PRESENT:
Mr. Justice Aqeel Ahmed Abbasi
Mr. Justice Arshad Hussain Khan
1. Const. Petition No.D-1511/2005
K.E.S.C. Labour Union and others.……......………...…………….Petitioners
2. Const. Petition No.D-3775/2012
K.E.S.C. Labour Union and others. …..…...……...……………….Petitioners
3. Const. Petition No.D-3776/2012
K.E.S.C. Labour Union and others………………………..…….….Petitioners
4. Const. Petition No.D-3767/2015
United Human Right Commission …………………...…..….Petitioner
5. Const. Petition No.D-3818/2015
Moulvi Iqbal Haider …………………...……...Petitioner
Versus
Federation of Pakistan and others …………………….….Respondents
Date of hearing : 17.08.2020
Date of Judgment : 21.01.2021
Mr. Salahuddin Ahmed, advocate for the petitioners a/w Saifullah Abbasi, advocate.
Petitioner Moulvi Iqbal Haider in person.
Mr. Abdul Sattar Pirzada, advocate for the respondent/Privatization Commission a/w M/s.Mamoon Chaudhry and Qazi Umair Ali, advocates.
Mr. Sajid Zahid, advocate for the respondent No.10 along with M/s. Taha Alizai, Zeeshan Khan and Jawad Raja Advocates.
Mr. Kashif Hanif, advocate for the respondent/NEPRA.
Mr. Omer Soomor, advocate for the respondent along with Danish Nayyer, advocate.
Mr. Aemal Kansi, advocate for the respondent along with Ms. Sehar Rana Advocate along with Syed Irfan Ali Shah, head of Legal Affairs, K.Electric.
Malik Naeem Iqbal, advocate for the respondent.
Mr. Hassan Ali, advocate for respondent No.6.
Mr. Muhammad Aminullah Siddiqui, Asstt. Attorney General.
Mr. Saifullah, AAG.
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Constitutional Petition No.D-1511 of 2005 was filed on 22.11.2005 by K.E.S.C. Labour Union (Petitioner No.1) along with Administration Officer employed by K.E.S.C. (Petitioner No.2), a shareholders in the K.E.S.C. (Petitioner No.3) and a local businessman, claiming to be spirited taxpayer (Petitioner No.4), seeking a declaration to the following effect:-
i) Declare that the privatization process adopted by the respondent Nos.2 & 3 in respect of the sale of shares and management control in KESC was illegal, arbitrary, irrational and without any lawful authority;
ii) Declare that the purported sale of the respondent No.1’s shareholding and management control in KESC to the Hassan Associates consortium is void and of no legal effect having come about in an illegal and malafide manner and being opposed to law and public policy;
iii) Restrain the respondent Nos.1 and 2 from carrying through with the privatization of KESC without an independent and rational assessment of the merits and demerits of privatization at the current stage and disseminating the result of such assessment to the public at large;
AND/OR
iv) Restrain the respondents No.1 and 2 from carrying through with any transfer of the respondent No.1’s shareholding and management control in KESC to the Hassan Associates consortium or any other party without initiating a fresh and transparent bidding process and considering each bid on its merits;
v) Direct the respondents No.1 and 2 to make a full disclosure of all facts relating to the KESC privatization upto date and hereafter and of the terms and conditions of any proposed sale and the details of any parties to whom such a sale is proposed to be effected;
vi) Grant costs of the proceedings;
2. On 18.05.2011, an application under Order 1 Rule 10 CPC was filed with the prayer to join M/s. Abraaj Investment Management Limited as a party in the instant petition by the petitioners on the ground that K.E.S.C. was transferred to Hasan Associates Consortium in terms of shareholding (with a power) in favour of M/s. Abraaj Investment Management Limited, therefore, transaction to be examined by the Court. Mr. Sajid Zahid, learned counsel representing M/s. Abraaj Investment Management Limited without prejudice and subject to all just exceptions extended no objection to implead M/s. Abraaj Investment Management Limited as a party in the aforesaid petition, whereafter, pursuant to Court order dated 18.05.2011 they were added as respondent No.10 and amended title to this effect was filed. Record shows that large number of hearing took place in the aforesaid petition, whereas, several Misc. Applications were filed on which orders were passed from time to time, however, before the hearing in the above petition could be concluded two (02) other C.P.Nos.D-3775 & 3776 of 2012 were also filed by the K.E.S.C. Labour Union, relating to somewhat similar controversy agitated through instant petition, which were taken up for hearing along with aforesaid petition at the joint request of the learned counsel for parties pursuant to order dated 03.02.2015. Record further reveals that two (02) other C.P.Nos.D-3767 and 3818 of 2015 were also filed relating to similar controversy, which were also clubbed along with aforesaid petitions, whereafter, all the above petitions have been heard together, therefore, the same are disposed through common judgment. It is pertinent to note that before this Bench Mr. Salahuddin Ahmed Advocate has made his submissions on behalf of the petitioners, whereas, no other counsel representing the petitioners in other Constitutional Petitions have shown their appearance on behalf of petitioners, nor submitted written synopsis inspite of repeated opportunities provided in this regard. Mr. Abdul Sattar Pirzada Advocate representing the Privatization Commission along with Qazi Umair Ali Advocate, whereas, Mr.Sajid Zahid Advocate along with Taha Alizai represented the respondent No.10 (M/s. Abraaj Investment Management Limited). Mr. Kashif Hanif Advocate represented the NEPRA. Mr. Aemal Kansi Advocate represented the K.Electric, Malik Naeem Iqbal Advocate, represented the respondent and Mr. Hassan Ali Advocate represented the respondent/Premier Mercantile (Pvt) Ltd. Learned counsel for the parties in addition to their verbal arguments have filed written synopsis, which can be summarized in the following terms:-
3. Mr. Salahuddin Ahmed, learned counsel for the petitioners has argued that petition was filed on 22.11.2005 challenging the ongoing privatization of Respondent No.3 – KESC (now K-Electric). The privatization process was completed on 29.11.2015 and, resultantly, the controlling interest in KESC was transferred by the Respondent No.1 (the Government of Pakistan – ‘GOP’) to a consortium led by the Al-Jomaih Holding Company [‘Al-Jomaih’]. In 2008, Al-Jomaih transferred its controlling interest in KESC to Abraaj Investment Management Limited [‘Abraaj’]. As a result, the petition was amended to implead Abraaj and challenge the subsequent transfer as well. Presently, Abraaj has entered into an agreement to transfer the controlling interest in KESC to Shanghai Electric Power Company [‘SEPCO’] albeit the transfer is yet to be finalized. The Petitioners have preferred applications to restrain this proposed transfer and to implead SEPCO. Notice was ordered thereon on 17.10.2016 but the applications have not been finally decided and are to be disposed off along with the main petition.
4. The following questions of law arise out of the petition and the counter affidavits filed as well as the arguments canvassed at the bar during hearing:
i) Whether the Petitioners have locus standi to challenge KESC’s privatization?
ii) If so, whether relief is to be denied due to the Petitioners’ unclean hands?
iii) In any event, whether the petition is barred due to the alternate remedy provided under the Privatization Commission Ordinance, 2000 [‘PCO 2000’]?
iv) Whether KESC (a vertically integrated electric utility solely responsible for generating, transmitting and distributing electricity to all of Karachi) could at all be transferred out of State ownership/control under the scheme of our Constitution?
v) If so, whether such privatization (along with the subsequent transfer to Abraaj and the proposed transfer to SEPCO) lacked the mandatory approval of the Council of Common Interests [‘CCI’] under Article 154 of the Constitution?
vi) In any event, whether GOP’s KESC shares were sold at a gross under-value?
vii) Whether the bidding process was collusive and wrongly converted to a negotiated sale in favour of Al-Jomaih which was given further benefits and concessions that were not factored in whilst determining the value of KESC shares?
viii) In any event, whether it would now be equitable or practicable to grant the full relief and revert KESC to the ownership/control of the GOP? If not, whether any (and what) alternate relief can be granted to do complete justice?
Maintainability
Locus standi
5. The Petitioner No.1 is KESC’s registered trade union. The Petitioner No.2 is an administration officer in KESC and is not a union member. The Petitioner No.3 has been a shareholder in KESC since before the privatization. The Petitioner No.4 carries on business and resides in Karachi and is a tax-payer and a KESC consumer.
6. The right to electricity has been recognized by the Supreme Court as a fundamental right guaranteed by Article 9 of the Constitution. As such, questions relating to KESC’s ownership and management and its transfer to private hands in violation of law and/or at an under-value have a material bearing on the provision of this fundamental right and are of vital interest to every citizen of Karachi. All citizens of Karachi can be termed, therefore, as “aggrieved persons” as per the definition of the term adopted by the Supreme Court. The Petitioners here, however, have a closer and substantial interest in the affairs of KESC than ordinary citizens of Karachi. Even otherwise, the specific locus standi of a trade union to challenge the privatization of an entity has been upheld by the Supreme Court in the Steel Mills privatization case.
Equitable Relief & Unclean Hands
7. Abraaj and KESC claim that the instant petition is not brought in the genuine public interest but with ulterior motives on part of the KESC Labour Union which is using the same as a bargaining tool in its labour disputes with the KESC management. Abraaj filed a Memorandum of Settlement dated 3.4.2010 [‘the Settlement’] with the KESC Labour Union and the Union’s letter dated 26.6.2010 to claim that the Union had committed to withdrawing the instant petition. As such, allowing the Union to press this petition in violation of its commitment would be inequitable. Abraaj also submitted – during oral arguments – copies of the Memos in CP Nos.3775 and 3776 of 2012 filed by the Union to show that it had actually accepted the privatization and was – in these subsequent petitions – seeking relief (i.e. transfer of certain shares to workers) that was only available post-privatization. This amounted, according to Abraaj, to approbation and reprobation. The Union – having waived its right to challenge the privatization – could not, now, be heard in opposition to the privatization.
8. The simplest answer to this objection is that the petition is preferred by four independent petitioners. Petitioners Nos.2 to 4 are not members of the KESC Labour Union nor are they liable or bound by the actions of the latter. No malafides or unclean hands have been shown on their part. They have not entered any settlement nor made any commitment to the KESC management. Nor are they party to any other petition. As such, even assuming – but not admitting – any inequitable conduct or waiver on part of the KESC Labour Union; the same could not be attributed to the other petitioners who remained fully entitled (as concerned residents of Karachi) to press the instant petition.
9. As far as the two subsequent petitions filed by the Union are concerned, they sought to enforce two separate and independent obligations on part of the GOP to transfer part of their shareholding in KESC to KESC workers. It is respectfully submitted that such petitions are without prejudice to the instant petition. Moreover, the instant petition has been pending for more than 12-years and the Union was entitled to seek – in the meanwhile – alternate remedies for the betterment of KESC workers without detracting from the force of the instant petition. As such, the Union has preferred the instant petition with clean hands and in all good faith.
Alternate remedy under the Privatization Commission Ordinance 2000
10. The Respondents argue that any challenge to KESC’s privatization (which was carried out pursuant to the PCO 2000) must be made under section 28 thereof which confers exclusive jurisdiction upon the High Courts to adjudicate “all matters related to, arising from or under or in connection with this Ordinance.” The Respondents argue that this alternate remedy ousts the writ jurisdiction of this Court.
11. In the first place, section 28 only covers cases where there is a challenge to the privatization process of an entity on the grounds that it violated the PCO Ordinance or the Rules or procedures prescribed thereunder. Whether KESC could have been privatized at all – in view of its quintessentially State functions pertaining to the provision of a Fundamental Right – under the scheme of our Constitution or whether such privatization could have been permitted without CCI approval under Article 154 of the Constitution are not matters falling within section 28. They can only be decided in this Court’s constitutional jurisdiction.
12. Moreover, the Supreme Court has observed at paragraph 28 in the Steel Mills judgment that section 28 of PCO 2000 applies only to matters relating to “the rights of and obligations of the parties who are the subject of the Ordinance. As far as pro bono publico cases are concerned, those shall not be covered…” The Petitioners herein were not bidders in the auction of KESC and were conferred no rights or obligations under the PCO 2000. They have filed the instant petition pro bono publico.
13. It is not the Petitioner’s case that the State must personally perform all functions pertaining to the provision of Fundamental Rights to the people. In some cases, it may be more beneficial to delegate such functions to the private sector provided that the State maintains sufficient safeguards and regulatory control to ensure that such delegation does not – in any manner or form – impair or curtail the peoples’ realization of Fundamental Rights. In other cases, the Fundamental Right concerned and/or the functions being performed may be of such nature that any delegation would be impermissible and the State must take full and direct responsibility itself.
14. This assessment of whether any particular state function can be delegated or not has to be made by the courts in each country in light of their own constitutional ethos and history. Different judiciaries have chosen to draw the line differently. In the United States of America, for example, even the State function of detention and punishment has been outsourced to profit-making private companies and nearly 12% of all federal prisoners are housed in privately-owned prisons. In the United Kingdom, the Conservative government has even proposed partial privatization of the court system without any objection to its constitutionality! That is one extreme of the laissez faire economic spectrum.
15. On the other hand, in Greece, the privatization of water supply was held to be unconstitutional by its highest constitutional court. The court held that the Greek Constitution bound the State to protect the citizens’ right to health and the transformation of a public utility into a private profit-making entity introduced uncertainty in the provision of affordable and high quality water to the people (which was essential to ensure their health). The insecurity introduced through the delegation of this essential utility to the private sector could not be remedied simply through State regulation/supervision over the private company’s performance. Similarly, the Indonesian Supreme Court reversed the privatization of two water supply companies after a period of twenty years by holding that such privatization was tantamount to denying citizens their basic right to water. Moreover, the Constitutional Court of Indonesia has also held that the law permitting privatization of electricity was conditionally unconstitutional as the State was bound to “control” vital branches of production that affected public livelihood and this term could not be reduced and narrowed down to (indirect) regulatory control but meant direct and active control. In Israel (unlike the US and the UK) the privatization of prisons was held to violate the citizens’ constitutional right to dignity.
16. It is submitted that the Constitution of Pakistan does not envisage a laissez faire capitalist economic system. It was aimed at establishing a system of “Islamic Socialism”. Indeed, Article 2-A of the Constitution makes the Objectives Resolution a substantive part of the Constitution where an obligation is laid down upon the State to ensure “social justice”. Moreover, our Supreme Court has taken an expansive view of the “right to life” enshrined in Article 9 of the Constitution as not merely a guarantee of vegetative existence but as entitling every citizen to the basic amenities of modern civilized life. At the same time, the Principles of Policy set out in Article 38 of the Constitution – especially clauses (a), (b) and (c) thereof – bind the State to promoting the social and economic well-being of the people and raising their standard of living and providing them reasonable facilities for work and leisure and with the basic necessities of life. In this view of the matter, in the Pakistani constitutional context at least, the provision of a basic amenity such as electricity cannot be left to the vagaries of the marketplace and the State must assume direct and active responsibility for the same.
17. Even otherwise, the Pakistani constitution explicitly mandates State control over essential electric utilities like the KESC through Article 154 (1) of the Constitution – which reads as follows:
“The Council shall formulate and regulate policies in relation to matters in Part II of the Federal Legislative List and shall exercise supervision and control over related institutions.” [Emphasis added]
18. The subject of electricity falls within this List. KESC is a related institution. Naturally, the CCI can only exercise effective supervision and control over such institutions if they remain under ownership of the State. If they are privatized, the CCI shall be seriously hindered in the performance of its constitutionally-mandated duty of supervision and control. Needless to say, a constitutional functionary cannot abdicate, curtail or refuse to perform its constitutionally mandated duty. Thus even if the CCI itself acquiesced to the privatization, the transaction would still violate Article 154 (1). It is, therefore, essential that ownership and control of KESC be returned to the State so that CCI can properly perform the mandatory duty cast by Article 154.
Whether KESC’s initial privatization (and its subsequent transfer to Abraaj and now its proposed transfer to SEPCO) lacked the mandatory approval of CCI
19. Without prejudice to the above contention that the CCI could not have given its consent to KESC’s privatization as that would leave the CCI unable to perform its duty mandated by the second part of Article 154 (1); it is submitted that – in any case – the consent of the CCI to KESC’s privatization was lacking.
20. It was an undisputed position between the parties, especially in view of the judgment in the Steel Mills case, that KESC’s privatization required prior approval from the CCI. The Steel Mills judgment further clarifies that this objection may be raised by any member of the public including a trade union and not necessarily the federal or a provincial government. The GOP filed, in this regard, a statement dated 13.9.2006 attaching CCI’s purported approval to KESC’s privatization. This so-called approval clearly shows that while the CCI accorded approval to several other proposed privatizations but only granted “post-facto approval to the completed privatizations at Annex-2 of the Summary”. Annex-2 of the Summary includes the privatization of the GOP’s 73% shareholding in KESC. Needless to say, post-facto approval would only be required if prior approval had not been taken.
21. It is, of course, axiomatic that when the law requires something to be done in a particular manner, it must be done in that manner and no other manner shall suffice. As such, none of the counsels for the Respondents tried to argue that the post-facto approval of the CCI was sufficient to satisfy the law’s requirement. Instead, they staked their entire case on a previous decision of the CCI dated 12.9.1993. They claimed that KESC’s privatization was already approved on 12.9.1993 and the post-facto approval in 2006 was merely done by way of abundant caution.
