CBN: Chinese Company's Purchase of K-Electric to Help Tackle Power Shortage in Pakistan

Chinese company's acquisition of Pakistan's electricity company, which attracted broad attention from global media, has made material progress.

 

Shanghai Electric Power Co., Ltd. (SEP), a listed subsidiary of State Power Investment Corporation (SPIC), has signed an agreement with Dubai-based Abraaj Group on the purchase of 66.4 percent stake of the Pakistan-based K-Electric Limited (KE) in Beijing lately, which marks a significant milestone in SEP's acquisition of KE, SPIC told CBN late on October 30.

 

According to the announcement, SEP will pay USD 1.77 billion for KE's stake, and provide up to USD 27 million worth of incentives to its counterparty or the parties designated by the latter in view of KE's operation conditions in future.

 

Karachi is Pakistan's largest economic center. KE is the key power supplier to Karachi and its adjoining areas and also Pakistan’s only vertically-integrated power company engaged in generation, transmission and distribution. Operating five power plants with a total installed capacity of 2,243 MW, KE has 69 grid stations and 21,817 sub-stations, with 2.5 million customers and a coverage area of 6,500 km2. In 2015, KE’s peak load reached 3,200 MW.

 

KE was established in 1913 and is a listed company in Pakistan. Abraaj is KE's controlling shareholder. As of the end of FY2015, KE has total assets of USD 3.6 billion and recorded revenue of USD 1.88 billion and net profit of USD 280 million for FY2015.

 

The transaction has gone through the corporate decision-making procedures and will be completed after regulatory approvals are obtained in both countries.

 

SEP's acquisition of KE illustrates Chinese energy enterprises' growing interest in Pakistan.

 

Electricity shortage has been a prominent issue constraining the economic and social development of Pakistan. According to statistics, the country's total installed capacity of power generation is 21 GW, with a shortage between 3-5 GW. Meanwhile, due to warming weather, the demand for electricity consumption has been increasing, and thus the pressure for power supply will be heightened.

 

For Chinese energy companies seek growth overseas, Pakistan is a market with huge potential. Since Pakistani Prime Minister Nawaz Sharif took office in 2013, he has adopted a number of measures to tackle the country's electricity crisis, including adding power supply, adjusting power tariff, cutting power generation costs and attempting to reform the industry structure. In addition, Sharif stated that the electricity generation output will be increased by 210 GW in the coming decade, together with updated power generation facilities and more power plants to be constructed to alleviate the power crisis.

 

Since China and Pakistan issued a joint statement in 2015 which reinforced the bilateral cooperation in economy and energy between the two countries, more and more Chinese energy companies have riveted their eyes on the South Asian nation. China National Nuclear Corporation (CNNC), for instance, has exported a number of nuclear power generation units to Pakistan in the past years.

 

Among these Chinese investors are also central SOEs such as SPIC, Power Construction Corporation of China, China Three Gorges Corporation and State Grid. For some sectors open to foreign investment for the first time, Pakistan even granted the first project in such sector to Chinese enterprise. In 2015, State Grid signed a power transmission and distribution project cooperation agreement with Pakistan's Water and Power Development Authority (WAPDA) and National Transmission & Despatch Company (NTDC), which was the first of such project in Pakistan open to foreign investors.

 

Besides, Chinese private companies have also been actively participating in the China-Pakistan energy cooperation projects. Orient Group, a Chinese private investment holding company, is the parent company of United Energy Group Limited, whose Pakistani subsidiary, United Energy Pakistan, is the largest foreign company in Pakistan's oil and gas sector.

 

As the purchaser of KE deal, SEP is regarded as a "veteran player" among Chinese enterprises going global, which has already set footprints in Japan, Turkey, Malta, etc.

 

Besides the KE project, SPIC has another project in Hub, located in the southwest of Pakistan.

 

On May 31, 2016, the signing ceremony of the EPC agreement for China Power Hub Generation Company (CPHGC) 2×660MW Coal-fired Power Plant was held in Beijing. The project, implemented by China Power International Development Limited under the flag of SPIC as part of "Going Global" strategy, has a total investment of nearly USD 2 billion, and is expected to be completed in 2019. During the signing ceremony of related agreements, Pakistani Ambassador to China expressed that Pakistan has been undergoing energy constraints in the past decades, and all levels of governments and agencies in Pakistan will lend full support to the electricity projects invested and constructed by Chinese enterprises under the China-Pakistan Economic Corridor (CPEC).

 

The KE deal is just an example of ever-increasing cooperation between China and Pakistan as China-Pakistan trade relations have becoming more and more close.

 

As early as the end of 2013, Beijing put forward the Silk Road Economic Belt and 21st Century Maritime Silk Road, which involve the CPEC, a 3,000-km network of roads, railways and pipelines to transport oil and gas from southern Pakistan's Gwadar Port to Kashgar city, northwestern China's Xinjiang Uygur autonomous region.

 

On February 12, 2015, during a meeting with Sartaj Aziz, Advisor to Pakistani Prime Minister on National Security and Foreign Affairs, Chinese Foreign Minister Wang Yi noted that the CPEC as the flagship project under the "Belt and Road" Initiative, has established a strategic framework for bilateral practical cooperation between the two countries. Both sides should speed up the construction of CPEC and work hard to launch more early harvest projects in Gwadar Port, energy, transport infrastructure and industrial cooperation. The CPEC is oriented to the whole Pakistan, and its construction will help transform the socio-economic landscape of Pakistan.

 

Aziz replied that Pakistan is willing to push forward the construction of CPEC jointly with China, implement energy and infrastructure projects, and make people of both countries feel satisfied with tangible benefits.

 

On April 20, 2015, China and Pakistan decided to lift bilateral ties to all-weather strategic cooperative partnership. The two countries sang high praise for the progress of major projects under the initiative of building the CPEC into the Silk Road Economic Belt and 21st Century Maritime Silk Road. They agreed to concentrate on the "1+4" cooperation framework, which has the CPEC as the core and the four areas of Gwadar Port, transport infrastructure, energy and industrial cooperation as priorities. Both sides felt satisfied with the fact that the bilateral trade volume had been expanding and exceeded USD 15 billion, while reaching consensus that they would strive to boost the figure to USD 20 billion within three years.

 

Observers believed that the CPEC is not only the flagship project under the "Belt and Road" Initiative, but also an early harvest project. It smooth progress will help reassure some countries with doubts and worries about the implementation of the "Belt and Road" Initiative, beef up political mutual trust, and lay a solid foundation for the future construction of the Belt and Road countries and regions.

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