Gauhar turns against claw-back mechanism in KE case
Aftab Ahmed
Adapt to change. Perhaps this is the best strategy to survive.
Gauhar, Prime Minister Imran Khan’s newly appointed Special Advisor (SAPM) for Power and Petroleum seems to follow this strategy.
When he was serving in K-Electric (KE), he was the best guy to back all policies of the power utility. Now, he turns the table when he is in government. So, adapt to change is the best remedy. When he is on the other side of the table, he wants to reverse.
A document has surfaced indicating that the dispute between K-Electric and National Electric Power Regulatory Authority (NEPRA) on the claw-back mechanism had initiated during Tabish Gauhar’s tenure as CEO and subsequently Chairman of K-Electric Limited.
Gauhar, Prime Minister Imran Khan’s newly appointed Special Advisor (SAPM) for Power and Petroleum, has recently been seen criticizing K-Electric’s response to the claw-back mechanism on public tv shows and accused the power utility of withholding billions of rupees from customers.
However according to public records available on the National Electric Power Regulatory Authority (NEPRA) website dated January 5, 2010, Gauhar had called NEPRA’s treatment of KESC “discriminatory” as it was inconsistent with “that applies to other power generation and distribution companies in the country and indeed with all other regulated utilities” going on to say that “under the current flawed (claw-back) formula, the Company’s existing losses wipe out the balance sheet impact of new capital.”
He had filed a motion with NEPRA for Leave for Review, writing to the power regulator asking for the removal/suspension of the claw-back mechanism citing it “a significant disincentive to any investor in sustainably improving the Company’s efficiency” on account of “various structural issues.”
Elaborating on the key issues with the claw-back, Gauhar had pointed out that the “claw-back mechanism is incorrect and inconsistent, given that such a mechanism is only applicable in cases where the utility is already operating at efficient levels and under normal exogenous circumstances. However, KESC’s accumulated losses of Rs. 72.3 billion (as of September 30, 2009) clearly indicate that KESC is operating under severe financial duress.”
In the personally signed 10-page letter, supported by various annexures, Gauhar made a strong case for regulatory review and changes, citing many of the regulations in then tariff determination “disincentives” for further investment. Saying there was no “global precedent” for it, he called the claw-back a “penalty” which “hampers the ability of the company to generate cash and reinvest in its operations,” and added that “the Company will not be able to sustain long-term investment plans” nor “will be able to convince either shareholders or lenders to inject additional funding in the short-term.”
Following NEPRA’s claw-back determination in late 2014, the rebranded K-Electric filed a suit no. 2138 /2014 for Mandatory and Permanent Injunction against its application. Tabish Gauhar was the Chairman at the time, according to insiders playing “a key decision-making role in the entire process”
Given Gauhar’s long-term opposition to claw-back during his tenure at KE, on the basis of its implications for investment viability and sustainability for both the company and city, his recent about-face raises several questions about conflict of interest and intent.
The SAPM has also denounced from his stance on a commercially driven load-shedding policy that was pioneered during his tenure at K-Electric and was recently in the news for intervening in the payables/receivables arbitration process between Sui Southern Gas Company Limited (SSGCL), National Transmission and Despatch Company (NTDC), Central Power Purchase Agency (CPPA-G) and K-Electric.
Insiders have dubbed this as a move to derail the conflict resolution process especially as he had earlier claimed to stay away from the process due to his prior affiliation with K-Electric which could create a conflict of interest.
There are rumors in Islamabad circles about Gauhar’s “vested interests” with some sources going so far as to allege his interest in preventing KE’s sale to Shanghai Electric in favor of a consortium of alternate buyers.
This consortium is rumored to include Karachi’s leading stock trader and business tycoon and links with a Korean conglomerate. These rumors build on Tabish Gauhar’s long-standing affiliations in the energy sector which may result in a conflict of interest with his current position. He has recently been on the board of HUBCO, BYCO and KE.
The former is an IPP whose contracts have recently been renegotiated, the latter a refinery undergoing a NAB investigation for fraud in oil imports, and the last, a utility from where he left under a cloud.
He is also linked with Naveed Ismail, the current Chairman of PEPCO and Gauhar’s predecessor as CEO of K-Electric, as well as Syed Taha, the current Managing Director of Pakistan State Oil and Gauhar’s partner in the Oasis Energy Company.
His replacement on the BYCO board is also is long-time associate Usama Qureishi from KE and subsequently Oasis Energy. “With so many connections within the sector, we certainly cannot rule out the conflicts of interests that may affect his ability to govern these entities,” quoted an aide.