22. However, a perusal of the decision dated 12.9.1993 makes it clear that the CCI never approved KESC’s privatization. The decision states that the CCI considered the summary dated 9.9.1993 submitted by the Ministry of Water & Power and approved, inter alia, the “Plan for Privatization of WAPDA as recommended by Privatization Commission (Para 5 and Annex VI)” [Emphasis added]. It does not mention KESC. Similarly the summary dated 9.9.1993 put up by the Ministry of Water & Power only seeks CCI’s approval to the “Plan for Privatization of WAPDA as recommended by Privatization Commission (Para 5 and Annex VI)” [Emphasis added]. The Ministry did not even seek the CCI’s approval for KESC’s privatization. The only mention of KESC at all is in the Minutes of the Meeting of the Privatization Commission where it is observed that KESC should be privatized as is without disaggregating the generation, transmission and distribution. When all the documents are viewed together, however, it is clear that it was only the privatization of WAPDA which was being discussed at various levels for nearly two years. KESC was mentioned merely in a passing observation in one PC meeting to draw a contrast to the plan for WAPDA’s privatization where the generation, transmission and distribution sectors would be divided before privatization. KESC’s privatization was not included in the Ministry of Water & Power’s Summary for the CCI nor did the CCI ever pass a specific order in relation thereto. To argue that the CCI had approved KESC’s privatization when it specifically stated that it was approving WAPDA’s privatization (just because the former is also mentioned in the PC’s Minutes of Meeting) is, with respect, a patently disingenuous stance.
Whether the GOP sold 73% of its shareholding at a gross undervalue?
23. One of the main reasons given by the 9-member bench of the Supreme Court for annulling the Steel Mills privatization was that the PC’s valuation of the Pakistan Steel Mills (prepared with the assistance of M/s A.F. Fergusons – an affiliate firm of Price Waterhouse Coopers [‘PWC’], Chartered Accountants) was made using the discounted cash flow (DCF) method which was a method that tended to favour the buyer and not the seller and that the underlying asset value of land belonging to the Steel Mills had been ignored. The Supreme Court observed that the valuers should have adopted a methodology that took into account the underlying asset value rather than simply the cash flows of the company. The Supreme Court further observed that it would have been better to have listed the shares of the Pakistan Steel Mills on the stock-exchange so that the market could properly determine the correct value of the its shares.
24. The Respondents have argued – solely on the basis of PWC’s Valuation Analysis – that the stock market price of KESC shares was not reflective of the real value of KESC shares as only a very small percentage of shares were being traded on the stock exchange and the stock market prices were inflated. However, the Supreme Court – in the Steel Mills judgment – refused to blindly accept the valuation report and there is no reason for this Court to do so either (especially since PWC’s Valuation Analysis itself only gives vague and speculative reasoning for the much higher market price of KESC shares). At the very least, given the huge difference between the stock market capitalization value and the DCF valuation approach, the Respondents bore a heavy burden to otherwise justify the adoption of the DCF approach – which they failed to do.
25. Even otherwise, a careful examination of PWC’s Valuation Analysis shows that KESC was grossly under-valued even according to the DCF method. The DCF method depends on an estimate of the cash flowing in and out of the company in the foreseeable future and gauges the ultimate value of the company from such estimated cash flows. These assumptions of the future income and expenses must be accurate for the estimate of the actual value of the company to carry any weight or meaning. If these assumptions are inaccurate, the DCF valuation model will produce a “garbage in, garbage out” result mentioned in the Steel Mills judgment.
26. The first assumption made by PWC in the valuation of KESC was that the tariff mechanism and structure fixed by NEPRA for KESC would be capped at the notified level for a period of seven years after privatization. This would mean that the average tariff charged by KESC from consumers (in real inflation-adjusted terms) would gradually decline by around 4.4% over the first seven years after privatization. This assumption was made by PWC due to the NEPRA Tariff Determination dated 10.9.2002 which categorically stated that the consumer-end tariff structure and mechanism notified by NEPRA for KESC would remain the same for seven years after privatization.
27. This assumption was wrong, because - less than three months after privatization – KESC moved an application for revision of tariff mechanism. Astonishingly, this application was supported by the PC! In particular, the application sought waiver of the 4% cap applied on KESC average sale in quarterly fuel price and purchase cost adjustment. It also sought change in the price mechanism of gas for the next three quarters. According to KESC itself, the application of the 4% cap set out in the previous NEPRA Tariff Determination had lost the company revenue of Rs.1,843 million in one year! In addition, the existing gas price mechanism was costing KESC a sum of Rs.344 million per quarter (thus around Rs.1,400 million per year)! Both the requested changes to the tariff mechanism were accepted by NEPRA. Thus KESC increased its revenue by around Rs.3.2 billion per year just through these revisions to the notified tariff. Over the course of seven years, this would come to around Rs.22 billion. Needless to say, the PWC’s valuation and fixation of reserve price did not factor in this enhancement of KESC’s revenues (through revision of tariff structure immediately after privatization). PWC – like all other prospective KESC buyers – were operating under the assumption that the tariff mechanism would be fixed for seven years after privatization. Had they known of this Rs.22 billion enhancement to KESC’s future revenues, there would have been greater interest in the privatization and higher bids would have been forthcoming.
28. Not contented with the aforesaid revision of tariff, in 2009, the KESC again sought (and successfully obtained) another enhancement of its tariff from NEPRA. In particular, it sought an increase in tariff for unanticipated Operation and Management costs. KESC argued that it was paying salaries to more than 7000 unneeded employees who had been inducted in pre-privatization days and it could not remove such employees due to its commitment to the GOP during privatization. NEPRA accepted this argument and allowed KESC to charge consumers an extra Rs.0.15/kWh. Soon after getting such tariff enhancement, however, KESC terminated the services of more than 4000 employees. To this date, however, KESC continues to enjoy the benefit of this enhanced tariff although the employees for whom it was granted are no longer on KESC’s payroll. NEPRA also granted KESC’s requests for various other amendments to its tariff structure. KESC has earned billions of extra rupees due to such changes. Needless to say, the extra revenues brought in by these amendments were also not factored into the determination of KESC’s value at the time of privatization. This fact was noted by a dissenting member of the NEPRA Board who observed that the privatization was conducted on the basis that the NEPRA tariff for KESC would remain fixed for seven years after privatization (as stated in NEPRA’s previous determination itself) and had it been known that NEPRA would allow an enhancement in tariff after only three years – the prospective buyers of KESC may have been willing to pay a much higher price.
29. The second assumption made by PWC while determining KESC’s value through the DCF method was in respect of its estimated future expenses. Naturally, for any utility company, its main expense is the cost of buying or generating electricity. Some of the electricity distributed by KESC at the time of privatization was self-generated. However, it was also buying electricity from other sources (such as KANUPP and from private powerhouses) and from the national grid (NTDC/WAPDA). As per the NTDC Tariff Determination of April 2004, electricity purchased by KESC from the national grid would be charged at the “marginal cost of generation”. This assumption was used by PWC (and naturally by any prospective buyers) in order to work out the future expenses of KESC (and hence its actual value).
30. After privatization, however, KESC refused to buy electricity from NTDC at the “marginal cost of generation” and insisted that it would only pay NTDC the “average cost of generation” as was being paid by (non-privatized) DISCOs (distribution companies) throughout the country. This dispute continued until 2009 (after Abraaj assumed control over KESC) when GOP abruptly caved and promised not only future electricity from NTDC would be sold to KESC at the “average cost of generation” but that the GOP would itself assume KESC’s obligation towards NTDC/WAPDA for electricity purchased between 2005 and 2009. Thus the difference between the “marginal cost” and “average cost” for electricity taken from the national grid by KESC between 2005 and 2008 would be paid by the GOP and thereafter KESC would only pay NTDC at the “average cost”.
Whether the bidding process was collusive and wrongly converted to a negotiated sale to Al-Jomaih which was given further benefits and concessions not factored in whilst determining the value of KESC shares?
31. The bidding process for KESC started with the PC’s advertisement of 30.9.2003 inviting Expressions of Interest [‘EOIs’] from prospective buyers. Five consortiums initially submitted their EOIs. These were:
i) Kanooz al Watan Consortium
ii) Hassan Associates Consortium
iii) IPC Power Corporation Consortium
iv) ABB Pakistan/USA
v) CornerStone Partners
The five potential bidders were then invited to submit their Statement of Qualifications [‘SOQs’]. The purpose behind requesting SOQs was to allow the PC to evaluate, inter alia, the financial and technical capabilities, security clearances and past track record of each member of the proposed bidder consortiums. Parties would only be allowed to enter bids if they were pre-qualified by PC after evaluation. Out of the five potential bidders, ABB (for reasons best known to them) did not submit a SOQ and joined Hassan Associates Consortium [‘the HAC Consortium’] instead.
32. Thereafter, the PC evaluated the bidding consortiums (on the basis of the financial and technical qualifications and security clearances of consortium members as mentioned in their SOQs) and proceeded to pre-qualify the first three prospective bidders while dropping Corner Stone Partners. At this stage, therefore, the three pre-qualified bidders comprised as follows:
|
Consortium No.1 |
Consortium No.2 |
Consortium No.3 |
|
Kanooz Al Watan (Lead) Siemens
[‘the Kanooz Consortium’] |
Hassan Associates (Lead) Ranhill GE International ABB Al Bayarak al Baida [‘the HAC Consortium’] |
IPC Power Corp. (Lead) Integrated Energy Ltd. ESKOM Enterprises
[‘the IPC Consortium’] |
However, on 4.10.2004, the IPC Consortium withdrew from the bidding process (after having carried out extensive due diligence) allegedly due to dissatisfaction with the terms of the draft Implementation Agreement (circulated to all bidders) setting out the terms on which KESC would operate post-privatization.
33. Instead of departing from the bidding process altogether, however, IPC (like ABB before it) joined the HAC consortium. Moreover, three new companies namely AKD Securities & Safe Deposit Company Limited, Premier Mercantile Services Limited and Trans-Africa Projects also became part of the HAC consortium. On the other, two companies namely Ranhill and Al Bayarak al Baida left the HAC Consortium. As a result, the revised structure of HAC Consortium was as follows:
Hassan Associates (Lead)
GE International
ABB
IPC Power Corp.
Trans-Africa Projects
AKD Securities & Safe Deposit Company Limited
Premier Mercantile Services Limited
34. Needless to say – after joining of four new companies and departure of two of the old ones – this new HAC Consortium was very different from the one originally vetted and pre-qualified by the PC. At very least, prior written permission for the changes needed to be taken from the PC. In any event, fresh evaluation (from a technical, financial and security point of view) of the reconstituted consortium was necessary before it could be allowed to enter a bid. Nevertheless, the PC blindly accepted these changes and the reconstituted HAC Consortium was permitted to enter the bidding without obtaining any permission or undergoing fresh evaluation.
35. Apart from the HAC Consortium, the only other bid was submitted by the Kanooz Consortium (comprising Kanooz ul Watan and Siemens). The Kanooz bid was higher and accepted by the PC on 7.2.2005. At this final stage, however, the Kanooz Consortium suddenly and mysteriously backed out and even opted to forfeit the Rs.100 million earnest money paid by them! At this point, on 18.6.2005, the Cabinet Committee on Privatization [‘CCOP’] directed (unlawfully as elaborated later herein) that negotiations be started with the second highest bidder (the HAC Consortium) to match the price offered by the Kanooz Consortium.
36. The lead member of the HAC Consortium – namely Hassan Associates Private Limited – indicated its readiness to match the highest bid. However, it informed the PC that six out of the seven HAC Consortium members (as at the time of submission of its bid) were no longer part of the Consortium. Moreover, Hassan Associates would no longer be lead partner and would only purchase 1% of the KESC shares (out of the total 73% being sold) while the remaining 72% shares would be purchased by a new party, Al Jomaih. Also, Siemens (previously a partner in the Kanooz consortium) would join the HAC Consortium – which would now have the following structure:
Hassan Associates Private Limited (1% equity)
Al Jomaih (72% equity)
Siemens (Operations & Management Partner)
37. This new HAC Consortium also sought certain concessions from the GOP in relation to the original terms of sale. Firstly, they demanded that the conversion of redeemable preference shares in KESC to ordinary shares be changed from a 2:1 ratio to a 1:1 ratio. This change basically halved the necessary investment in KESC that the buyer would have to make. Secondly, they demanded that they be allowed to secure the subscription amount of Rs.4.38 billion as redeemable preference shares to be paid by the buyer though a bank guarantee rather than having to pay immediate cash upfront (allowing huge cash and liquidity savings). These concessions (as well as permission for the wholesale reconstitution of the HAC Consortium) were granted by the PC and approved firstly by the CCOP and then by the whole Cabinet. However, at the GOP and PC’s request, Premier Mercantile Services was eventually included in the reconstituted HAC Consortium.
38. Moreover, the PC and Hassan Associates misled the Privatization Board, the CCOP and the Cabinet about the actual purchasers of KESC. Approvals from both the CCOP and the Cabinet were taken on the basis that the main buyer (72% KESC shares) was Al Jomaih and minor equity stakes would be purchased by the other members of HAC Consortium. In fact, 72% of KESC shares were actually sold to an off-shore holding company registered in Cayman Islands (KES Power) while 1% and 0.5% shares were purchased by Hassan Associates and Premier Mercantile Services respectively. Moreover, Al Jomaih only owned 60% of KES Power and the other 40% was owned by yet another off-shore company namely Denham Investments. The name, credentials and background of this latter company were never vetted, considered or discussed at any forum and remain a mystery. Indeed, its existence and indirect ownership of nearly 28.8% of KESC shares is only revealed in the final Share Purchase Agreement itself.
39. The Petitioners’ legal objections to the bidding process and negotiated sale of KESC outlined above are as follows:
a) The purpose of sale through bidding is to ensure receipt of the highest possible price by making potential buyers compete against each other. As per general practice, bids were invited through sealed envelopes in the KESC privatization. This ensures that the potential buyers do not know the bid being made by each other. This reduces the chance of collusion or concerted practice between bidders to lower the bid amount. The element of honest and genuine competition between prospective buyers is essential for the success of any bidding process. In the present case, five consortiums submitted their EOIs for the KESC privatization. Of those, ABB first joined hands with the HAC consortium. Cornerstone was not pre-qualified by the PC. Next, IPC joined hands with the HAC Consortium leaving only two bidders in the field. Eventually, the Kanooz consortium backed out after acceptance of its bid and one of the members of the Kanooz consortium (Siemens) joined the HAC Consortium instead (that was now left as the last man standing). It is inexplicable why all the other prospective bidders were so reluctant to compete against the HAC Consortium and instead used every opportunity to join hands with them (and were allowed to do so by the PC). This casts a shadow over the transparency and genuineness of the competition in the KESC bidding process.
b) The kindness shown to the HAC Consortium by all its so-called competitors was only matched by the PC which allowed it to add and delete members of its consortium at will without ever seeking the PC’s prior permission. Nor did the PC – despite this continuous exit and entry of consortium members – ever re-evaluate the reconstituted Consortium after considering the financial and technical capabilities, security clearances and track record of all entering and exiting members. It was a condition of the bidding process that bidders would only be allowed to enter bids if each of their constituent consortium bidders had been duly pre-qualified by the PC. This condition was framed pursuant to Rule 3 (b) and 4 (1) (a) of the Privatization (Modes & Procedure) Rules 2001 [‘the PC Rules’]. The relaxation of the PC Rules and this condition for the Hassan Associates Consortium was arbitrary and unreasonable.
c) Eventually, the reluctance on part of all other bidders to put up any genuine competition to the HAC Consortium served as an excuse for PC to scrap the bidding process altogether and go for a negotiated sale to a new Hassan Associates partner (Al Jomaih) who emerged – out of the blue – from nowhere. Rule 4 of the PC Rules provides that, ordinarily, privatization shall be done through bidding. Rule 6 provides, however, that PC may adopt the negotiated sale process if (and only if):
[1] (a) in the opinion of the Board, sufficient interest for a privatization has not been received;
(b) the Board has recommended to the Cabinet and the Cabinet has authorized the Commission to initiate the negotiated sale process;
(c) the Board has approved the party or parties interested in purchasing the property being privatized;
(d) a team for carrying out the negotiated sale process has been constituted by the Board which shall include a representative from the Ministry under whose jurisdiction the entity being privatized falls; and
(e) the Board has delegated full power to the negotiation team for carrying out the negotiated sale process and defined the parameters for negotiation.
(2) On conclusion of the negotiated sale process, the terms and conditions of the transfer of the property to be privatized to the interested party shall be submitted to the Cabinet for consideration and approval.
