When liquidators for Abraaj Capital filed their first report on the value of assets held by the troubled private equity fund, they put the value of K-Electric at 331 million US dollars. This was in July 2018. The amount was slightly less than what Abraaj Capital claimed to have injected into the company as equity when they acquired it back in October 2008. Undoubtedly this valuation would come as a disappointment to the K-Electric management since only two years earlier, in October 2016, Abraaj Capital had announced its intention to divest its stake in the power utility for 1.77 billion US dollars to Shanghai Power of China.

“Upon completion, this will be one of the largest private sector transactions in Pakistan and represent one of the global power industry’s most well-recognised operational turnaround stories,” the company proudly announced on that day. This was no mere bragging. From October 2008 to October 2016, the company claimed to have added over 1,000 megawatts of additional generation capacity and caused transmission and distribution losses to drop by 12 percentage points. Its biggest boast was that in 2012, four years into its acquisition, the company recorded its first net positive earnings before interest, taxes, depreciation and amortisation (EBITDA) in 17 years. In the financial year 2011-2012, it recorded EBITDA of 3.5 billion rupees. In its latest financial results for the year 2016, EBITDA was at 44 billion rupees.

None of this was easy to achieve. In the nearly ten years that K-Electric spent under the Abraaj management, it saw two chief executive officers come and go, riots led by labour unions engulf its head office and found itself battling government intransigence on multiple fronts.

The provincial government of Sindh and its various offices and entities were its biggest consumers and defaulters, the state-owned gas company had a long-running feud with it on gas supplies, the power sector regulator repeatedly refused its requests for tariff hikes and the federal government struggled to build consensus for approval of its eventual sale or to intervene in its numerous run-ins with government entities.

Along the way it also had to abandon its Plan A for divestment that involved unbundling the vertically integrated utility and selling off its generation, transmission and distribution assets separately. That plan was stonewalled by the regulator which refused to unbundle K-Electric’s licence, which only allows for an integrated power utility. So Abraaj Capital fell back on Plan B: sell the entire entity as an integrated proposition to a strategic investor. It took at least two years to find that strategic investor in the form of Shanghai Power and by October 2016 the deal was finally sealed for transfer of shares and management control of K-Electric to the Chinese firm.

All that is now at stake as growing troubles at Dubai-based Abraaj Capital threaten to engulf K-Electric as well. For two years, Abraaj Capital battled with the government to get the relevant approvals while the K-Electric management pleaded with the regulator for the right tariff at which a deal worth 1.77 billion US dollars could be closed. But as liquidators and creditors now move in to organise a firesale of Abraaj Capital assets to pay off the private equity firm’s more than a billion dollars in debts, time could be running out for the sale to go through, at least at the price hoped for.

The regulator has not approved the tariff, and the new government may decide to revisit the matter of government approvals which could delay matters by several more months at least. Abraaj Capital may not have several more months given the speed at which its situation is changing.

Do they have a Plan C? Chances are that Shanghai Power’s appetite for a large investment in a Pakistani utility will persist unless there is a material change in Pakistan’s relationship with China. The only thing that might change, given the realities at K-Electric’s end, would be the price.

The writer is a business editor at the daily Dawn.

This was originally published in the September 2018 issue of the Herald. To read more, subscribe to the Herald in print.