC selling assets to overcome crisis
KARACHI, May 11: The Karachi Electric Supply Company’s privatised management is in serious liquidity crisis and is compelled to sell the family silver to get credits from various international and domestic financial institutions.
Insiders said the company’s financial condition was so precarious that it was compelled to pledge its receivables from about 400 big consumers to avail a finance facility from the Standard Chartered Bank (Pakistan) for an aggregate amount of Rs3 billion.
In a letter sent to some listed consumers on April 24, the KESC notified that “in consideration of the facility, the company with full title, intends to create a fixed charge by the way of hypothecation on all amounts payable by you to the company under the monthly electric bills issued by the company (bill proceeds) for the supply of electricity on a date in the future (effective date).”
Notifying consumers of the proposed hypothecation of receivables, the electric supply company has informed consumers that the same has been created pursuant to the letter of hypothecation and perfected on the “effective date”. As such the consumers have been “unconditionally instructed to make all payments from the effective date in respect of the “bill proceeds” or under any arrangement/ agreement entered into between the company and the consumer.
Consumers were also informed that the Standard Chartered Bank designated representatives would provide courier picks-up service for payment.
Lack of trust
The arrangement reflects the lack of trust of creditors in the utility and has thus insisted on the formula of hypothecation of receivables. Sources said that the power utility had also directed its estate department to complete all relevant documents to mortgage its over a dozen generation and distribution projects to raise funds from the market. These projects include Bin Qasim Power Plant, Korangi Thermal Power Plant, Korangi Gas Turbine Station, Site Gas Turbine, and grids at Gulshan-i-Iqbal, Site, Mauripur, Landhi, Baloch Colony, Qayyumabad, F. B Area and North Karachi.
Sources said that the assessed value of the projects, excluding Bin Qasim and KTPS, was estimated at around Rs9,771.826 million, while the forced sale value of all the projects was calculated at Rs9,417.551 million. These estimates were quite below the actual values, sources said, adding that according to these estimates the assets were being offered at a throwaway price. KESC’s assets are being mortgaged again as the new management failed to fulfill their commitment by making a substantial investment in the utility. Now because of power outages, the import of generators has swelled to about 500 million dollars, thus putting a burden on the fuel import budget, according to sources.
Following its decision to privatise the KESC, the government initiated a Financial Improve-ment Plan of Rs13.20 billions to turn the utility into a profit-making entity.
In order to privatise the KESC, there was a reduction of face value of share from Rs10 to Rs3.50, thereby reducing the total paid-up capital of 13.167 billion shares from Rs131.67 billion to Rs46.08 billion only and a waiver of Rs92 billion debts. The Price Waterhouse Coopers, who were appointed as financial advisers for this transaction, allegedly made an incorrect evaluation of KESC assets and the reserve price was fixed as Rs1.32 per share only, the sources added.
The Aljomaih group of Saudi Arabia, who is the main partner of consortium, purchased 73 per cent shares (9.611 billion shares) at a rate of Rs1.65 per share for a total of Rs15.86 billion. In spite of restrictions for three years, it sold out 25 per cent shares at Rs4.5 per share to Naser Al-Marri of Kuwait and has appointed him as vice chairman. Thus the investor has received back Rs10.81 billion whereas about Rs22 billion was outstanding at the time of privatisation to be recovered by the new owners.