Here, Rule 6 (1) (a) was violated because there was no opinion of the Privatization Board to the effect that “sufficient interest for privatization has not been received”. If, for example, no one came forward to submit EOIs after the PC had advertised the upcoming sale of KESC – indeed the Board could have opined that there was insufficient interest in privatization and recommended adoption of the negotiated sale process. However, once the Board had determined that there was sufficient interest in privatization and had conducted a bidding exercise and even accepted the highest bid – the bidding process stood completed. At this point, it was no longer open for the Board to say that there was insufficient interest in the privatization and recommend adoption of negotiated sale. At this juncture, even if the Kanooz consortium had backed out – the only course open for the PC was to re-advertise the KESC sale and then (after gauging investor interest) adopt the appropriate course.
d) In any event, Rule 6 (b) was violated inasmuch as the decision to commence sale negotiations with the HAC Consortium was made on 18.6.2006 by the CCOP rather than the Cabinet itself.
e) Rule 6 (c) was violated as the proposed buyer must be approved by the Privatization Board before entering negotiations. Here, the CCOP had only approved negotiations with the HAC Consortium (as it then stood i.e. with the seven members mentioned in paragraph 45 above) and not with wholly new parties. Al Jomaih was not approved prior to start of negotiations. After negotiations had started, however, it was pointed out to the PC that the HAC Consortium stood reconstituted and was now made up of Hassan Associates, Al Jomaih and Siemens and that Al Jomaih would now effectively be the main purchaser. At this stage, both the Privatization Board and CCOP agreed to the composition of the reconstituted HAC Consortium noting that the major member – Al Jomaih – was “a financially strong and reputable party”. Unlike all the original bidding participants, Al Jomaih was not required to submit and undergo a rigorous vetting of its Statement of Qualifications. Moreover, it was not even mentioned to the CCOP or Cabinet that Al Jomaih was not purchasing the KESC shares itself but through a holding company called KES Power which was a 60-40 joint venture between Al Jomaih and one Denham Investments. Neither KES Power nor Denham Investments were approved by the Privatization Board as per the requirements of Rule 6 (c). No disclosure whatsoever in respect of the background, credentials and ultimate ownership of Denham Investments was demanded by the PC or GOP nor has such disclosure been made till today. The sale of a strategic asset like KESC in such a casual manner violated not only the terms of the original bidding process and the PC Rules (which contemplated extensive pre-qualification and vetting) but was also unreasonable and contrary to national interest.
f) Rule 6 (d) was violated inasmuch as the negotiation team comprised exclusively of three PC officials and there was no representative of the Ministry of Water & Power on the team.
g) Rule 6 (2) was violated as the Cabinet only approved sale to the “Reconstituted Consortium of Hassan Associates”. The members of this reconstituted Hassan Associates Consortium did not – as per the Summaries before the CCOP or Cabinet – include either KES Power or Denham Investments. Thus, the Cabinet never actually approved the transfer of KESC shares to KES Power (in whose favour – along with Hassan Associates and Premier Mercantile Services – the GOP eventually executed the Share Purchase Agreement) nor to Denham Investment (which became the indirect owner of KESC shares by virtue of its 40% ownership of KES Power). The Respondents tried to argue that KES Power was merely a Special Purpose Vehicle [‘SPV’] entity that purchased the KESC shares on behalf of the approved buyer Al Jomiah. In fact, KES Power was not Al-Jomaih’s wholly owned subsidiary but was actually a joint venture between Al-Jomaih and the unapproved Denham Investment. Moreover, in the Steel Mills case, the Supreme Court held that when the Cabinet approved sale to a particular entity, the agreement had to be entered with that entity only and not with some SPV or off-shore subsidiary company. Subsequently, on 22.1.2007, an amendment was brought to the PC Rules and a new Rule 7 was inserted whereby an “SPV incorporated outside Pakistan, which is wholly and directly or indirectly owned and controlled by the bidder or purchaser” could purchase property in a privatization provided that the bidder/purchaser guaranteed its performance and obligations. However, the Respondents’ reliance on Rule 7 is misplaced that Rule framed in 2007 could not have protected KESC’s sale to a Cayman Islands-based SPV back in 2005. Moreover, as explained above, KES Power was not “wholly” owned and controlled (whether directly or indirectly) by the approved purchaser Al Jomiah since Denham Investments owned 40% of KES Power. Finally, no guarantee was ever taken from Al Jomaih guaranteeing the performance of KES Power.
h) The concessions granted to the reconstituted HAC Consortium on part of the GOP in the sale of KESC mentioned in paragraphs 38 and 39 above were not originally offered to the prospective bidders during the bidding process. These were out of the way and non-transparent benefits wrongly granted by the PC. In particular, the concession set out in paragraph 39 (a GOP indemnity worth more than Rs.500 million) was not even approved by the Privatization Board nor the CCOP and/or Cabinet and yet was surreptitiously introduced in the final Implementation Agreement in violation of Rule 6 (2).
40. Furthermore, there is no inherent impracticability in the reversal of the transaction. The transfer of KESC ownership and control was effected through GOP’s sale of 72% of KESC shares to KES Power (the Cayman Island holding company previously controlled by Al-Jomaih and now by Abraaj) and 1% shares to Hassan Associates and 0.5% shares to Premier Mercantile Services. While this court could simply declare such transfer/sale to be a nullity with the effect that all such shares would automatically be deemed to vest in the GOP – it is argued that some of those shares have been sold and that KESC has also carried out fresh rights issues of shares since then.
41. However, no particular difficulty is thrown up by this objection. To this day, KES Power still owns 66.4% of KESC shares. All that is required to revert KESC control and majority ownership back to the GOP is a direction that the 66.4% shares still held by KES Power in KESC be transferred back to the GOP (and SECP to do the needful in case KES Power fails to abide by such direction) and GOP to appoint its own nominees to the KESC Board. Naturally, in such a case, KES Power would be entitled to return of the sale consideration paid to the GOP (plus cost of funds thereon but less any dividends realized and less any profits derived from sale of any shares). It may be noted that while the sale consideration paid to the GOP at that time was only approximately $265 million, the actual and present value of KES Power’s shareholding in KESC is more than $1.77 billion. As far as any claim by KES Power in respect of any capital injection in KESC after the privatization is concerned, that would need to be adjusted against the hundreds of billions of rupees claimed by the GOP being the wrongful concessions/benefits granted to KESC and its private sponsors. As per agreement, these claims and counter-claims would naturally be adjudicated by the competent court of law in Pakistan.
42. Similarly, the argument that without privatization the GOP would still be subsidizing KESC and hence it would be harmful to the public exchequer to reverse the privatization is unfounded. In fact, the level of the combined GOP subsidy to KESC is higher now than in 2005.
43. On the other hand, without prejudice to the foregoing, if this Court is not convinced that a case for immediate reversal of privatization is made out and that some further enquiry in the circumstances of the privatization or the benefits/concessions (unlawfully) granted to KESC’s private owners or their ability to live up to their responsibilities and obligations to the people of Karachi is required it may refer the matter to an appropriate forum for such enquiry. In such case, the most appropriate forum would be the CCI which – under Article 154 of the Constitution – is tasked with the supervision and control of electricity-related institutions. In the circumstances, the CCI may be directed to perform their constitutional duty by reviewing the KESC’s privatization and its post-privatization history and, in particular:
i) Examine whether the KESC privatization was conducted in a fair, reasonable, transparent and lawful manner and whether it was sold at an appropriate value?
ii) Examine whether KESC – after privatization – was conferred benefits not envisaged in the original privatization and to what extent and with what effect?
iii) Whether KESC, after privatization, has met all the objectives and conditions of privatization and been able to efficiently provide safe, uninterrupted and affordable electricity to the people of Karachi?
iv) Whether the privatization of KESC was – and continues to be – in the public interest?
v) Whether it is desirable and/or feasible for the privatization to be reversed at this stage and, if so, how?
vi) In the alternative, whether any other directives to NEPRA or KE are necessary in order to secure the public interest?
vi) Whether the proposed further sale of KESC’s controlling interest to Shanghai Electric Power Company [SEPCO] is in the public interest or not and whether to allow the same?
vii) If such sale to SEPCO is to be approved, whether it should be subject to any conditions in the public interest especially with regard to return of any benefits/concessions/subsidies granted to KESC’s private management at the expense of consumers and/or the public exchequer?
The CCI may be directed to prepare a comprehensive report and pass appropriate orders in this regard within 4-months after giving all parties an opportunity to submit their representations and associating such agencies and experts as they consider necessary. In the meanwhile, however, the parties may be directed to maintain status quo in relation to the direct or indirect transfer of any shares, interest or control in the KESC.
44. SYNOPSIS OF the arguments ON BEHALF OF RESPONDENT NO. 2
PART I - PRELIMINARY OBJECTIONS
1. That it is submitted that the Constitutional Petition under reference is misconceived and not maintainable and that the following PRELIMINARY OBJECTIONS merit consideration at the very outset in this regard: -
A. The Petition lacks an element of public interest
It is pertinent to mention here that the Petition under reference lacks an element of public interest as it is evident that the Petitioners No. 1 to 3 have vested private interest in the fate of KESC. It is clear that the Petitioner No. 4 is the beautiful veil of public interest and Petitioners no. 1-3 are examples of the ugly private malice and vested interests hiding behind that veil.
B. The Petitioners lack bona fide
It has been consistently held by the Apex Court that Public interest litigation undertaken by a citizen must transparently demonstrate its complete bona fides. It is pertinent to reiterate that Petitioner No. 1 to 3 have vested private interest in the fate of KESC and the Petition under reference emanated from their private vested interest and accordingly, the Petitioners lack bona fide. Reliance in this regard can be made to 2015 SCMR 851, (Relevant Page 855 (D)).
C. The Petitioners did not avail adequate and efficacious remedy
That it is submitted that adequate and efficacious remedy is available under Section 28, 29 and 30 of the Privatization Commission Ordinance, 2000 (“The 2000 Ordinance”). It is, inter alia, provided under Section 28 of the 2000 Ordinance that the High Court shall exercise exclusive civil and criminal jurisdiction to adjudicate and settle all matters related to, arising from or under or in connection with this Ordinance.
D. Decision of the Council of Common Interests (“CCI”) can only be challenged by the Provincial or Federal Government.
It is submitted that Article 153 of the Constitution empowers the CCI to formulate and regulate matters in Part II of the Federal Legislative list which includes all matters pertaining to electricity.
The decision to privatize KESC was taken by the CCI on 12.09.1993. (CCI’s Decision dated 12.09.1993; Paper book 1 relevant Page 995) Subsequently, the post facto approval in respect of privatization of KESC was granted by the CCI on 02.08.2006. (Post facto Approval dated 02.08.2006; Paper book 13 relevant Page 1939)
The language employed in Article 154(7) of the Constitution essentially provides that only Federal Government or Provincial Government may legally challenge a decision of the CCI before a joint sitting of parliament. Furthermore, the wording clarified that only Parliament has the jurisdiction to hear a challenge to a decision of the CCI. Reference in this regard can be made to PLD 2003 Lahore 629 (Relevant Page 646 (A)).
E. The High Court in its Constitutional jurisdiction cannot interfere in the Policy making domain of the executive
It is most humbly submitted that the policy decision of the Executive to privatize KESC involved complex and intricate economic factors, which cannot be interfered with by the Honourable High Court in its Constitutional jurisdiction. The Petitioners have agitated the issues which strictly fall within the scope of the policy making domain of the Executive and accordingly this Petition is not maintainable and liable to be dismissed. Reference in this regard can be made to a judgment passed by the Honourable Supreme Court of India reported at AIR 2002 SC 350 wherein it was held that “the process of disinvestments is a policy decision involving complex economic factors. The Courts have consistently refrained from interfering with economic decisions as it has been recognized that economic expediencies lack adjudicative disposition and unless the economic decision based on economic expediencies, is demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason, that the courts would decline to interfere. In matters relating to economic issues, the Government has while taking a decision, right to ‘trial and error’ as long as both trial and error are bona fide and within limits of authority.”
It is most respectfully submitted that it is not for the court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair, it is only concerned with the manner in which these decisions have been taken. In this regard, reliance is placed on a judgment passed by the Honourable Supreme Court reported at 2012 SCMR 455 (Relevant page 484 (J)) wherein it was held that “23. In Tata Cellular v. Union of India (36(1994) 6 SCC 651), the Court while dilating on the parameters of judicial review in matters of awarding of contract by the Government candidly laid down as follows:-
"77. The duty of the court is to confine itself to the question of legality. Its concern should be:
(1) whether a decision-making authority exceeded its powers?
(2) committed an error of law,
(3) committed a breach of the rules of natural justice,
(4) reached a decision which no reasonable tribunal would have reached or,
(5) abused its powers.
Therefore, it is not for the court to determine whether a particular policy of particular decision taken in the fulfillment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under:--
(i) Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.
(ii) Irrationality, namely, Wednesbury unreasonableness.
(iii) Procedural impropriety.
The above are only the broad grounds but it does not rule out addition of further grounds in course of time."
In this regard, reliance is also placed upon a judgment of the Honourable Supreme Court reported at PLD 2017 SC 83 (Relevant Page 94 (G)) wherein it has been laid down that “It appears that a pragmatic commercial decision was taken not to jeopardize the funding from the IDA and thereby putting the entire project at risk. Such decision falls within the realm of the Public Policy and the Courts in the exercise of their powers of judicial Review, ordinarily, do not interfere therewith and exercise judicial restrain, as has been held by this Court not only in the case, reported as Dossani Travels Pvt. Ltd and others v. Messrs Travels Shop (Pvt). Ltd. and others (PLD 2014 SC 1) but also in the judgment, reported as Cutting of Trees for Canal Widening Projects, Lahore: In the matter of Suo Motu Case No.25 of 2009 (2011 SCMR 1743). While we may not totally agree with the interpretation of the paragraph 2(a) of the Appendix-I of the Guidelines, as has been done by the learned High Court by way of the impugned judgments but such an exercise is not necessary by this Court, as in our opinion, the Constitutional Petition filed by the Petitioner Company was not maintainable, as it sought to encroach into the domain of the Policy Matters in respect whereof the judicial restrain is to be exercised.”
F. Extent of judicial review
It is submitted that the Petitioners have failed to point out any violation of applicable rules and has failed to produce any evidence on record in order to prove any malafide on part of the Respondents. In this regard, reliance is placed on the Judgment passed in Habib Bank Privatization case reported at 2012 SCMR 455 (Relevant Page 486 (N)) wherein it was elucidated that “It is a well-established principle of Judicial review of administrative action that in the absence of some un-rebuttable material on record qua mala fides, the Court would not annul the order of Executive Authority which otherwise does not reflect any illegality or jurisdictional defect.”. Furthermore, the attention of this Honourable Court is drawn towards a judgment of the Honourable Supreme Court of India reported at (2006) 10 SCC 645, wherein the extent of Judicial review has been exhaustively enunciated.
PART II - MERITS/SUBSTANTIAL COMPLIANCE OF THE PRIVATIZATION COMMISSION ORDINANCE 2000 AND THE PRIVATIZATION (MODES AND PROCEDURE) RULES, 2001
i. CCI Approval for privatization of state assets (Paper book 1)
It is submitted that a meeting of the CCI took place on 12.09.1993 whereby, a summary dated 09.09.1993 submitted by Ministry of Water and Power on Privatization of WAPDA and amendment of WAPDA act was considered and CCI approved, inter alia, the following:
“Plan for Privatization of WAPDA as recommended by the PRIVATIZATION COMMISSION at para 5 and Annex-6 of the summary” (Page 997, Paper Book 1)
It is stated in the aforementioned paragraph 5 that the Privatization Commission agreed that, inter alia, the distribution of power should be privatized according to a phased program. (Page 999, Paper book 1)
Under the conclusions and recommendations section, paragraph 4 of Annex-6, it was stated that the commission took the view that KESC should be privatized. (Page 1019, Paper Book 1 (Type-Page 16))
It may be noted that under Article 154(7) of the Constitution, if the Federal Government or the Provincial Government are dissatisfied with a decision of the CCI, it may refer the matter to Parliament whose decision in this behalf shall be final. This essentially connotes that only the Federal Government or Provincial Government may be parties to challenge a decision taken by the CCI and the appropriate forum to bring such a challenge is the Parliament.
In view of the decision of the CCI and in light of the fact that KESC was hemorrhaging around PKR 16 billion annually (a figure which rose to roughly PKR 18 billion in 2002), the Government of Pakistan had no option but to initiate the Privatization Procedure of KESC. (Counter Affidavit to the Petiton, Paragraph 4, Page 279; Annex 3, Page 311)
ii. First Unsuccessful Attempt at Privatization
The modes of Privatization are specifically provided in Section 25 of the 2000 Ordinance which is reproduced hereunder: -
“25. Modes of Privatization. The commission shall carry out privatization, in accordance with the prescribed procedure, through any of the following modes-
(a) Sale of assets and business;
(b) Sale of shares through public auction or tender
(c) Public offering of shares through a stock exchange;
(d) Management or employee buyouts by management or employees of a state-owned enterprise;
(e) Lease, management or concession contracts; or
(f) Any other method as may be prescribed.”
In order to achieve the object of Privatization, the Asian Development Bank (ADB) aided the Privatization Commission to appoint a suitable Financial Advisor and they requested for Terms of reference from 6 different firms, and vide decision dated 31.03.2001 of the Board of the Privatization Commission the selection of PricewaterhouseCoopers as Financial Adviser for the Privatization of KESC was approved. (Paragraph 11 Counter Affidavit – Page 281)
In March 2002, Expression of Interest (“EOI”) was invited from strategic investors interested in acquiring 51-73% of the share capital of KESC. Surprisingly, only two parties submitted their EOIs. Moreover, when a request for statement of qualification (“SOQ”) was forwarded to both parties only one party (AES) submitted the requisite statement by the closing date. A pre-qualification committee of the Privatization Commission considered the SOQ of AES, however, when AES was cleared for the due diligence phase, they withdrew from the transaction. It is respectfully submitted that between 2002-2003 i.e. time period between the two attempts at privatization, the Government of Pakistan (“GOP”) and tax payers were forced to bear the brunt of a loss of PKR 18 billion. (Counter Affidavit to the Petition, Paragraph 11, Page 281 and Annexure 3)
iii. Second attempt at Privatization
In view of the severe financial repercussions due to delay in the process of privatization, not to mention, the disastrous spillover effect on the citizens of Karachi, the GOP decided to relaunch the privatization process in September 2003 inviting fresh EOIs from parties interested in acquiring 51-73% of share capital of KESC. (Counter Affidavit to the Petiton, Paragraph 12, Page 283)
Pursuant to the invitation, EOIs were submitted by 5 interested parties, to whom a further request for submitting their SOQ was sent out. (Paperbook 2)
4 out of 5 parties namely Kanooz-ul-Watan (Saudi Arabia)(“KW”), Hasan Associates (Pakistan)(“HA”), IPC (UK) and Cornerstone Partners (USA) submitted their SOQ. The Financial Adviser assessed the SOQs and HA, IPC and KW were deemed appropriate to proceed with the next stage of the transaction.
