NationalVolume 14 Issue # 06

K-Electric shock for Sharifs

The government has decided to launch investigations after a US media report that the Dubai-based Abraaj Group allegedly paid $20 million to a businessman for his assistance in securing cooperation of the Sharif brothers for the sale of K-Electric to a Chinese company in 2015. The deal did not materialize, but the report has once again brought the former ruling family of Pakistan into the limelight and could add to their troubles in the coming weeks.


An article, published in the Wall Street Journal (WSJ), claims that $20 million was paid to a businessman close to the Sharif family, but it is not clear whether the amount was transferred to the account of any member of the Sharif family or not. According to the report, Abraaj Group founder Arif Naqvi tried to secure the cooperation of Pakistan’s then-Prime Minister, Nawaz Sharif, and his brother Shahbaz Sharif when the group was looking to sell its stake in K-Electric Ltd., the electricity provider to Karachi. Naqvi offered a $20 million payment to businessman Navaid Malik for his help in getting it, according to company emails and people familiar with the situation. The government owns a stake in K-Electric and its approval would be required for the sale to go through. Shahbaz was “willing to give a strong endorsement” of the deal to Chinese bidders, Navaid Malik said, according to an October 2015 email to Naqvi from Abraaj partner Omar Lodhi. Malik said it was “important for him to share every detail with the brothers and get their blessings as well as their instructions as to how this money should be distributed,” such as “a portion to charity” or “a portion to the election fund kitty,” Lodhi wrote in the email.


The report says when Naqvi emailed Lodhi about the $20 million contract for Malik in June 2016, he wrote, “This document is explosive in the wrong hands.” Abraaj and K-Electric shouldn’t be named in the document, he wrote: “Keep it generic.” “Noted,” Lodhi responded. The newspaper contacted Malik, but he didn’t respond to requests for comment. However, Naqvi denied being part of any conversation that involved a payment to anyone in political office to facilitate the sale of K-Electric. He said Malik was an Abraaj adviser on a variety of activities and that the contract was part of a lengthy discussion about the terms of that role. He said the final agreement “ensured that no conflict of interest would occur.” He said he called it “explosive” due to a reference to the potential sale of K-Electric, which was confidential at the time.

In October 2016, Abraaj announced the sale of the majority stake it controls in K-Electric to China’s state-controlled Shanghai Electric Power Co. for $1.77 billion. However, completion of the sale was delayed by regulatory hurdles. K-Electric still hasn’t been sold. A lawyer for the Sharif family said the brothers deny any discussions took place with Malik as described in the emails. Abraaj has filed for provisional liquidation after reports emerged that its management diverted investor funds to pay its own expenses. A lot of the blame for it has come down to K-Electric, which Abraaj took over as a majority shareholder in 2008. K-Electric, then known as the Karachi Electric Supply Corporation, is an organisation that has been marred by incompetence, underinvestment and political interference since the 1990s up until it was taken over by Abraaj in 2008. The port city of Karachi, which hosts more than 16 million people, boasts the highest number of factories in the country and electricity breakdowns resulted in loss of production hours, straining an already frail economy. There used to be near-daily street protests by angry locals.


Successive governments didn’t bother to invest in generators, copper wire and electricity theft was rife, causing massive financial losses to the company. It was such a free-for-all that people would even stick toothpicks in consumption-reading meters to slow them down or just steal electricity directly from overhead power lines. In 2005, K-Electric was privatised and sold in a bid to rejuvenate the company. Abraaj came with an investment of more than $300 million, promising to add power generating capacity and fix the rickety distribution system. But first it needed to deal with a bloated workforce. The company didn’t need one-third of its 18,000 employees, and it fired thousands of them. Hundreds of angry workers, backed by politically connected unions began a strike and stormed the company’s head office, pelting it with stones and burning official cars. Tabish Gauhar, a Karachiite then in his late 30s, was brought in as the CEO to oversee the transition. Depending on locals to manoeuver around the bureaucracy and politics had become a hallmark of Abraaj’s operations in developing countries.


Using a carefully crafted PR strategy and lobbying in Islamabad, it was able to withstand the pressure of protesting employees.  By 2012, after years of remaining in the red and relying on government bailouts, K-Electric was posting profits – even though it continued to struggle to meet a growing power demand. K-Electric was Abraaj’s largest investment among the more than 200 companies in various emerging markets that were in its portfolio since it started in 2002. Arif Naqvi is also from Karachi. The life of the fund that was used to invest in the company ran out in 2016. This coincided with the time when Abraaj was hoping to sell its stake to another investor at a profit.


In October 2016, Abraaj announced that China’s state-run Shanghai Electric Company had agreed to buy its 66 percent stake in K-Electric for $1.77 billion. But that deal hit regulatory snags as K-Electric is embroiled in what in Pakistan is known as circular debt – where one energy firm owes money to another along the supply chain. “That was one of the reasons government officials were reluctant to give their consent. They wanted K-Electric to settle its dues before the deal goes through,” said a former K-Electric executive. “The Chinese were also asking for more even though they were offered a return of 18 percent to 19 percent on their investment. It’s just sad that it didn’t work out.” Now it is slowly becoming apparent that Abraaj’s inability to sell its stake at the right time might have contributed to the cash flow issues, which resulted in its liquidation.


PML-N leader Khawaja Asif said the Abraaj Group had contacted the government in 2016 and asked for NOCs as it was engaged in talks with Shanghai Electric to strike a deal. “At the time, the Ministry of Water and Power had some problems with the Ministry of Petroleum. The National Transmission and Dispatch Company (NTDC) and Sui Southern Gas Pipelines Limited (SSGPL) claimed that K-Electric had to pay them Rs80 billion and Rs60 billion, respectively. When there was no deal, there was no chance of corruption,” he told a news channel.


It is a fact that $20 million was paid to businessman Navaid Malik and he wanted to “donate” it to charity or “a portion to the election fund kitty” of the Pakistan Muslim League-Nawaz (PML-N); it is a fit case for the National Accountability Bureau (NAB) to investigate. Former Prime Minister Nawaz Sharif was accused of laundering money in the name of the party fund during the Panama case. There is no harm in investigating Sharif charities and the PML-N fund to ascertain facts.