PR No.168 Clarification On HEC Islamabad

The Privatisation Commission (PC) has always reiterated its commitment to ensure the highest standards of integrity and transparency in conducting all its transactions. It is therefore extremely important for the PC to highlight and clarify the misleading information and documents, which are being used by both selected media and other representatives to misrepresent the transaction process of Heavy Electrical Complex (HEC). It is pivotal to us that our key stakeholders – especially the public of Pakistan – are fully aware of the correct facts.

The reality is that PC had appointed M/s Deloitte, an internationally acclaimed audit firm, as ‘Valuator’ for the transaction, which recommended that the sale price range that should be considered for purpose of setting up the ‘reserve price’ should be between Rs. 455 million to Rs. 978 million. In light of the M/s Deloitte Valuation Report and while considering the recommendations of the PC Board, the Cabinet Committee on the Privatisation (CCoP) approved a reserve price of Rs 500 million for HEC. However, the buyer, i.e M/s Cargill Holding limited (CHL), being the sole bidder, initially offered only Rs 28 million, which was increased to Rs 250 million with all assets and present/future liabilities, after negotiations between the sole bidder & PC. This offer was submitted by the PC management to the PC Board with the recommendation to either accept the offer or reject the same; in case of rejection, PC Board was asked to either allow delisting of the entity from the list of privatisation or to allow PC to advertise the process again.

The PC Board recommended the same to the CCoP, which accepted the offer of M/s CHL by stipulating certain additional conditions, i.e. cash payment of Rs 250 million, transfer of bank liabilities of HEC amounting to Rs 435 million, surrendering of ‘Deferred Tax’ amounting to Rs 190 million, surrendering of ‘Sales Tax Refund’ rights amounting to 191 million and picking up of gratuity related liabilities amounting to Rs 30 million. Hence the total sale price amounted to Rs 1095 million and not merely Rs 250 million.

The criticism on the process run by PC for the HEC transaction is also unjustified, and also needs to be clarified; this was the 4th attempt to sell HEC since 2006, as in all previous attempts not once did any bidder turn up and deposit the Earnest Money. The challenge to sell HEC has mainly been due to the consistently dropping sales, i.e. from Rs 900 million in 2010 to Rs 40 million in 2014. Furthermore, HEC had also run out of cash to pay off salaries since January 2014, and required an instant cash injection of Rs 350 million for vital capital expenditure to run the factory, besides requiring working capital. Keeping in view HEC’s weak financial circumstances, PC along with the Finance Division and the Ministry of Industries & Production, pre-qualified all three interested parties and permitted them to be a part of the bidding to enhance competition and get the best possible value for the entity at the time of bidding. This recommendation of the Transaction Committee was approved by the PC Board in its meeting held on February 04, 2015.

Unfortunately, two out of the three interested parties backed out from this transaction after conducting their own due diligence, leaving only M/s CHL as the sole bidder and who deposited the Earnest Money of Rs 25 million. However, the buyer failed to comply with the conditions stipulated in the Letter of Acceptance (“LOA”) and also deposited a wrongly drawn cheque. Under these circumstances, PC revoked the LOA and the Earnest Money amounting to Rs 25 million was FORFEITED by PC; in addition, PC has got registered an FIR against the representative of M/s CHL. Had PC any mala-fide intentions to give any benefit whatsoever to M/s CHL during the entire process, PC would have facilitated the buyer to take over HEC on their own given conditions, rather than revoking the Letter of Acceptance (LoA), forfeiting the Rs 25 million Earnest Money, and getting criminal cases registered against M/s CHL. PC has so far won two cases at the Islamabad High Court filed against it by M/s CHL.

So far as PC is concerned, the privatisation of HEC stands terminated since the revocation of the LOA, i.e. June, 2015. The transaction went through all legal process. Furthermore, no loss to the GoP has been caused instead the GoP has retained earnest money of Rs 250 million and also the entity.

PC strongly believes that the people of Pakistan deserve to be presented only with factually correct and unbiased information.