The three selected parties were asked to conduct the due diligence and subsequently IPC withdrew from the bidding process in October, 2004, leaving only two parties in the bidding process. (Paperbook 4, Page 1093)
At this point, it is pertinent to state the composition of HAL and KaW;
· HAL – Hasan Associates, AKD Securities, Premier Mercantile Services, ABB Pakistan, GE International Operations, with IPC (the company NOT THE CONSORTIUM) Trans Africa Projects as OnM partners
· KaW - Kanooz-ul Watan with Siemens as OnM partner
It should be noted under Section 2(2.1)(f) of the request for SOQ, parties are allowed to belong to more than one consortium so long as the Lead Bidder in each consortium is different. (Paperbook 2, Page 1037)
Prior to the commencement of the actual bidding, the financial valuation submitted by the Financial adviser was considered and reference price was approved at PKR 1.30 per share by the Cabinet Committee on Privatization. (Counter Affidavit to the Petiton, Paragraph 13, Page 285)
As per established principles of law and as per consistent practice, the reference price was kept secret and confidential and was only used for internal purposes. (Counter Affidavit to the Petition, Paragraph 13, Page 285)
The bidding commenced on 04.02.2005 and prior to submitting their bids, each party was required to deposit PKR 100 million as Earnest money and subscribe to redeemable preference shares worth PKR 4.38 billion in KESC. (Counter Affidavit to the Petition, Paragraph 14, Page 285)
Kanooz ul Watan submitted a bid of PKR 20.24 billion (this included PKR 15.68 billion at 1.65 per share, PKR 4.38 Billion subscription for redeemable preference shares and PKR 100 million as earnest money). HAL submitted a bid for PKR 14.9 billion (PKR 9.71 Billion at 1.01 per share, PKR 4.38 Billion subscription for redeemable preference shares and PKR 100 million as earnest money). Needless to say, HAL’s bid falling well below the reserve price was rejected and therefore Kanooz ul Watan being the highest bidder was accepted. (Counter Affidavit to the Petiton, Paragraph 15, Page 285)
The bid of Kanooz ul Watan was accepted by the CCOP vide letter of acceptance dated 07.02.2005 wherein the successful bidder was called upon to make the balance payment of PKR 20.14 billion by or before 21.02.2005. (Counter Affidavit to the Petiton, Paragraph 16, Page 285 and Annexure 4 Page 315)
Astonishingly, Kanooz ul Watan failed to comply with the terms and conditions of the letter of acceptance and without any intimation whatsoever, disappeared without a trace. The earnest money of Rs. 100 million was confiscated by the CCOP as a consequence of Kanooz ul Watan’s unacceptable behavior (although no attempts were made to recover the said amount). (Counter Affidavit to the Petiton, Paragraph 17, Page 287 and Annexure 6 page 327)
As a result of the implied withdrawal of KuW, the second attempt to privatize KESC was unsuccessful.
iv. Invoking of Rule 6 of the Privatization (Modes and Procedures) Rules, 2001
It was clear to the board of Privatization Commission that in view of the first two failed attempts at Privatization, the continuing losses and loss of three years in attempting the bidding process twice, sufficient interest for privatization had not been received.
Thereafter, the board was left with two option to consider in respect of the Privatization of KESC. The first option was to restart the entire privatization process from scratch or in the alternative, invoke Rule 6 of The Privatization (Modes and Procedure) Rules, 2001 (“the 2001 Rules”) and enter a negotiated sale with HAL.
Keeping in mind the repercussions of a further delay in the privatization process, which included the GOP (and by extension the tax payers) having to bear the burden of supporting KESC for an extended period of time. This, coupled with a severe lack of prospective buyers, led the Privatization Commission to pursue the option of a negotiated sale as per Rule 6 of the 2001 Rules, which is reproduced hereunder: -
“6. Negotiated Sale. ---
(1) The Commission may adopt the negotiated sale process for any of the modes of privatization specified in Section 25 of the Ordinance and rule 5 of these rules, if—
(a) In the opinion of the Board, sufficient interest for a privatization has not been received;
(b) The Board has recommended to the Cabinet and the Cabinet has authorized the Commission to initiate the negotiated sale process;
(c) The Board has approved the party or parties interested in purchasing the property being privatized;
(d) A team for carrying out the negotiated sale process has been constituted by the Board which shall include a representative from the Ministry under whose jurisdiction the entity being privatized falls; and
(e) The Board has delegated full power to the negotiation team for carrying out the negotiated sale process and defined the parameters for negotiation
(2) On conclusion of the negotiated sale process, the terms and conditions of the transfer of the property to be privatized to the interested party shall be submitted to the Cabinet for consideration and approval.”
In pursuance of the above, the letter of acceptance issued to KuW was cancelled, their earnest money confiscated and the original Hasan Associates consortium was offered the opportunity to match KuW’s bid of PKR 20.24 billion.
HAL, in response to the above offer, informed the PRIVATIZATION COMMISSION that certain members of the original consortium were unwilling to match the highest bid and had withdrawn from the consortium, whilst providing no-objection certificates to HAL to form a new consortium. (Counter Affidavit to the Petiton, Annexure 9 Page 341 and Paperbook No. 7, Page 1599 ‘Summary for the board of the PRIVATIZATION COMMISSION).
In Accordance with Rule 6(1)(d) of the 2001 Rules, a team for carrying out the negotiated sale process was constituted. (Page 343, Counter Affidavit to the Petition).
HAL formed a new consortium consisting of the following members: a. Hasan Associates Pvt. Limited and Al-Jomaih Holding along with Siemens as a technical partner.
b. The new consortium informed the Privatization Commission of their willingness to match the bid. (Paperbook No. 7, Page 1599 ‘Summary for the board of the Privatization Commission’)
After weighing up the advantages and disadvantages of each option and after careful, extensive deliberations with PWC, it was decided to invoke Rule 6. The aforementioned summary, in this regard, was prepared for the board of the Privatization Commission which was subsequently forwarded to the CCOP for due consideration.
An extensive summary was prepared by the Privatization Commission and submitted to the CCOP on 01.09.2005. (Paperbook No. 8, Page 1621)
On the same date, PWC prepared a presentation wherein the advantages and disadvantages of entering into a negotiated sale were considered. (Paperbook No. 8, Page 1631 (relevant 1643))
A decision was passed on 01.09.2005 by the CCOP on the same date wherein HAL was asked to include as many members of the consortium as possible, however, if this was not achievable, ‘the reconstituted HAC and its offer would stand accepted’. (Paperbook No. 8, Page 1619)
In its decision dated 26.09.2005, the CCOP noted that the major member of the reconstituted consortium was a ‘financially strong and reputable party known to make and pursue financially viable decisions’. It further noted that a delay in the approval process would be likely to shy away investors (an outcome which would have drastic repercussions on the City of Karachi and its citizens). Moreover, it was underscored that the GOP could no longer afford to subsidize KESC. In light of the above factors, the CCOP approved the transaction and directed the matter be forwarded to the Cabinet for authorization. (Paper Book No. 8, Page 1617)
On 08.10.2005, in pursuance of the decision of the CCOP dated 01.09.2005 and on 26.09.2005, the CCOP forwarded a summary to the Cabinet for ratification. Paragraph 3 of the summary is replicated below (Paper book 9):
“In view of the forgoing and the importance and sensitivity of the transaction as it has some element of negotiations, in consideration of Rule 6(2) of the Privatization (Modes and Procedure) Rules, 2001 (Annex IV), the decision is placed before the Cabinet for ratification.”(Paper book No. 9, Page 1651 (relevant 1655))
On 01.11.2005, the decision of the CCOP taken in its meeting dated 26.09.2005 was ratified, as proposed at Para 3 of the Summary. (Paper book No. 9, Page 1649)
The transaction was successfully completed by the closing date, i.e., 28.11.2005. (Paper Book No. 11, Clause 2.4; Page 1745)
The Honourable Supreme Court in the Habib Bank privatization case validated and endorsed the Privatization through the process of negotiated sale. The attention of this Honourable Court is drawn towards the said Judgment reported at 2012 SCMR 455 (Relevant Page 504 (N)) wherein it has been held that “Even under the Privatization Commission (Modes and Procedures) Rules, 2001, Rule 3 spells out the manner and procedure for privatization. Rule 5 provides for additional modes of privatization and Rule 6 even authorizes PC to negotiate sale by adopting any of the modes of privatization specified in section 25 of the Ordinance and Rule 5 of these Rules in certain situations enumerated therein and fifth that the Privatization Ordinance and the Rules as also the Regulations framed there under vest a certain amount of discretion with the PC and the Board during the sale process in line with the best practices in vogue in other countries. This discretion is sought to be regulated by the afore-referred law and Rules and any bona fide decision made in the exercise of the said discretion can only be interfered with in accord with the well recognized principles of judicial review of executive authority discussed while dilating upon question Nos. 2 and 3.”
Furthermore, it has been elucidated in the said Judgment at 2012 SCMR 455 (Relevant Page 491 (U) and (V)) that “A careful perusal of the steps taken in the process for privatization of HBL referred to in the preceding paragraph would indicate that there was substantial compliance with the relevant provisions of the Privatization Commission Ordinance, 2000 and the Rules/Regulations framed thereunder. A minor deviation of Rules or Regulation, if any, in absence of any credible allegation of mala fides or corruption would not furnish a valid ground for interference in judicial review.”
v. Post facto approval by the CCI
On 02.08.2006, the CCI considered the summary dated 01.08.2006 and granted post facto approval to the privatization of KESC. (Paperbook No. 13, Page 1939. Relevant page is 1979 - Annexure 2 of the Summary dated 01.08.2006. )
It is pertinent to mention that the same post facto approval was granted to the privatization of Habib Bank Limited which has been upheld by the Supreme Court in (2012 SCMR 455; Habib Bank case)
It may be noted that in the case of Wattan Party v. Federation of Pakistan and others reported as PLD 2006 SC 695, the Apex Court, while considering the question of whether the Privatization Commission Ordinance, 2002 was ultra vires the constitution, observed that sale proceeds can be used by the Federal Government for a purpose other than that which has been approved by the CCI therefore the Federal Government has to examine the implications and ensure that it takes ‘ex post facto approval’ from that CCI. The act of granting ex post facto approval has not been discouraged by the Apex Court and it is reiterated that the decision to privatize KESC was first taken on 12.09.1993.
vi. Valuation of KESC
Stock market value is significantly outside the valuation range provided by the Financial Advisors and appears to be driven by market imperfections rather than economic fundamentals. In addition to speculation, the current price levels appear to have been sustained by very low volumes and a shortage of stock helped by subjective judgments over the future of KESC and the privatization process rather than the fundamental outlook for the company. (Valuation Report, Type-Page 30 at 6.9)
CONCLUSION:-
In view of the foregoing, it is evident that the substantial compliances of the 2000 Ordinance and the 2001 Rules were made and accordingly, the Petitioners have failed to point out any violation of the said rules whatsoever and the Petition under reference in liable to be dismissed.
a. National Asset
1. In this regard Article 173 of the Constitution of the Islamic Republic of Pakistan, 1973 (“the Constitution”) is reproduced hereunder for the sake of convenience:
“173. Power to acquire property and to make contracts, etc.
(1) The executive authority of the Federation and of a Province shall extend, subject to any Act of the appropriate Legislature, to the grant, sale, disposition or mortgage of any property vested in, and to the purchase or acquisition of property on behalf of, the Federal Government or, as the case may be, the Provincial Government, and to the making of contracts.
(2) All property acquired for the purposes of the Federation or of a Province shall vest in the Federal Government or, as the case may be, in the Provincial Government.
(3) All contracts made in the exercise of the executive authority of the Federation or of a Province shall be expressed to be made in the name of the President or, as the case may be, the Governor of the Province, and all such contracts and all assurances of property made in the exercise of that authority shall be executed on behalf of the President or Governor by such persons and in such manner as he may direct or authorize.
(4) Neither the President, nor the Governor of a Province, shall be personally liable in respect of any contract or assurance made or executed in the exercise of the executive authority of the Federation or, as the case may be, the Province, nor shall any person making or executing any such contract or assurance on behalf of any of them be personally liable in respect thereof.
(5) Transfer of land by the Federal Government or a Provincial Government shall be regulated by law.”
2. That it is most respectfully submitted that under Article 173(1) of the Constitution, no specific legislation is necessary for the exercise of executive authority for the purpose of sale, mortgage or disposal of the property by the Federal or the Provincial Government. In this regard, the attention of this Honourable Court can be drawn to a Judgment passed by a Division Bench of the Lahore High Court reported at 1996 MLD 705 (Relevant Page 724 (D)) wherein it has been held that “We, are, thus of the view that no specific legislation is necessary for the exercise of executive authority under Article 173(1) ibid of our Constitution for the purpose of sale, mortgage or disposal of the property by the Federal/Provincial Government. Of course, if an Act of the appropriate Legislature holds the field its provisions shall be followed by the executive authority in the matter of sale, mortgage or disposal of the property vested in the Federal or Provincial Government. However, existence of an Act of the appropriate Legislature is not a prerequisite for the exercise of the executive authority under Article 173(1) of the Constitution.”
Furthermore, it was held by a Division Bench of this Honourable Court in the PTCL privatization case reported at 2005 CLC 1931 (Relevant Page 1934(A) and (B)) that “It would be seen that per Amin Ahmed v. Ministry of Production decided by a Division Bench of this Court, and Talat Saeed Khan v. Privatization Commission as well as Calicon (Pvt.) Ltd. v. Federal Government of Pakistan (supra) decided by the learned Lahore High Court it has been held that per Article 173(1) of the Constitution, the Federal Government has the right to sell, mortgage or dispose of State property which is subject only to the well-settled principles in respect thereof viz. Executive authority is to be exercised in accordance with law and must be transparent, fair and non-discriminatory. In fact, it was further held in the aforementioned cases that no specific legislation was required for the exercise of executive authority under Article 173(1). Nevertheless, it would be seen that now the Privatization Commission Ordinance, 2000, has been enacted which specifically caters for privatization of State property. In this regard section 5 lays down the functions and powers of the Commission vis-a-vis the privatization program of the Government, sections 6, 7, 8 and 9 provide for the management and administration of the Commission and sections 22, 23, 24 and 25 thereof cater for the manner in which privatization is to be carried out. In view of the foregoing observations, we are satisfied that the Government of Pakistan in principle does have the power and the authority to dispose of the shares of the Company. As there is no challenge to the manner in which the same have been disposed of, we are not called upon to give any findings in that respect.
11. As regards Article 142(a) of the Constitution it would be seen thereto that the National Assembly has been given exclusive powers to make laws with regard to the matters listed in the federal legislative list part-1, in which post and telegraph are at Entry No.7. In our opinion, this Article read with Entry No.7 aforementioned, gives the National Assembly executive power to make laws vis-a-vis matters relating to post and telegraph and has nothing to do with the Federal Government's power to dispose of State property while exercising powers under Article 173 as these two provisions of the Constitution deal with separate organs of the State, i.e. the Federal Government and the National Assembly.”
b. Whether if the facts and circumstances of the instant case and the relevant law so permits, whether, in view of subsequent events, the process of privatization itself can be examined, and as to whether the matter can be referred to Public Audit by Auditor General or any independent forum for the purposes of either of re-appraisal of the process of privatization?
3. In this regard, Sections 28 and 29 of the Privatization Commission Ordinance 2000 (“the Ordinance 2000”) are reproduced herein below for the sake of convenience: -
“28. Jurisdiction of High Courts. -
Notwithstanding anything contained in any other law for the time being in force, the High Court shall exercise exclusive civil and criminal jurisdiction-
(a) to adjudicate and settle all matters related to, arising from or under or in connection with this Ordinance;
(b) to adjudicate and settle all matters transferred pursuant to section 31; and
(c) to try offences punishable under this Ordinance.
29. Procedure and power of High Court in civil matters. -
(1) In exercise of its civil jurisdiction under this Ordinance, the High Court shall-
(a) follow the procedure, as nearly as possible, as provided in the Code of Civil Procedure, 1908 (Act V of 1908): Provided that the High Court may, in its discretion, having regard to the facts of the case, follow the summary procedure, as nearly as possible, provided for in Order XXXVII in the First Schedule to the said Code; and
(b) have all the powers vested in the Civil Court under the Code of Civil Procedure, 1908 (Act V of 1908).
(2) The High Court shall decide the case before it within a period of six months”
4. That it is submitted that adequate and efficacious remedy is available under Sections 28, 29 and 30 of the Privatization Commission Ordinance, 2000 (“The 2000 Ordinance”). It is, inter alia, provided under Section 28 of the 2000 Ordinance that the High Court shall exercise exclusive civil and criminal jurisdiction to adjudicate and settle all matters related to, arising from or under or in connection with this Ordinance.
5. A bare perusal of the aforementioned provisions clarify that grievances of the Petitioners agitated in the Petition under reference could have been adequately addressed under the aforementioned provisions of law and accordingly the Petition is not maintainable.
CONCLUSION
6. In view of the foregoing, it is established that: -
a. Under Article 173(1) of the Constitution, no specific legislation is necessary for the exercise of executive authority for the purpose of sale, mortgage or disposal of the property by the Federal or the Provincial Government
b. It is categorically provided under Section 28 of the 2000 Ordinance that the High Court shall exercise exclusive civil and criminal jurisdiction to adjudicate and settle all matters related to, arising from or under or in connection with this Ordinance.
c. That substantial compliances of the 2000 Ordinance and the 2001 Rules were made and accordingly, the Petitioners have failed to point out any violation of the said rules whatsoever and the Petition under reference in liable to be dismissed. In any event, the Petitioners have an alternate and efficacious remedy under the civil and criminal jurisdiction of the High Court of Sindh and did not need to avail the constitutional jurisdiction of this Honourable Court under Article 199 of the Constitution.
