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Shanghai Electric to invest $9bn in KE

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ISLAMABAD: Shanghai Electric Power (SEP) of China on Tuesday offered $9 billion investment for the system upgrade of K-Electric.
KE’s existing 66.4 per cent stakeholder Abraaj and prospective investor SEP held a joint meeting on Tuesday with a body constituted by the Cabinet Committee on Energy for the discussion on the KE transaction.
The government agreed to continue 650MW electric supply from the national grid to Karachi provided the existing majority owner of KE cleared Rs138bn liabilities.
Minister for Water and Power Khawaja Asif presided over the meeting, which was also attended by the minister for petroleum and natural resources, Privatisation Commission chairman, Board of Investment chairman and top officials from several ministries.
“SEP, new proposed shareholder of KE, along with the management of KE presented their business plan worth $9bn for improving and value-adding in the KE power infrastructure, including transmission, distribution and generation,” an official statement said.
Informed sources said SEP explained its business plan to the government that entails $9bn investment until 2030 chiefly in the generation sector and also in the transmission and distribution network.
The future investor reported that it will introduce technologies and equipment that help reduce transmission and distribution losses. It said SEP had taken over a utility in Estonia and was able to cut system losses from 14pc to 9pc within a year.
The introduction of remote technologies will help eliminate the possibility of electricity theft through the kunda system, the sources said while quoting the Chinese firm’s explanation.
They said the ministers for water and power and petroleum and natural resources were upbeat about SEP’s entry into Pakistan’s energy market because it would be a long-term non-divorceable relationship replacing a short-term transactional arrangement with Abraaj.
The sources said the government showed the inclination to continue 650MW power supply from the national grid until the new operator is able to add substantial generation capacity. For this arrangement to continue, Abraaj was already in negotiations with the government for a three-year power purchase agreement that it would provide to the new buyer as a transition arrangement.
The Chinese firm had asked the government not to divest its 24pc shares in KE, especially to any outsider, but the government did not accept this condition.
As part of the transition, Abraaj will have to clear about Rs138bn worth of liabilities to fuel suppliers, particularly Sui Southern Gas Company and also to Central Power Purchase Agency (CPPA), to provide a clean slate to the new buyer.
There will be a series of condition precedents (CPs) for Abraaj and SEP to complete before the government formally approves the transaction, an official said. He said SEP’s focus also appears on reducing losses so that this differential leads to declining load-shedding in Karachi and eliminates the current practice of revenue-based load-shedding.
The government told SEP it welcomes its investment and business plan, but wants certain changes to make it more aggressive and front-loaded to tie in with Prime Minister Nawaz Sharif’s plans to end load-shedding by 2018, a source said.
The government also showed its desire that the first part of the proposed investment and business plan targeted for 2023 should be made more aggressive and advanced to 2018.
An official statement said the government appreciated the investment and change of shareholder in KE while highlighting the need for the company to synchronise its plans of investment to bring up the infrastructure and the generation facilities with the overall national plan for minimising and eliminating load-shedding by 2018.
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