Clarification by Privatisation Commission to incorrect allegations levelled in ARY TV’s program Power Play

Islamabad, February 07, 2016 (PPI-OT): 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) and Pakistan International Airlines Corporation (PIAC). It is pivotal to us that our key stakeholders – especially the public of Pakistan – are fully aware of the correct facts.

In a TV program, “Power Play”, aired by the ARY TV channel on Feb. 05, 2016, the PC has been accused of deliberately under-valuating HEC by presenting documents that show HEC’s worth to be evaluated to Rs 1.4 billion but sold for Rs 250 million in cash. The presenter of the show did not show the complete information, as he only picked selective parts from the information set submitted to the Senate Standing Committee for Finance and Privatisation.

The reality is that M/s Deloitte, PC appointed ‘Valuator’ for the transaction, had 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 after negotiations between the sole bidder and 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, as the TV Anchor falsely presented as the final approved sale price.

The criticism on the process run by PC for the HEC transaction was 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 the run the factory, besides requiring working capital. Keeping in view HEC’s weak financial circumstances, PC 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, due to depositing a wrongly drawn cheque, this amount today stands 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 Ernest 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.

Similarly, misleading information and documents were presented on the transaction process of PIA, as the program host claimed that PC has undervalued PIAC on same lines as HEC. The PC would like to clarify that PC has not conducted any valuation on PIAC as of yet, i.e. it’s enterprise value or real estate properties or any business segment thereof.

Documents shown in the program may be extracts of PIA’s own financial statements or corporate information, which is public information. It is a standard practice among all corporate entities to conduct valuations of its real estate properties and other business segments as part of its annual financial statements. Any valuation documents prepared or shown may therefore have been conducted by the entity itself, and PC has no role whatsoever in such valuation activities conducted by an entity itself.

The Privatisation Commission has furthermore made it abundantly clear on all forums, including to the Senate, NA and related Parliamentary Committees that PIA Investment Ltd and its assets, namely Roosevelt Hotel in New York and Scribe Hotel in Paris, are not part of the on-going Transaction activities. The present focus is only to solicit strategic partnership in PIA’s core airline operations. The latter can be verified from both the EOI and RFP package in case of the PIA transaction, issued by PC in 2014 and the FASA signed by PC in 2014.

Lastly, the Privatisation Commission also regrets the dishonest approach used by the program host when claiming that the Chairman Privatisation Commission, Mr. Muhammad Zubair had committed to participate in his program but deliberately did not show up; whereas the Chairman PC had received the invitation a day before the program but had immediately also communicated his unavailability due to his travel plans for Karachi.

Several national media organisations reported on same evening that PC Chairman was meeting with the Joint Action Committee of PIA for negotiations in Karachi, which documents his unavailability for the program on Friday. The Chairman’s unavailability was conveyed under the presence of another senior journalist of ARY News, Mr. Kashif Abbasi on which Mr. Arshad Sharif and his team suggested that they would postpone the program to ensure Mr. Zubair’s participation.

However, the program was neither postponed nor was the Chairman’s genuine reason for being unavailable presented to the audience – rather the host hid the factual facts and continuously propagated the opposite, which is unfortunately a very unethical and dishonest approach. The Privatisation Commission welcomes any dialogue or query related to its work. PC strongly believes that the people of Pakistan deserve to be presented only with factually correct and unbiased information.

For more information, contact:
Privatisation Commission
5-A EAC Building Constitution Avenue,
Islamabad- Pakistan
Tel: +9251 920 5146 -47
Fax: +9251 920 3076