SYNOPSIS OF the arguments/SUBMISSIONS ON BEHALF OF RESPONDENT NO. 3
45. The synopsis of the arguments/submissions on behalf of the Respondent No.3 is as under:-
Maintainability – No public Interest
1. The present Petition has been filed by the KESC Labour Union (Petitioner No.1) to pressurize the Respondent No.3 to agree to their unreasonable demands.
2. The reliefs/prayers sought in the present Petition and the Constitutional Petition No. 3775 of 2012, both of which have been filed by the KESC Labour Union as the lead Petitioner, are contradictory in nature as in the former the privatization of K-Electric has been challenged whereas in the latter, the enforcement of the same is sought. The relevant prayer clause of Constitutional Petition No. 3775 of 2012 reads as under;
“to direct the Respondents to implement decision of CCOP in its letter and spirit, forthwith.”
In view of the foregoing, the present Petition, which has been filed prior in time, merits dismissal.
Privatization of essential services
3. Essential Services such as electricity have been privatized in various countries all over the world. A list of the countries where electricity has been privatized has been filed along with the Statement of the Respondent No.3 dated 28.08.2017. (Pg.1219).
4. It is clarified that privatization of essential services such as electricity does not give the company a free hand to take advantage of the consumers. The National Electric Power Regulatory Authority (“NEPRA”), being the regulator, maintains a strict control over the functions of the Respondent No. 3 in view of their powers under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997. The relevant provisions setting out such powers are as follows;
“7. Powers and functions of the Authority.
(1) The Authority shall be exclusively responsible for regulating the provision of electric power services.
(2) In particular and without prejudice to the generality of the foregoing power, only the Authority, subject to the provisions in sub-section (4), shall,
(a) grant licences for generation, transmission and distribution of electric power;
(b) prescribe procedures and standards for investment programmes by generation, transmission and distribution companies;
(c) prescribe and enforce performance standards for generation, transmission and distribution companies;
(d) establish a uniform system of accounts by generation. transmission and distribution companies;
(e) prescribe fees including fees for grant of licences and renewal thereof;
(f) prescribe fines for contravention of the provisions of this Act;
[(g) [review its orders, decision or determinations]
(h) [settle disputes between the licensees;
(i) issue guidelines and standards operating procedures; and
(j) perform any other function which is incidental or consequential to any of the aforesaid functions.]
(3) Notwithstanding the provisions of sub-section (2) and without prejudice to the generality of the power conferred by sub-section (1) the Authority shall—
a) determine tariff, rates, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies and recommend to the Federal Government for notification;
b) review organizational affairs of generation, transmission and distribution companies to avoid any adverse effect on the operation of electric power services and for continuous and efficient supply of such services;
c) encourage uniform industry standards and code of conduct for generation, transmission and distribution companies;
d) tender advice to public sector projects;
e) submit reports to the Federal Government in respect of activities of generation, transmission and distribution companies; and
f) perform any other function which is incidental or consequential to any of the aforesaid functions.
(4) Notwithstanding anything contained in this Act, the Government of a Province may construct power houses and grid stations and lay transmission lines for use within the Province and determine the tariff for distribution of electricity within the Province.
(5) Before approving the tariff for the supply of electric power by generation companies using hydro-electric plants, the Authority shall consider the recommendations of the Government of the Province in which such generation facility is located.
(6) In performing its functions under this Act, the Authority shall, as far as practicable, protect the interests of consumers and companies providing electric power services in accordance with guidelines, not inconsistent with the provisions of this Act, laid down by the Federal Government.”
“33. Organizational matters. —
Subject to the procedures established by the Authority under this Act, the Authority may, in the public interest, with or without modifications, approve the following activities by a licensee for generation, transmission and distribution, namely: —
(a) the undertaking of a merger or a major acquisition or sale of facilities;
(b) the expansion of a licensee’s business activities; and
(c) the undertaking of a re-organization of the licensee’s business structure.”
5. Furthermore, Rule 6 of the NEPRA Licensing (Distribution) Rules, 1999 provides as under;
Tariff.-----
(1) Unless provided otherwise in the distribution licence, the licensee shall charge only such tariff from the consumers, including the bu1k- power consumers, as is approved by the Authority pursuant to and in accordance with the NEPRA (Tariff Standards and Procedure) Rules, 1998.
(2) If the tariff in respect of the Service territory is not already determined by the authority at the time of grant of the distribution licence, the licensee shall, no later than ninety days following the date of grant of the distribution licence, file a petition before the Authority for the determination of tariff in respect of the Service Territory.
(3) If so directed by the Authority, the licensee shall, make a separate statement in the petition for determination of tariff in respect of the use of system and connection charges.
6. In addition to the above, the NEPRA Licensing (Generation) Rules, 2000 also provide various regulatory powers to NEPRA as regards the functions of the Respondent No.3. Therefore, proper control is being exercised over the Respondent No.3.
7. Moreover, in the memo of the Petition, the Petitioners have failed to raise any grounds challenging the privatization of electricity on the basis that the same is an essential service. The main contentions of the Petitioners, as per their pleadings, are concerning the time and the manner in which the privatization took place and the value of the shares. It is not the case of the Petitioners that essential services cannot be privatized. The same is evident from the grounds in the memo of the Petition, reproduced herein below;
“B) … in the circumstances, the privatization of KESC at the current time is arbitrary and irrational and contrary to the Respondent No.2’s avowed policy of realizing the maximum price for the sale of the national assets…”
“D) … As per the Respondent No.1 and 2’s announced policy, the privatization of KESC was to be undertaken through an open and competitive process thereby ensuring the sale of national assets at the highest possible price. The greater the number of bidders, the greater the likelihood of achieving a maximum price of sale…=.”.
“K) That the transfer of control and management of KESC to the new management of Abraaj Investment Management Limited without inviting fresh bidding in an open public tender is unlawful, discriminatory, non-transparent and contrary to public interest...”
“L) …. the Petitioners, along with other tax-payers and residents of Karachi, have a right to full and prior disclosure by the Respondents of the terms and conditions of such a sale and the details of parties to whom such a sale is being effected…”
“N) That the Respondents agreement with the purported purchasers of KESC to allow the suspension of trade union activities is in violation of the Petitioners’ Fundamental Right Guaranteed under Article 17 of the Constitution.”
Achievements and Improvements Post Privatization
8. Since the privatization, there have been huge improvements in the quality of the services being provided to the consumers of the Respondent No. 3. The overall generation and transmission capacity has been increased to cater to the growing needs of the citizens. There have been notable reductions in transformer and transmission line trippings. Load shedding has been eliminated in 61% of the city of Karachi as opposed to 8 to 10 hours of load shedding prior to privatization. Customer services have also been improved as there is a 24/7 call center for complaints. It would also be worthy to mention that numerous new projects are underway to further upgrade the system and provide world class services to the consumers. It would be pertinent to highlight that no significant measures to make improvements in the provision of electricity were made by the Government prior to the privatization. The details of the improvements made post-privatization are set out in annexure “B” to the Statement filed by the Respondent No.3 dated 28.08.2017 (pg. 1221).
Irreversible aspects
9. That since the privatization there has been a change in the structure of the shareholding. Prior to the privatization, 98.7% of the shares of the Respondent No.3 were with the Government of Pakistan and 1.3% with the general public. At the time of privatization, the Government held 25.7% shares, 73% shares were transferred to KES Power and 1.3% remained with the Public. However, at present, the structure of the shareholding of the Respondent No. 3 is as under;
· KES Power 66.4%
· GOP 24.4%
· Public 9.2%
10. If at this stage the privatization of the Respondent No.3 is reversed, it would be impossible to revert the shareholding back to the position it was in prior to the privatization (pg.1227).
11. The reversal of privatization will also trigger an event of default in all long term financing facilities of the Respondent No.3 and approximately Rs. 27 Billion would become payable to the lenders immediately and undrawn facilities worth Rs. 44 Billion for ongoing projects will be cancelled (pg. 1129-1230).
12. In addition to the above, the investment of USD 1.2 Billion made in the Respondent No.3 by the Respondent No.10 will have to be returned.
13. Moreover, in case of the reversal of privatization, the amount of Rs. 109.83 Billion due to the Respondent No.3 from the provincial and federal government is unlikely to be recovered as are the dues of Rs. 51.88 Billion due to the Respondent No.3 from public sector customers.
14. Without prejudice to the above, if this Hon’ble Court is of the view that the there was some illegality in the process of privatization, this Hon’ble Court ought to decline to press into service its constitutional discretionary jurisdiction as the same is designed and intended to foster the cause of justice and not perpetuate an injustice and in view of the submissions made hereinabove, reversing the privatization in the present circumstances would amount to perpetuating an injustice. Reliance in this regard is placed on the following cases;
i. PLD 1990 SC 504 (relevant pg. 510)
ii. 1981 SCMR 231 (relevant pg. 233)
iii. 1989 SCMR 1071 (relevant pg. 1074)
Additional SYNOPSIS of arguments ON BEHALF OF the RESPONDENT NO. 3 in compliance of the order dated 22.10.2018
46. The synopsis of the additional submissions on behalf of the Respondent No.3, with regards to the issues raised by the Hon’ble Court in the order dated 22.10.2018, is as under:-
I. Whether, in view of subsequent events, the process of privatization itself can be examined?
As submitted in the previous Synopsis of the Respondent No.3, there are various irreversible aspects of the privatization in view of which, without prejudice to the submissions made hereinbelow, even if this Hon’ble Court is of the view that the there was some illegality in the process of privatization, this Hon’ble Court ought to decline to press into service its constitutional discretionary jurisdiction as the same is designed and intended to foster the cause of justice and not perpetuate an injustice. In view of the same, reversing the privatization in the present circumstances would amount to perpetuating an injustice. In this regard, reliance is placed on the consolidated Judgement dated 17.03.2018 passed by the Division Bench of this Honourable Court in Constitutional Petition No. 3007 of 2015 (Ghazala Monem v. Federation of Pakistan and Others), Constitutional Petition No. 3076 of 2015 (Nasir Ali Shah Bukhari & Another v. Federation of Pakistan and Others) and Constitutional Petition No. 4927 of 2015 (Muhammad Yasin Siddik v. Federation of Pakistan and Others).
Certified copies of the Judgements dated 17.03.2018 passed in cP Nos. 3007 of 2015, 3076 of 2015 and 4927 of 2015 are filed herwith and marked as annexureS “A” to “A/2”.
II. Whether the matter can be referred to Public Audit by Auditor General or any independent forum for the purposes of either of re-appraisal of the process of privatization or to introduce certain suggestions for the improvement of the working of K-Electric, without disturbing the process of privitisation?
i. Privatization is an issue which falls solely within the purview of the Respondent No.2 acting under the Privatization Ordinance, 2000. Although scrutiny of the Commission’s actions are permissible in law, after a period of one year such scrutiny is explicitly forbidden under Section 27 of the said Ordinance. As such, the privatization of the Respondent No.3 is no longer open to scrutiny by the Federal Government or any of its agencies, which include the Auditor General.
ii. Even otherwise, the Auditor General is barred from making further “suggestions” as to the commercial workings of K-Electric in view of Sections 7, 8 and 10 of the Protection of Economic Reforms Act, 1992 which stipulate as under;
“7.Protection of transfer of ownership to private sector.––The ownership, management and control of any banking, commercial, manufacturing or other company, establishment or enterprise transferred by the Government to any person under any law shall not again be compulsorily acquired or taken over by the Government for any reason whatsoever.
8. Protection of foreign and Pakistani investment.––No foreign, industrial or commercial enterprise established or owned in any form by a foreign
or Pakistani investor for private gain in accordance with law, and no investment in share or equity of any company, firm, or enterprise, and no commercial bank or financial institution established, owned or acquired by any foreign or Pakistani investor, shall be compulsorily acquired or taken over by the Government.
10. Protection of financial obligation.––All financial obligations incurred, including those under any instrument, or any financial and contractual commitment made by or on behalf of the Government shall continue to remain in force, and shall not be altered to the disadvantage of the beneficiaries.
iii. Furthermore, the functions and powers of the Auditor General are set out in Articles 168 to 171 of the Constitution of Pakistan and with utmost respect it is submitted that the jurisdiction of the same cannot be enhanced by this Hon’ble Court while acting in its constitutional jurisdiction. The Auditor General is mandated under the law to act in relation to the accounts of the Federation and of the provinces as well as of the authorities and bodies established by the Federation or a province which does not include the Respondent No.3.
III. Minimize the burden upon the public exchequer by way of allowing subsidy to K-electric.
Subsidy to K-Electric / Respondent No.3
i.
Tariff Differential Claim - It
is submitted that the determined tariff of electricity is set by NEPRA on a
quarterly basis in consonance with the multiyear tariff already determined by
NEPRA for 07 years. The said determined tariff by NEPRA is based upon the cost
of electricity which is inter alia based upon the amount of natural gas,
furnace oil and cost of power purchases that has been used to generate
/distribute electricity. It is clarified that the Respondent No. 3 is given
Tariff Differential Claim (“TDC”) which is a subsidy for its consumers
as the Respondent No.1 does not allow the Respondent No.3 to charge the
customers the total tariff determined by
NEPRA. This is as per the uniform tariff policy of the Respondent No.1,
as laid out in the National Power Tariff and Subsidy Policy Guidelines, 2014,
which applies across the country and is provided to all the distribution
companies in Pakistan. Therefore, the Petitioners have misled this Hon’ble
Court by creating the impression that the subsidy in the form of TDC provided
to the Respondent No. 3 is a special arrangement of sorts devised solely for
the said Respondent after its privatization. As explained herein below, this is
not the case.
ii. In this regard it would also be pertinent to explain that all distribution companies in Pakistan procure power from the National Transmission & Dispatch Company (“NTDC”) at pool price (basket/ DISCO rate) which is the average cost of generation from all resources including hydel, thermal, etc. Prior to privatization, the Respondent No.3 also procured power on the same basis. However, soon after privatization, NTDC unilaterally started charging the Respondent No.3 at marginal cost which was based on highest cost of generation.
iii. The Respondent No. 3 disputed this change of practice since the incremental amount (difference between average cost and cost charged) would have to be paid to the said Respondent as subsidy thus resulting in unnecessary creation of a bloated receivable from Federal Government as Subsidy and payable to Federal Government as power purchase costs. This has been in place since the Respondent No.1 adopted the policy of Uniform Tariff across Pakistan for all consumers and hence, any incremental costs due to incremental rates had to be paid to the Respondent No.3 as Tariff Differential Subsidy. It should be borne in mind that Respondent No.1 was subject to a multiyear tariff which was initially determined in 2002 but it only became applicable after the date of privatization and so, on an overall basis, it made no difference for the Respondent No.3 as the cost differential was a pass-through item for the Respondent No.3. Therefore, as a result of ECC decision in 2008 treating the Respondent No.3 at par with other DISCOs for the purpose of power purchase from NTDC, the Respondent No.3 did not get any special favour or monetary benefit as it was a pass-through cost item under its multiyear tariff.
iv. Operational subsidy - Prior to privatization, in order to keep the Respondent No.3’s (previously KESC) operations afloat, the Respondent No.1 was compelled to provide operational subsidy to fund the Respondent No.3’s losses (still done by the Respondent No.1 in case of other distribution companies) as shown in the table below.
|
PKR Billions |
2003 |
2004 |
2005 |
|
Loss Before Subsidy |
(16.1) |
(8.3) |
(10.0) |
|
Operational Subsidy from GoP to fund losses |
8.0 |
9.6 |
v. However, it would be significant to highlight that since its privatization the Respondent No.3 has not relied on the Respondent No.1 for its operations and investment plan and has not received any operational subsidy from the same.
Subsidies to other DISCOs (Distribution Companies)
vi. Tariff Differential Claim - The Respondent No.3 is not the only company to whom subsidy is granted. All the DISCOs are given subsidies in the form of TDC, in accordance with the uniform tariff policy of the Respondent No.1. The tariff differential subsidy numbers are set out in the SRO 374 (I)/2018 to SRO 383(I)/2018 in which consumer category wise subsidy for each DISCO is mentioned.
vii. Operational subsidy - In addition to the above, unlike the Respondent No.3, state-owned DISCOs are also provided operational subsidy in order to keep their operations afloat and their capital/investment programs are financed through Respondent No.1’s improvement and funding programs. In the financial year 2016, seven state-owned DISCOs reported losses and as of June 30, 2016, several DISCOs had negative book value of equity which reveals that their operations and investment plans are highly dependent upon government support.
viii. Furthermore, in this regard reference may also be made to the letter of Ministry of Energy (Power Division) dated 26.06.2018, enclosed to the tariff petition of Peshawar Electric Supply Company (PESCO), and letter dated 28.06.2013 enclosed to the tariff petition of Faisalabad Electric Supply Company (FESCO) which indicate that the said Ministry, through Power Holding Private Limited, provided Rs. 239 Billion (through issuance of TFC backed by sovereign guarantee) on behalf of the other distribution companies to reduce the circular debt and to ensure uninterrupted power supply across the country.
