This is in response to a few media reports published on 9th September 2015 on the special session of the Senate Standing Committee on Finance and Revenue, which was held on 8th September 2015.The Privatisation Commission (PC) strongly rejects misrepresented reports about the Privatisation Commission officials for having admitted any faults and negligence in the privatisation process of the Heavy Electrical Complex (HEC).
Representatives of the Privatisation Commission provided all relevant information to negate any wrong perceptions that the Heavy Electrical Complex (HEC) was sold at a nominal price and that there had been any wrong-doing in the privatisation process by selling it to a sole bidder with low financial credentials.
PC officials explained the complete process which each transaction goes through, which includes review and diligence by top-tier financial experts and the PC Board, representing top corporate business leaders and government representatives at all stages of the process, including the Cabinet Committee on Privatisation (CCOP). It was reinforced that no transaction can go forward or be completed without the approval of the Privatisation Commission Board and the CCOP.
Regarding the HEC transaction, the Senate Committee was informed that the sale of HEC could not be concluded, as the buyer had failed to meet the terms and conditions set by the CCOP, and the PC had revoked the Letter of Acceptance (LOA) issued to the buyer, and forfeited his earnest money amounting to Rs 25 million. The buyer has gone to the Islamabad High Court against revocation of the LOA by PC, and has obtained an order of status quo.
In response to allegations about the credibility of Cargill Holdings Limited, it was informed that the company had been shortlisted along with two other companies (Fauji Fertilizers and Ellahi Group of Karachi), as they all met the financial threshold of having a worth of minimum PKR 2 billion. Therefore, the report published in the media about the company being a fake or having low credentials known to the Privatisation Commission is not accurate, as the company completely fulfilled the minimum financial requirements set out by PC. On concerns about Cargill Holdings Limited’s registration being done one day after the PC Board’s approval to reinitiate the transaction and before the Expression of Interest of Investors was published by the PC, the Senate Committee was explained that this was the fourth time that PC was running the privatization process, and it was all public knowledge. Therefore, it was not an issue at all as ‘special purpose vehicles’ are commonly formed by holding companies all over the world for mergers and acquisition transactions.
In addition to this, Cargill Holdings Limited remained the only company to submit the ‘Earnest Money’ and subsequently its bid was approved as it met the terms and conditions set by the CCOP. As for the company being awarded the deal despite being the ‘sole bidder’, it was explained that according to the PC’s rules and regulations, it is fully and legally permissible, through a process termed as “negotiated sale”.
The misperceived notion about HEC being sold at a nominal price is also completely untrue, as there is a difference between the valuation price and the market price. The financial valuation of HEC was carried out by Deloitte, which is one of the leading financial consultant groups in the world, and as a matter of abundant caution, a fair value report on the valuation done by Deloitte was also done by a third party consultant provided by the USAID. These steps were taken by the PC to ensure that the value of HEC was not being compromised in any way. The final sale price approved by the CCOP was Rs 1095 million, inclusive of cash payment, transfer of bank liabilities, surrendering of ‘deferred tax’ and ‘sales tax refund’ rights. There was certainly no negligence in the process.
It may also be clarified that the reserve price assessment as provided by the USAID consultant was PKR 784 million as against 1.4 billion as reported in the media. Furthermore, it may also be noted that under the ‘Discounted Cash Flow’ methodology, the same M/s Deloitte had recommended an amount of Rs 455 million as sale price.
It may be mentioned that the bidder, i.e. M/s Cargill Holdings Limited had accepted the terms of the CCoP, including continuation of the business for 10 years and to retain the labor for a minimum of 12 months. However, the issue arose only after Cargill Holding Limited submitted a cheque to the privatisation Commission which was dishonored by the bank. In response, and as per rules and regulations, PC revoked the LOA dated April 06, 2015 and retained the Company’s earnest money, amounting to PKR 250 million on June 23, 2015. This clearly shows that PC upheld the national interest at all times.
It is further clarified that the secretary PC has been wrongly quoted. Responding to a question about pre-qualification of companies, he had stated that any firm meeting the qualification criteria can participate in the bidding process, and the highest bid would be accepted by PC if it meets the terms and conditions stipulated by the PC Board and the CCOP, as it was in national interest.
The case is now in the court, which strongly reflects the Privatisation Commission’s commitment to go all way out to ensure that the government and the country suffers no loss.
It is also pertinent to reinforce that the Privatisation Commission takes its commitment towards transparency and protecting the national interests among its top priorities. Therefore, the Privatisation Commission did not go through with the sale as it would have compromised national interests. The Privatisation Commission is strongly committed to ensuring that every privatization transaction is processed strictly in accordance with Privatisation Commission’s rules and regulations.