The government of Pakistan is negotiating a joint venture deal with Daewoo to transfer 50 per cent of the Karachi Electric Supply Corp. (KESC) to the South Korean company without tendering for bids. Daewoo would also take management control of the company.
Under a memorandum of understanding, Daewoo will make a capital investment into KESC. Daewoo and KESC will become joint venture partners in a new company to which the utility will contribute all its assets and liabilities. Daewoo and KESC will each hold 50 per cent of the shares in the new company but management control will be vested in Daewoo.
The size of Daewoo’s investment in the company has yet to be determined but it should not be less than KESC’s investment. The amount will be determined by an international accounting firm, approved by both parties and paid for by Daewoo.
The Pakistan Privatization Commission has advised the Ministry of Water and Power to consider the Daewoo proposal because of the difficulties likely to be faced in privatizing KESC through either a competitive tendering process, by unbundling the company or with a mixture of strategic sales and management contracts.
The proposed joint venture with Daewoo would operate for 30 years, during which the company would be granted the exclusive right to generate, transmit and distribute power in the KESC territory. The company would also enjoy exemption from corporate income tax for five years, starting from the year in which it first enjoyed a net profit, a reduction in tax for the succeeding ten years and exemption of import and customs duties on all equipment imported into Pakistan.
In addition, Daewoo would become the engineering, procurement and construction contractor for any power plant, transmission project or distribution system project developed and constructed by KESC. No competitive bidding would be required and the approval of local authorities for the terms of affiliated transactions would not be required.