IV. Measures the Respondent No. 3 intends to take in order to further improve its performance and benefit the consumer
i. Investment – The Respondent No.3 intends to make investments of over Rs.355 Billion across the value chain during the tariff control period of FY 2017 – 2023, subject to viability of the tariff. The planned investments of the Respondent No.3 will result in more than 580 km of new (including interconnection) and rehabilitated lines.
ii. Generation – various projects of the Respondent No. 3 are underway which aim to increase its generation capacity and end the current generation deficit of c. 400 MW. Such projects include setting up of 900 MW LNG plant (BQPS – III), China Datang (700 MW) and Orient dual fuel project (200 MW). Furthermore, the Respondent No.3 also intends to obtain more than 800 MW from external power producers through offering a bankable security without providing a sovereign guarantee or seeking any aid from the Respondent No.1.
iii. Transmission – the Respondent No.3 has planned a series of transmission packages to enhance its transmission network and capacity and also to ensure system reliability and improve the quality of its services. All the transmission packages currently being planned will add more than 2,500 MVAs by 2023. Moreover, the Respondent No.3 has planned an addition of 15 grid stations along with rehabilitation of existing ones.
iv. Distribution - Significant investments have been planned in the distribution segment to curb theft, improve the quality of supply and enhance customer experience. Major initiatives include:
a. Loss reduction projects through which it is expected that T&D losses will reduce to a level of c. 15.4%;
b. Increased roll out of Aerial Bundled Cabling (ABC) to curb power theft (10,000+ PMTs are planned to be converted);
c. Meter replacement drives;
d. Technological advancements – implementation of “Energy Accounting Methodology” which will result in PMT level performance visibility enabling better loss management and targeted remedial measures;
e. Planned enhancement of distribution network (FY 17 – 23);
f. Laying of more than 600 feeders by 2023 and addition of over 2,800km of 11kV lines;
g. Distribution capacity enhancement by c. 4,000 MVAs through addition of over 10,000 Distribution Transformers and substations;
h. Growth Capex to successfully / effectively cater to the growing power demand – estimated addition of c. 2,200 MW of new connections.
v. Increase in the supply of indigenous natural gas by the Respondent No.1 to Respondent No.3 - The Province of Sindh represents 70% of the indigenous natural gas reserves in Pakistan. An increase in the supply of indigenous natural gas by the Government of Sindh to the Respondent No.3, taking into account the fact that it is the primary supplier of power to the city of Karachi, its adjoining areas and parts of Interior Sindh as well as Balochistan and thus should be given higher priority, can reduce the overall cost of fuel which will benefit the consumer as the said gas is much cheaper than RLNG (Re-Gassified Liquid Natural Gas) which is currently being used by the said Respondent.
WRITTEN SYNOPSIS OF ARGUMENTS OF RESPONDENT NOS. 4, 5 AND 6
47. The Petitioner No.1 has filed the Petition in his capacity as the chairman of the Collective Bargaining Agent (CBA) assailing the proposed privatization of the Respondent No. 3 (KESC). It is submitted that the CBA can only concern itself with the matters connected with employment; non-employment; the terms of employment or the conditions of work or of workers as enumerated in section 21(12) of the Industrial Relations Ordinance, 1979. The Petitioner No.1 as CBA cannot concern itself with who owns or should or should not own the organization. If for sake of arguments we assume that the Petitioner is an aggrieved person under Article 199 of the Constitution, there is an alternate efficacious remedy available to the Petitioners under the Industrial Relations Ordinance viz; the Labour Court, for the enforcement of their rights as guaranteed by Law. Reliance for this contention is inter alia placed in the case of International Advertising Employees Workers Welfare Union Vs Privatization Commission and others C.P No. D-1091 of 1998 (Unreported),
1.1 Karachi Pipe Mills Ltd. Vs Sindh Labour Appellate Tribunal, 1984 PLC (Labour), 1359, it was held by a full bench of this Court that a Collective Bargaining Agent may approach a Labour Court for enforcement of a right guaranteed to it as a legal entity but cannot espouse the course of a individual workers in such proceedings. It was further observed that though it is empowered to represent the workmen in certain proceedings, it cannot sue or enter proceedings on its own behalf as a legal entity.
1.2 On the basis of similar false apprehensions the Petitioners had earlier challenged the privatization of Respondent No.3 (KESC) which petition was dismissed by this Hon’ble Court in limine. In the case of Peoples Workers Union KESC Vs Privatization Commission reported in 2000 MLD, 1112, the Petitioner No.1 union and people’s workers union (KESC) had assailed the privatization of the Respondent No.3 before the Hon’ble Court through filing of Constitutional Petitions No. 438 and 439 of 1998 on identical frivolous grounds. The Unions had assailed privatization proceedings expressing concerns about transparency of privatization, procurement of maximum price, equal access to all to participate in auction and protection of workers. It was held that the petitions to be patently misconceived and based on false apprehensions, therefore the petition was dismissed.
1.3 In the instant Petition, the Petitioners have re-agitated the same grounds and the apprehensions are identical as were taken in the earlier round of litigation as evident from the above mentioned judgment, therefore the instant petition is liable to be dismissed.
2. The instant Petition has been filed for the protection of rights and interests of the workers and not for the benefit of the public at large. There is an inherent inconsistency in the Petition, in as much as, on the one hand, the Petitioners are seeking a declaration for holding the privitisation as illegal, while on the other hand, they are seeking to protect their conditions of employment under such privitisation.
2.1.Dr. Akhar Hassan Khan Vs Federation of Pakistan, 2012 SCMR, 455 the apex Court held that frivolous Petitions which are neither of public importance nor relatable to enforcement of a fundamental right or duty. Public interest litigation is a weapon which has to be used with great care and circumspection and the judiciary has to be extremely careful to see that behind the veil of public interest a private malice, vested interest and or publicity seeking is not lurking. Public interest litigation should be aimed at redressal of genuine public wrong or public injury and not publicity oriented cases or those founded on personal vendetta. Court must be careful to see that a body of persons or member of public, who approaches the Court is acting bona fide and not for personal gain or private motive or political motivation or other oblique consideration. Such petitions deserve to be rejected at the threshold and in appropriate cases with exemplary costs.
2.2.Salman Mujahid Vs Federation of Pakistan, 2013 MLD, 287, the divisional bench of this Hon’ble Court has held that public interest litigation is usually entertained by Court for the purpose of redressing public injury, enforcing public duty, protecting social rights and vindicating public interest. The real purpose of entertaining such application is the vindicating of the rule of law effective access of justice to the economically weaker class and meaningful realization of the fundamental rights. The directions and commands issued by the Courts of law in the public interest litigation are for the betterment of the society at large and not for benefitting any individual. But if the Court finds that in the garb of public interest litigation actually an individual’s interest is sought to be carried out or protected, it would be the bounden duty of the Court not to entertain such petition as otherwise the very purpose of innovation of public interest litigation will be frustrated.
3. Dr. Akhtar Hassan Khan Vs Federation of Pakistan, 2012 SCMR, 455, the apex Court has held that Courts while dealing with such cases must appreciate that these are either policy issues or commercial transactions requiring knowledge in the specialized fields and courts lack the expertise to express any opinion on the soundness or otherwise of such acts/transactions. Court should ordinarily refrain from interfering in policy making domain of executive authority or in the award of contracts unless those acts smack of arbitrariness, favoritism and a total disregard of the mandate of law. Court under judicial review, cannot examine the details of the terms of the contract which have been entered into by public bodies or the state and have inherent limitations on the scope of any such enquiry. Once the competent authority in the government has taken a decision backed by law, it would not be in consonance with the well-established norms of judicial review to interfere in policy making domain of the executive authority. Further, it was held that duty of the Court is to confine itself to the question of legality and its concern should be, whether a decision making authority, exceeded its powers; committed an error of law; committed a breach of the rules of natural justice; reached a decision which no reasonable tribunal would have reached, or abused its powers. Question whether a particular policy of a particular decision taken in the fulfillment of that policy is fair, is not for the Court to determine and it is only concerned with the manner in which those decisions have been taken. Court must exercise its discretionary powers of judicial review with circumspection and only in furtherance of public interest and not merely for making out of a legal point and it should always keep the larger public in mind to decide whether to interfere or not.
4. As discussed above, the Petitioner No.1 were the employees of the Respondent No.3 (KESC) and their terms and conditions of employment were governed by a contract. Therefore, the nature of the relationship was that of an employer and employee. Therefore, the employment disputes which were governed by a contract which cannot be agitated in the Constitutional jurisdiction of this Hon’ble Court.
4.1 Benedict D Souza Vs Karachi Building Control Authority, 1989 SCMR, 918, it was held by the apex Court that factual controversies were involved in the case, constitution petition in the High Court was not the proper remedy. Such controversies cannot be solved without leading evidence, therefore the High Court’s approach in its discretionary writ jurisdiction to decline relief to the Petitioner was unexceptionable. Leave to appeal was refused.
4.2 A.F Ferguson & Co. Vs The Sindh Labour Court, PLD, 1985 SC, 429, the apex Court observed that, it seems to us that all the points raised above by the parties did require adjudication and as some of them were disputed questions of fact they could only be decided by the Labour Court. In our view the constitutional jurisdiction of the High Court should not normally be exercised in cases where the entire case not be completely disposed of.
5. Jawad Mir Muhammad Vs Haroon Mirza, PLD 2007 (SC), 472, it was observed that question of delay/laches in filing constitutional petition has to be given serious consideration and unless a satisfactory and plausible explanation is forthcoming for delay in filing constitutional petition, the same cannot be overlooked or ignored subject to facts and circumstances of each case.
6. That the facts and reply of the Respondents No. 4, 5 and 6 as stated in the counter affidavit (at page 357 of the file) filed to the main Petition may be taken into consideration together with the contents hereof. It is, therefore, prayed that this Hon’ble Court may be graciously pleased to dismiss this Petition with costs.
48. Synopsis of Mr. Sajid Zahid, learned counsel for respondent No.10.
MAINTAINABILITY
The Respondent No.10 submits that there are various grounds for non-maintainability of this Petition. The substantial grounds include (i) alternate adequate remedy / forum being available in terms of Sections 28 and 29 of the Privatization Commission Ordinance 2000 (“2000 Ordinance”); (ii) no public interest established by the Petitioners; (iii) Courts do not ordinarily interfere in policy making of the Executive and (iv) there are disputed questions of facts which require evidence, which cannot be recorded in the writ jurisdiction.
It is respectfully submitted on behalf of Respondent No.10 that as directed by this Hon’ble Court in terms of its Order dated 22.10.2018 (“Order”), the Respondent No.10 is filing this Additional Synopsis for assisting the Hon’ble Court in relation to the specific issues identified in the said Order for the full and proper adjudication of the matter. The Additional Synopsis may be read in conjunction with the earlier Synopsis filed in Court dated 20.12.2017 of the Submissions made on behalf of the Respondent No. 10 at the hearings held in the above matter (“Earlier Synopsis”).
(A copy of the Earlier Synopsis is attached herewith and marked as Annexure “A”).
It is respectfully submitted that we have not been able to find any law in Pakistan whereby the term “National Asset” is defined.
As to the second part, it is further submitted that under Article 173 of the Constitution, the Federation / Government (“Government”) has the executive authority to sell “any property vested in” it. Further, under Section 22 of the Privatization Commission Ordinance, 2000 (“the 2000 Ordinance”), the Privatization Commission can carry out the Privatization programme as prescribed therein, with the approval of the Cabinet. Moreover, “privatization” is defined under Section 2(i) of the 2000 Ordinance as to include “a transaction by virtue of which any property right, interest, concession or management thereof is transferred to any person from the Federal Government or any enterprise owned or controlled, wholly or partially, directly or indirectly by the Federal Government”. The “property” is defined in Section 2(1) to include “….. any right, title or interest in property movable or immovable and in whole or in part, and any means and instruments of production owed or controlled directly or indirectly by the Federal Government or any enterprise owned or controlled by the Federal Government whether in or outside Pakistan;”.
In this regard, reliance is placed on a Judgment of this Hon’ble Court in the PTCL privatization case which is reported at 2005 CLC 1931.
It would thus follow that there is no fetter on the Government’s ability to sell any public sector entity or asset / property owned by it and it can and continues to do so based, inter alia, on its policy of privatization, in pursuance of the 2000 Ordinance.
As briefly submitted at the hearing on 22.10.2018, before addressing the specific query, it is pertinent to note that in fact, the Petitioners have been unable to show any illegality / infirmity in the privatization process of KESC, which had complied or had substantially complied with the provisions of the 2000 Ordinance and the Rules framed hereunder. Moreover, as comprehensively discussed, inter alia, in the Earlier Synopsis, it is settled law that the Courts do not interfere in policy making (please see Page 6 of the Earlier Synopsis). Further, there are also issues as to maintainability of the Petition and as was demonstrated at the hearing no public interest is involved in the Petition (please see Pages 1 to 5 of the Earlier Synopsis). The Petitioners for securing their own interests and benefits had in writing agreed to withdraw the Petition once their demands were met.
As regard referring the matter to public audit by the Auditor General, it is submitted that the Constitution specifies the role of the Auditor General in Articles 168 to 171 of the Constitution. Article 169 stipulates the functions and Powers of the Auditor General which, inter alia, includes accounts as the Federal Legislature may propose and the accounts of any authority or body established by the Federation or a Province. Thus, the Auditor General is mandated under law to act in relation to the accounts of the ‘authorities and bodies’ established by the Federation or a Province, which does not include privatized institutions such as the Respondent No. 3. In the above background, KESC’s privatization matter cannot be referred to the Auditor General, as it does not come within the purview and scope of the Auditor General’s powers, referred above.
It is further submitted that KE’s financial statements are annually audited by the Company’s private auditors whose functions are enumerated under Section 249 of the Companies Act, 2017. It may be noted that since the Government owns approximately 24% of the shareholding of the Respondent No. 3, it has certain directors representing it on the board of KE. Thus, when the KE’s books are audited by KE’s own auditors in each financial year, these directors were entitled to scrutinize and point out any irregularity in the accounts. Not only did these directors unanimously approve the accounts each year, in Board Meetings, but also at the Annual General Meetings of KE.
Moreover, it will not be out of place to mention the Auditor General's (Functions, Powers and Terms and Conditions of Service) Ordinance 2001 (“2001 Ordinance”), which, in addition to the Constitution, sets out the powers of the Auditor General and the various kinds of audits which may be undertaken. As will be evident from perusing the 2001 Ordinance, the Respondent No. 3 does not fall within any of the sections mentioned therein. Accordingly, the involvement of the Auditor General in this matter is not legally tenable based on the above referred provisions of the Constitution and the 2001 Ordinance.
In relation to reappraisal of the privatization process, it may be noted that to challenge any privatization process a remedy / forum is already provided under Sections 25, 27, 28, 29 and 33 of the 2000 Ordinance (detailed on Pages 1 to 3 of the Earlier Synopsis). As mentioned in the Earlier Synopsis, Section 27 of the 2000 Ordinance in particular empowers the Federal Government or any of its agencies authorized by it, either on its own or on a complaint, inter alia, investigate any privatization transaction within one year of the completion of the privatization. Under Section 27 (2) of the 2000 Ordinance, after expiry of the said period, no such investigation can be carried out. Therefore, given that the privatization took place over thirteen (13) years ago, the Federal Government or any of its agencies are no longer vested with the power to investigate the same in terms of Sections 27 (1) and (2) of the 2000 Ordinance. Moreover, doing so would be prejudicial to the Respondent No. 10 since the said Respondent had made a bona fide investment in Respondent No. 3 as a privatized entity. Further, Section 42 of the 2000 Ordinance provides that “The provisions of this Ordinance shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force and such law, rule or regulation shall, to the extent of any inconsistency, cease to have effect from the date this Ordinance comes into force”.
Therefore, in light of the same and given that the Petitioners have utterly failed to establish any illegality in the privatization process, it is most respectfully submitted that there is no legal ground for a referral of the matter of KE’s privatization or its basis for reappraisal by a third party and that too almost thirteen (13) years after the privatization process was successfully completed. This is all the more so, since the Petitioners have sought to extend the scope of the Petition to include a private sale (to Respondent No.10), which was conducted well after the privatization process was completed in 29.11.2005, and which cannot be assailed in the writ jurisdiction. Any adverse order at this belated stage, pertaining to the privatization, would shatter foreign investors’ confidence and undermine not only the overall privatization programme/policy of the Government but also the economy of Pakistan.
Moreover, it is respectfully submitted that a reference even to any independent forum would be contrary to various other provisions of the law. In this respect Sections 7, 8 and 10 of the Protection of Economic Reforms Act 1992 (“1992 Act”) are also relevant. Section 7 of the 1992 Act explicitly preserves the right of foreign investors to ‘manage and control’ privatized entities and as stated therein, such entities “shall not again be compulsorily acquired or taken over by the Government for any reason whatsoever”. Sections 8 and 10 of the 1992 Act grant further legal sanctity to the property rights of the investors and the financial obligations made by the Government in the course of such investment. (Please see Page 12 of the Earlier Synopsis).
Furthermore, the Petitioners in terms of the submissions made on their behalf on 23.10.2018 requesting the Court for an audit has gone way beyond the scope of their pleadings at such a belated stage without seeking any amendments to the same, which even otherwise is not proper and legal in view of the settled principle of law as recently reiterated by the Hon’ble Supreme Court in terms of its Judgment reported at 2015 SCMR 1698.
(a) KE’s Regulators
As explained in detail in the Earlier Synopsis on Page 15, “.....NEPRA, SECP, CCP and SBP are and have been very proactive regulators as evidenced thus far, and in particular by NEPRA not accepting KE’s position on the proposed MYT for the next period of seven (7) years….”. In fact, the government had exercised its power under the proviso to Section 31(4) requiring NEPRA to reconsider the said MYT in the public interest. However NEPRA has still more or less maintained its original position subject to minor adjustments and the same is yet to be notified by the Federal Government due to ongoing proceedings before the Honourable High Court of Sindh. KE faces various major issues that affect performance and the tariff, varying from electricity theft (kundas) to huge payables by the Government entities (e.g. Rs.31.4 billion is payable by KW&SB and other huge sums are owed by the Government on account of tariff differential claims and energy dues of Strategic Customers) and non-availability of gas etc., (please see Pages 16 to 24 of the Earlier Synopsis).
Despite the above, KE and its sponsor shareholders have turned around KE (please see Page 13 of the Earlier Synopsis and documents referred therein) and are committed to further improving performance as exemplified by the investment of US$ 1.2 billion and improvements resulting therefrom. The fact that there have been significant improvements is also confirmed by the interest of a major Fortune 500 entity (backed by the Chinese Government) seeking to acquire a majority stake in KE.
(b) State of National Assets in Government hands
It is the Petitioners’ case that ‘National Assets’ must always be in Government hands. This is strongly controverted by the Answering Respondents. In the past it has been seen that, in several cases, National Assets in Government hands, have been dissipated and became loss making concerns, resulting in becoming a total liability on the public funds, surviving as ongoing concerns, based on the heavy subsidies provided by the Government, to the detriment of the country’s economy.
It has already been submitted on behalf of the Answering Respondents during the hearings and also covered in the Earlier Synopsis that KESC was in a serious financial crisis prior to privatization, as also confirmed by the Study carried out by the Asian Development Bank on behalf of the Government. KESC’s Auditors had “cast significant doubt about the Corporations ability to continue as a going concern”. It was receiving an operational subsidy in a sum in excess of Rs.12 Billion per annum.
It is a matter of record that PIA and the Pakistan Steel Mills Limited (“Steel Mills”) are bleeding the economy of Pakistan by requiring massive financial support and subsidies to survive. In the case of the Steel Mills, even salaries of staff were not being paid for several months. In a nutshell, public funds in very large amounts on an annual basis are poured into these organizations to keep them afloat. The latest example of Rs.53 Billion bailout packages for PIA and the power companies has been approved by ECC as reported in DAWN newspaper of 13.11.2018.
(A copy of the above DAWN news-item of 13.11.2018 pertaining to the Rs.53 Billion bailout packages is attached herewith as Annexure “C”).
Indeed, the right to electricity has been held to be a fundamental right. The question is how is this right better served in Government hands? Experience from KESC days has shown that due to overemployment, based on political largesse, lacking merit, rampant corruption, equipment and installations in total disrepair, the people of Karachi experienced massive blackouts on a regular basis causing untold sufferings to it, at the hands of KESC and its personnel. The same organization after privatization completely reversed the situation, with more efficiency as evidenced with far fewer disruptions in the electricity supply and much more result oriented performance as explained in the Earlier Synopsis. (See Pages 13 and 14 of the Earlier Synopsis).
It is a strange argument that K-Electric constitutes a monopoly, when in fact KESC itself was also a monopoly, except that it was in Government’s hands, as stated above, and was a total drain on the national resources, causing havoc to the lives of the citizens of Karachi. It’s transformation has been acknowledged both here and abroad. It’s being a monopoly is also a misnomer as it is heavily regulated by NEPRA, SECP, CCP and SBP as mentioned above and also on Page 16 of the Earlier Synopsis. Indeed, in Paragraph 12 of the Supplementary Note filed on behalf of the Petitioners, it is admitted that all other electricity distributing companies in Pakistan DISCOs “hold monopolies” over distribution of electricity in their cities i.e. HESCO, LESCO, IESCO, PESCO and QUESCO in Hyderabad, Lahore, Islamabad, Peshawar and Quetta respectively. It is not being contended by the Petitioners that these DISCOs are operating more efficiently or in a more cost effective manner or without any subsidy by the Government.
It is respectfully submitted that, if certain further steps are taken by the Government and its owned/controlled entities, the position may further improve for the benefit of consumers and the country:
(i) Repayment of KE outstanding dues by Government entities such as KW&SB etc., as discussed above.
(ii) It may be noted that KE is the only vertically integrated utility providing all three functions i.e. generation, transmission and distribution. While the Government had undertaken to provide the most cost-effective form of energy, i.e. gas, it has failed to do so resulting in KE having to purchase furnace oil and/or look for more expensive alternative sources of energy thereby increasing its operational costs. However, as clarified earlier and at the hearing on 22.10.2018, the consumers are not burdened since the tariff is uniform across Pakistan. Supply of indigenous gas can reduce the overall cost of fuel which will benefit the consumer. This is due to the fact that the indigenous natural gas is much cheaper than RLNG (Re-Gassified Liquid Natural Gas). The Province of Sindh represents 70% of the indigenous natural gas reserves in Pakistan and since KE primarily supplies power to the city of Karachi, its adjoining areas and parts of Interior Sindh as well as Balochistan, it should be given higher priority, instead of the commercial and industrial entities which are currently prioritized by SSGC (which is wholly Government owned).
(iii) It will not be out of place to mention that KE has further invested over US$2 billion to improve Karachi’s power infrastructure and enhance the quality of services for its customers. Some of the major initiatives include exempting over 70% of Karachi from load-shedding including all industrial consumers and strategic installations. The transmission and distribution losses have also been brought down from 36% to 20%, along with KE adding an additional capacity of 1,057 megawatts power generation. (Please see Page 13 of the Earlier Synopsis and KE’s Audit Financial Statement).
(iv) Moreover, KE intends to make further investments of over PKR 355 Billion across the value chain during the tariff control period (i.e. Financial Years 2017 till 2023). The same is subject to viability of the tariff, which is beyond KE’s control.
(v) As regards power generation, KE (Respondent No. 3) projects include: Setting up of 900 MW LNG plant (BQPS-III, Bin Qasim), Addition of 1,350 MW from equity participation with IPPs which include China Datan 700 MW Coal IPP, Engro LNG 450 MW and Orient Dual Fuel 200 MW. All these projects are premised on viable and sustainable tariff under the new MYT.
(vi) Regarding transmission, KE has planned a series of transmission packages aimed to enhance Transmission Networks and capacity. This will, in essence, ensure system reliability and improve the quality of service provided to the general public. Planned addition of 15 grid stations along with rehabilitation of existing grid stations. Additionally, it is submitted that KE’s planned investments will result in more than 580 km of new (including interconnection) and rehabilitated electricity lines, which will ensure provision of electricity to further areas and will reduce theft of electricity.
(vii) With respect to distribution, there are significant investments planned to curb theft, improve the quality of supply and enhance customer experience and satisfaction. Some of these initiatives include loss reduction projects through which it is expected that KE’s transmission and distribution losses will reduce by a level of approximately 15.4%. There will also be an increased reliance on the Aerial Bundled Cabling, which will also curb power theft. KE also intends on making technological advancements i.e. implementation of “Energy Accounting Methodology” which will result in PMT level performance visibility and as such, enable KE to better handle loss management and targeted remedial measures. Moreover, there are planned enhancement of distribution network (FY 17 – 23), including laying of more than 600 feeders by 2023 and addition of over 2,800km of 11kV lines and Distribution capacity enhancement by approximately 4,000 MVAs through addition of over 10,000 Distribution Transformers and substations.
With reference to the Court’s order dated 22.10.2018, the points raised by the Hon’ble Court including, inter alia, whether, in view of subsequent events, the process of privatization itself can be examined, and as to whether the matter can be referred to Public Audit by Auditor General or any independent forum for the purposes of either of re-appraisal of the process of privatization, or to introduce certain suggestions for the improvement of the working of K-Electric, without disturbing the process of privatization itself to ensure the maximum relief to the consumer at large and also to minimize the burden upon the public exchequer. For the case of reference, the Additional Synopsis is referred to in this Statement together with the relevant pages and paragraphs.
In respect of referring the matter of privatization to an independent forum, the same is covered in the Additional Synopsis. Please refer to the second paragraph on page 3 of the Additional Synopsis and the final paragraph on page 5 of the Additional Synopsis.
Regarding improvements for the benefit of consumers of KE, the same are covered in the Additional Synopsis. Please refer to pages 6 to 14 of the Additional Synopsis.
It is submitted that given that the petitioner has not pointed out any illegality in the privatization of KE, the said process was in accordance with the law. Similarly the subsequently acquisition of KE by the Respondent No.10 was also in order. Therefore, it is most humbly prayed that the privatization and subsequent acquisition being lawful may not be disturbed and the petition should be dismissed. However, it may recommend strengthening the role of NEPRA as the Regulator for power generating and distribution companies to ensure that the said companies act accordingly.
As regards certain problems faced by KE as a result of the issues such as ‘circular debt’, non-payment by government entities, kundas, fuel supply shortage, etc. KE has already implemented various schemes to address the issue of kundas (as detailed in the Additional Synopsis and KE continues to resolve the same as submitted by KE’s Counsel at the hearing held on 17.08.2020. The Court may be pleased to direct that the Government departments settle their dues properly and on time for enabling power generating companies including KE to maintain the quality of their services to the end consumers. Even otherwise, as has also recently been held by the Hon’ble Supreme Court, NEPRA is the regulator which has full powers to regulate KE.
The 2000 Ordinance
The most pertinent law applicable to the present Petition is the 2000 Ordinance and the rules framed thereunder. Section 27 of the 2000 Ordinance empowers the Federal Government or any of its agencies authorized by it, either on its own or on a complaint, inter alia, investigate any privatization transaction within one year of the completion of the privatization. Under Section 27 (2) of the 2000 Ordinance, after expiry of the said period, no such investigation can be carried out.
Section 28 of the 2000 Ordinance, inter alia, vests the High Court with the “exclusive civil and criminal jurisdiction”, to adjudicate and settle all matters relating to and arising from or in connection with the 2000 Ordinance. As such, when a specific alternate adequate and efficacious remedy is available under the law i.e. 2000 Ordinance, then the Petitioners should have filed a suit under Section 28 of the 2000 Ordinance. Even otherwise, where a special law prescribes a special procedure, then it is settled law that the said procedure should be followed and not otherwise. Accordingly, the present Petition is liable to be dismissed.
(Reliance is placed on the reported judgments 2016 SCMR 842 (See Paragraph 4, Page 845), PLD 2004 SC 127 (See Paragraph 4, Page 129), PLD 1996 SC 246 (See Paragraph 7 Page 249) and PLD 2016 SC 995 (See Paragraph 9, Page1011)).
Section 29 of the 2000 Ordinance provides the procedure and power of the High Court to exercise its civil jurisdiction under the 2000 Ordinance. Section 33 of the 2000 Ordinance provides the appeal provision from any decision of a Single Judge of a High Court hearing the matter.
The Petitioners have mainly relied on the Watan Party’s Case i.e. PLD 2006 SC 697 to invoke the writ jurisdiction of this Honourable Court bypassing the adequate alternate remedy provided under the above provisions of the 2000 Ordinance. However, it is submitted that the Watan Party’s Case was decided on 23.6.2006, whilst the privatization of KE was completed on 29.11.2005. Therefore, stricto sensu, the principles of the Watan Party’s Case cannot be applied retrospectively. Even otherwise, the facts of the Watan Party’s Case are distinguishable from the facts of the instant Petition. There were specific grounds for the Honourable Supreme Court to hold in the Watan Party’s Case that resort to Section 28 of the 2000 Ordinance in that case would be futile because:
a) The vires of the 2000 Ordinance had been challenged and it would not be fair to compel the Petitioners to avail the remedy under the 2000 Ordinance.
b) The High Court within its limited jurisdiction under Section 28 could not strike down any of the provisions of the 2000 Ordinance.
c) The Petitioners had raised issues of great public importance falling within the constitutional domain of the Supreme Court, which could not have been adequately addressed by the High Court in terms of Section 28 of the 2000 Ordinance.
(Paragraph 29, Page 721 of the Watan Party’s case).
d) The Honourable Supreme Court also noted that notwithstanding the proposal of the PC Board to value the share of the Steel Mills at the rate of Rs. 17.43 per share (Reference Price), the Cabinet Committee on privatization reduced it to Rs. 16.18 per share without providing any good reason whatsoever.
(Paragraph 74, Page 755 of the Watan Party’s Case).
The above are specific distinguishable features of the Watan Party’s Case peculiar to its factual position and as such cannot be applied across the board to each and every case even where the factual position is totally different (reliance is placed on 2006 SCMR 1920 (See Paragraph 10, Page 1926) and 2011 SCMR 290 (See Paragraph 8, Page 294)). In the absence of same, for all practical purposes Sections 27, 28, 29 and 33 of the 2000 Ordinance will be rendered redundant for all times. This could not be the intention of the legislature or even of the Honourable Supreme Court, given that it has upheld the vires of the 2000 Ordinance.
(See Paragraph 56, Page 737 of the Watan Party’s case).
Lastly, as a result of filing this Petition and not a civil suit the Respondents are denied one intervening forum, i.e. an appeal to the Division Bench of this Hon’ble Court under Section 33 of the 2000 Ordinance. In the absence of same, any party aggrieved by any order of this Hon’ble Court, will have to go directly to the Supreme Court. Even otherwise as there are several disputed facts, the Hon’ble Count cannot take evidence in the writ jurisdiction and hence on this ground alone, the above Petition is not maintainable.
There is no element of public interest involved in the present Petition since the Petitioners are only interested with respect to their own benefits and status as exemplified by their willingness to withdraw the Petition pursuant to their demands being met.
Reference is made to the Memorandum of Settlement dated 3.4.2010 (“MOS”) signed by the Petitioners and KE (see Pages 747-757 Part I) and the Petitioner No.1’s Letter dated 26.6.2010 (see Pages 759-761 Part I), which clearly and categorically establishes beyond any doubt that pursuant to the MOS, a settlement had been reached between the Petitioner No. 1 and KESC, and in the “Terms of the Settlement” in Paragraph 6, it was agreed in the operative part that the Petitioner No.1 “shall withdraw all cases against KESC and its Management” (Emphasis is ours). In the Petitioner No.1’s above referred letter, the list of cases which were to be withdrawn by the Petitioner No.1 included the instant Petition (CP No.1511 of 2005) pending in the High Court of Sindh.
As such, it is preposterous for the Petitioner’s side to contend that no such agreement had been reached between the parties. The foregoing clearly reflected that the instant Petition was filed to put pressure on KE to settle the Petitioner No. 1’s demands and was totally motivated by personal considerations. This further fortifies that there is no element whatsoever of public interest involved and the Petition is liable to be dismissed.
(Reliance is placed on 2015 SCMR 851. (See Paragraphs 5 & 6 on Pages 854-855)).
It is a well settled legal principle that in exercise of the powers of the judicial review, the Honourable Supreme Court will not scrutinize the policy decisions of the Executive or substitute its own opinion in such matters.
The Supreme Court in the Watan Party’s Case quoted with approval the principles enunciated in the Indian Supreme Court’s case pertaining to BALCO Employees (AIR 2002 SC 350) in which the Supreme Court of India had held that the “Process of disinvestments is a policy decision involving complex economic factors. The Courts have consistently refrained from interfering with economic decisions as it has been recognized that economic expediencies lack adjudicative disposition and unless the economic decision, based on economic expediencies, is demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason, that the Courts would decline to interfere. In matters relating to economic issues, the Government has while taking a decision, right to "trial and error" as long as both trial and error are bona fide and within limits of authority.”
(See Paragraph 57 on Pages 737-738 of the Watan Party’s Case). (Reliance is also placed on reported judgments of HBL’s case 2012 CLD 520 (See Paragraph 34 on Pages 565-566), 1994 SCMR 2142 (See Paragraphs 12 & 13 on Page 2153), AIR 2002 SC 350 (See Paragraph 46 on Page 367 and Paragraph 50 on Page 369) and AIR 2000 SC 801 (See Paragraph 11 on Pages 806-807 and Paragraph 12 on Page 807)).
It is respectfully submitted that the Petitioners’ Counsel has sought to dispute various factual issues, which can only be resolved by recording evidence, while, as stated above, cannot be done in the writ jurisdiction. Therefore, without prejudice to the Respondents’ contentions that no illegality or irregularity has been established by the Petitioners, if this Hon’ble Court wishes to have evidence recorded in the matter, this Petition may be converted into a Suit under the original jurisdiction of this Hon’ble Court. The said conversion will be in conformity with Section 28 of the 2000 Ordinance, as mentioned above.
(i) FINANCIAL CONDITION OF KESC AT THE TIME OF PRIVATIZATION
As is well known, KESC was in a serious financial crisis prior to the privatization as also confirmed by a Study carried out by the Asian Development Bank at the behest of GOP. Please see the Asian Development Bank’s Report which starts from Page 177 (PART I). Also see Paragraphs 1, 2 & 3 on Page 183 (PART I) in which it was clearly stated inter alia that “…. KESC’s financial condition is extremely serious. Its equity has become negative due to accumulated losses since FY 1996. KESC’s worsening financial health is not only threatening its operations, but is also adversely impacting the viability of the energy sector and causing cash-flow problems to its fuel suppliers”.
See Profit and Loss Account of KESC for the year ended 2002 (See Page 313) where the loss after taxation is Rs.17.8 Billion and the accumulated losses brought forward were Rs.48.5 Billion.
Also see the Auditors’ Report on KESC for the year ended on Page 129 (PART I) where the Auditors referred to the losses of KESC of Rs.11.8 Billion indicating “…. the existence of a material uncertainty which may cast significant doubt about the Corporations ability to continue as a going concern.” Also see Page 131 (PART I) where KESC is shown to have suffered a loss of Rs.11.8 Billion and after receiving an Operational Subsidy of Rs.12.5 Billion showed a nominal profit of approximately Rs.463 Million. It was to avoid the above continuous hemorrhaging of public funds and taxpayers money that GOP through the Privatization Commission (“PC”) decided to privatize KESC for which hardly any interest had been seen in the past.
(ii) NO ILLEGALITY HAS BEEN SHOWN IN THE PRIVATIZATION PROCESS .
The Privatization process for KESC can be divided into four stages, namely:
FIRST STAGE: related to the years 2001/2002, where there had been an abortive attempt to privatize KE, which failed due to insufficient interest having been received. Only two bidders had come forward but failed to submit their bids.
SECOND STAGE: in the first instance Kanooz-ul-Watan (“Kanooz”) after full compliance of the six steps envisaged under the 2000 Ordinance namely: (i) EOIs’ submittal; (ii) SOQs’ submittal; (iii) Bids’ submittal; (iv) PC Board’s recommendation; (v) CCOP approval and recommendation to the Cabinet and (vi) Cabinet’s approval, submitted its Consortium’s bid at the rate of Rs.1.65 per share (well beyond the reference price of Rs.1.31 per share). Based on same, Kanooz, being the highest compliant bidder, was declared as the successful bidder. However, Kanooz abandoned the bid leaving behind its earnest money which was forfeited and did not further pursue the acquisition.
In such event, the PC had limited options i.e. to seek to restart the entire process all over again, given the lack of interested parties, compounded by the fact that the bid price had already been disclosed and also time / cost that would be involved; or to seek to engage with the second highest bidder i.e. the Hassan Associates Consortium (“HAC”), who had bid at the rate of Rs.1.01 per share and persuade them to match the highest bid of Rs.1.65 per share for avoiding any prejudice to GOP as the majority shareholder.
It may be noted that the price referred to by the Petitioners’ side of Rs.9.15 per share to be the Stock Exchange price is totally misleading, given that only about 1% float of shares was in the market and given the performance of KE, there were lot of buyers but not many shares for sale. Even otherwise, any unloading of the KESC shares on the Stock Exchange would have immediately resulted in the share price falling drastically.
Given the financial condition of KESC at that time with the huge annual subsidies of about Rs.12 Billion being given by the GOP, the PC Board recommended that a “negotiated sale process” be pursued with HAC. Thereafter, the negotiated sale process commenced, whereby HAC was asked to match the highest price and HAC agreed to do so. It is most pertinent to note that the Petitioners have not raised any objection or challenge with the process of KESC’s Privatization upto this stage, i.e. the stage of Kanooz being declared as successful bidder.
Thereafter, as per the relevant rules i.e. the Privatization Commission (Modes and Procedures) Rules, 2001 (“2001 Rules”), and as allowed by the law in the emergent situation, the PC Board pursued a negotiated sale with HAC and succeeded in compliance with the Rules 3, 4 and 6 of 2001 Rules, (which are also apparent from the PC Board’s recommendations in obtaining the CCOP’s approval and Cabinet’s approval), as a result of which the privatization of KESC was completed in accordance with law. It is also pertinent to note that in the Notification dated 24.3.2006 issued pursuant to Section 26 of the 2000 Ordinance, it is clearly confirmed that the HAC members, being the reconstituted Consortium, submitted their SOQs to the Financial Advisor, who after a proper evaluation confirmed that they met the approved pre-qualification criteria for the transaction, based on which PC Board/CCOP approved the reconstituted Consortium of HAC and the same was further ratified by the full Cabinet in its meeting held on 1.11.2005.
(See Page 767 PART I).
As such, the entire process of Privatization of KE was bona fide and carried out in accordance with the law, and the allegation of mala fide and collusion on behalf of the Petitioners are baseless and unsubstantiated with no evidence of the same, being based only on surmises and conjectures.
Even if the Petitioners are able to point out any minor deviation, (which they have not till date validly done), the same would not constitute sufficient grounds for setting aside the privatization, where “substantial compliance” had taken place, under the doctrine of substantial compliance.
(Reliance is placed on the HBL Privatization case reported as 2012 CLD 520 (See Paragraph 30, Page 563) and PLD 1989 SC 222 (See Side Notes ‘C’ & ‘D’, Pages 226-227). It is also settled principle of law that not every wandering from the precise paths of best practice lends fuel to a claim for judicial review (See Paragraph 24, Page 555 of the above HBL Privatization Case)).
Furthermore, there is a “presumption of regularity” in relation to the GOP’s actions, unless specifically proven otherwise and the same would be applicable in the case of privatization of KESC as the Petitioners have failed to point out any irregularity or illegality thereof.
(Reliance is placed on PLD 2004 SC 261 (See Paragraph 7, Page 267) and 1994 SCMR 782 (See Side Note ‘E’, Page 790)).
(iii) ABRAAJ ACQUISITION OF KESC IS OUTSIDE THE PURVIEW OF PRIVATIZATION, BEING A PRIVATE SALE OF SHARES.
THIRD STAGE: it was after the three year ‘lock-in’ period during which interest in KE could not be transferred, i.e. from 2005 to 2008, when Abraaj was invited by the main shareholder of KE, namely KES Power (whose shareholding in 2008 was 60% owned by Al Jomaih and 40% owned by Denham), to come forward and acquire shares of KES Power i.e. indirectly acquire shares in KE.
(See the Consortium Agreement dated 15.10.2008 on Pages 771-789 PART I).
Abraaj acquired 50% shares in KES Power together with management control of KE. The same was done with the consent of GOP through their Irrevocable Waiver and Consent dated 27th November 2008 (See Pages 791-795 PART I). Hence, Abraaj has a separate vested right in KESC now K-Electric Limited (“KE”) independent of the Privatization of KESC and as such Abraaj acquisition being a private transaction between private parties cannot be challenged in the writ jurisdiction.
(Reliance is placed on 2013 CLD 550 (See Paragraph 8, Page 555 ), PLD 2017 Sindh 559 (See Paragraphs 8 & 9, Pages 561-562), 2011 CLD 496 (See Paragraph 8, Page 503) and PLD 2002 SC 1068 (See Paragraph 5, Page 1071)).
Furthermore, such investments like that of Abraaj, namely the original equity injection (US$ 361 Million) and the total amount invested (through debt and equity i.e. over US$ 1.2 Billion), have the protection of law as incorporated under the Protection of Economic Reforms Act, 1992 (“1992 Act”), specifically Sections 7 and 10 of the 1992 Act.
(Reliance is also placed on the reported judgments CLD 2002 472 (See Paragraph 26, Pages 486-487) and 1999 MLD 2994 (See Paragraph 10, Page 2998-2999)).
FOURTH STAGE: is the proposed acquisition of KE by Shanghai Electric Power (“SEP”), which is a subsidiary of China Investment Corporation, a Fortune 500 Company. It is an achievement of Abraaj ‘to turn around KESC to KE’ that it attracted such a top power generation company in the world, and which has the potential to take KE forward to a new level in meeting the power supply needs of its customers.
The financial status of KESC during the period of 2002 to 2005 in reference to the financial statements / reports filed by the Petitioners established beyond any doubt that KESC was making huge losses and the Petitioners’ Counsel contention that it was making profit in the year 2005, was wholly misconceived, since, it was all due to the Operational Subsidies provided by the GOP to KE to continue functioning.
It is pertinent to highlight the achievement of Abraaj viz. turning KE around with specific reference to a Presentation earlier made to the GOP. Please see Statement dated 9.9.2017 on Page 1239, PART II, more particularly the KE Presentation on Pages 1241-1249. Reference is also made to the Statement dated 21.9.2017 on Page 1299 PART II, attaching therein the KE’s most recent Annual Report for the year ending 30th June 2016, which highlights the current material facts and figures including profits being made, reduction of T&D losses, increase in the generation capacity etc.
This turnaround of KE is manifested by the fact that Harvard Business School and Harvard Kennedy School conducted a joint case study on KE’s turnaround and lauded its unique transformation and value creation model. Moreover, a Fortune 500 entity (backed by Chinese Government) was seeking to acquire a 66.4% stake at a price of US$ 1.77 Billion was a testament to not only the betterment of KE by Abraaj but a positive sign for the city/country.
In view of the foregoing, it is submitted that the entire process of Privatization of KE was bona fide and carried out in accordance with law, and the allegation of mala fide and collusion on behalf of the Petitioners are baseless and unsubstantiated with no evidence of the same, being based only on surmises and conjectures. As such, the Petition is liable to be dismissed with costs.
REBUTTAL TO THE NEW ISSUES RAISED BY PETITIONERS’ IN THEIR REBUTTAL SUBMISSION .
The Petitioners raised certain new points in their rebuttal submission, which are addressed as under:
From the Petitioners’ side, reliance was placed on a Lahore High Court judgment reported as PLD 2015 Lahore 522 (Ms. Imrana Tiwana and others vs. Province of Punjab and others) in terms of which the doctrine of “Regulatory Capture” was discussed and on the basis of the same, the decision of the Provincial Government for establishing “the Signal Free Corridor Project” (the “Project”) was struck down. The Court, inter alia, held that the Environmental Protection Agency (the “EPA”) being the ‘Regulatory Body’ was unable “to independently dispense environmental justice, within the statutory framework of PEPA” (the Environmental Protection Regulations) on various grounds, including essentially due to the Regulator being regulated by the Government of Punjab and the Regulator not independently deciding the matter.
(See Paragraph 5 on Page 541 and Paragraph 33 on Pages 570-571)
However, it is submitted that the Petitioners’ side were perhaps not aware that the above case was appealed to the Hon’ble Supreme Court, reported as 2015 SCMR 1739 (Lahore Development Authority and others vs. Ms. Imrana Tiwana and others) wherein the Hon’ble Supreme Court while partly allowing the appeals held that “the doctrine [Regulatory Capture] applies where a statutory body set up to regulate a group is then manned by the persons from that group to defeat regulation.” The Hon’ble Supreme Court, whilst allowing the appeals further stated, “We cannot strike down the EIA [Environmental Impact Assessment] upon a mere presumption or apprehension.” In other words regulatory capture cannot be presumed or apprehended but there has to be a clear and categorical demonstration of the lack of independence of a regulator in regulating the regulated. (Emphasis is ours).
(See Paragraph 85 on Page 1775 and Paragraph 90 on Page 1776)
Apart from mere sweeping unfounded allegations, no such clear and categorical document or any other evidentiary support was provided to substantiate ‘the bald allegations’ of there being any regulatory capture on the facts of the case present in this Petition. This contention is further absurd since NEPRA, SECP, CCP and SBP are and have been very proactive regulators as evidenced thus far, and in particular by NEPRA not accepting KE’s position on the proposed MYT for the next period of seven (7) years. Thus, no nexus even remotely has been established by the Petitioners between the Regulators and the Respondents.
Strictly speaking KE’s monopoly of providing electricity should be understood in the context of certain salient facts summarized below:
(i) For power generation and transmission in Karachi, KE does not have a monopoly, as other entities are also generating and transmitting electricity including providing power to KE, such as Gul Ahmed Energy Limited, Tapal Energy Limited, Fauji Power Company Limited and KANNUP.
(ii) For distribution, all DISCOs including KE have an exclusivity in their respective Licensed Areas, such as LESCO, FESCO, MEPCO, IESCO and others.
(iii) Under Section 21 of the NEPRA Act 1997 and Rule 7 of the National Electric Power Regulatory Authority Licensing (Distribution) Rules 1999, exclusivity is given to a licensee during the term of the distribution license in respect of the Service Territory/Licensed Area for distribution of electric power to the consumers, billing the consumers and collecting the tariff for electric power distributed within the Service Territory/Licensed Area.
(iv) The consumer tariff is uniform across Pakistan and is regulated by NEPRA.
The sum of Rs. 13 Billion was already committed by GOP much before privatization. Its purpose was to rehabilitate the dilapidated transmission and distribution network of KESC and it was not aimed at elimination of dependence on NTDC system.
(i) Multi Year Tariff (MYT)
The MYT was designed to be a performance based multi year tariff for KESC to come into effect from the date of privatization for a period of seven (7) years (control period). Although the MYT was determined by NEPRA through public hearings in 2002, but privatization was kept in abeyance till later. This meant that the ground realities and the assumptions in the MYT were not the same in 2005 (when KESC was privatized) and therefore the claim that the MYT was never to be revisited paints a wrong picture of the factual position.
NEPRA has been exclusively empowered to determine rates, charges and other terms and conditions for electric power services under Section 7 of the NEPRA Act, 1997. The revisiting of MYT by NEPRA was done in accordance with law and after following the due process including conduct of public hearings with the views of all stakeholders including public and private stakeholders taken into consideration.
While KE requested for review of a number of parameters in 2009, NEPRA only allowed a few of those after due process. Moreover, the determination of tariff by NEPRA is an ongoing matter and not a one-off privatization related act.
(ii) Tariff Adjustment (being a Consumer Subsidy for uniformity of tariff across Pakistan in contradistinction to the Operational Subsidy for financial support)
The reference to Tariff Adjustment (which is in effect a Consumer Subsidy to keep the tariff uniform for all consumers across Pakistan), in the Profit and Loss Account of KE for the year ended 30.6.2016, was wrongly compared by the Petitioners’ Counsel to the Operational Subsidy given to KESC for the year ended 30.6.2005, which was to make up for KESC’s cash shortfall and to ensure its ability to continue as a going concern. The two subsidies are totally different payments for totally different reasons. The said Tariff Adjustment by way of Consumer Subsidy (given to various DISCOs based on their power generation and O&M costs), was necessary for avoidance of a higher tariff to consumers.
This is in conformity with Article IX of the Implementation Agreement dated 14.11.2005 signed between GOP and KESC, Paperbook XIII on printed Page 22), in terms of which GOP could, from time to time, issue in writing a Subsidy Order, directing the company to subsidize the rates at which electric power is distributed and paid for by the consumers, the cost of which is reimbursed by GOP as Tariff Adjustment.
Furthermore, it is pertinent to point out that no Operational Subsidy has ever been paid to KE, which confirms that KE is not dependent on GOP’s financial support after privatization. This has enabled GOP to achieve its primary objective of privatization by relieving the pressure on the National Exchequer.
CPLA No.803 of 2013 before the Supreme Court .
(i) NTDC (Marginal rate vs. Pool rate)
The reference by the Petitioners’ side to Paragraph 22 containing a Chart showing certain alleged concessions in the sum of Rs.269.479 Billion by GOP to Abraaj are patently unwarranted and misconceived as explained below.
All Distribution Companies in Pakistan procured power from NTDC at pool price (basket/DISCO rate) which is basically the average cost of generation from all resources including hydel, thermal, etc. KE (then KESC) also procured power on the same basis. However, soon after privatization, NTDC unilaterally and for no reason, started charging KE at marginal cost which was based on the highest cost of generation. KE disputed that change of practice since incremental amount (difference between average cost and cost charged to KE) would have to be paid to KE as subsidy thus resulting in unnecessary creation of bloated receivables from Federal Government as Subsidy and payable to the Federal Government as power purchase costs. This inflated number is due to the GOP’s adopting a policy of Uniform Tariff across Pakistan for all consumers and hence, any incremental costs due to incremental rates had to be paid to KE as Tariff Differential Subsidy. On an overall basis, it made no difference for KE as the cost differential was a pass-through item for KE. Therefore, as a result of ECC Decision (incorporated in the Amendment Agreement dated 13/4/2009 (“AA”), KE was treated at par with other DISCOs for the purpose of power purchase from NTDC. KE did not get any monetary benefit from it, as in any case it was a pass-through cost item under its tariff.
(A copy of the Chart relating to the so called concessions of Rs.269.479 Billion given by GOP to KE, as wrongly contended by the Petitioners is attached with Statement dated 9.12.2017 as Annexure “A” on Page 1313 PART II.)
(ii) Alleged Subsidy of Rs. 269 Billion to KE
The repeated reference to Rs. 269 Billion as a subsidy mentioned in the Concise Statement filed on behalf of the Federation of Pakistan in CPLA 803 of 2013 (KE vs. KWSB and others) at the hearings held on 5.12.2017 and 11.12.2017, is totally denied as being factually incorrect and has already been explained in the earlier Statements dated 9.12.2017 and 12.12.2017 filed in Court (see Page 1301-A and 1317). It may be noted that the said amount was not paid to KE.
It essentially comprised of two components: (1) a higher and discriminatory charge applied to KE for power purchase from NTDC as compared to a lower rate charged to other DISCOs. This anomaly from 2006 to 2009 created a wrong and legally untenable receivable against KE in the approximate sum of Rs. 49.3 Billion (the correct amount is Rs. 31 Billion). This matter was referred to ECC/Cabinet and the ECC/Cabinet accepted that KE was wrongly being charged a higher rate. As such by its decision dated 14.10.2008, the ECC/Cabinet (decision dated 8.4.2009) reversed the said charge against KE to make the applicable rate at par with the DISCOs for power purchase from NTDC.
Despite the said decision, in the above Concise Statement a further amount of approximately Rs. 207 Billion has been wrongly shown under the same head as a receivable for KE for the period 2009 to 2014, which based on the ECC/Cabinet said decision was ab initio not payable by KE and was not even invoiced to KE.
As regards the second component included in the figure of Rs. 269 Billion, Rs. 12.2 Billion is shown (the correct amount should be Rs. 10.567 Billion) which the GOP paid for acquiring the right shares in KE, when Abraaj injected US$ 361 Million through KES Power in KE.
Due to the capital injection of US$ 361 Million by Abraaj pursuant to the AA by way of right share issues, GOP would have had its shares in KESC diluted if this was not matched by GOP pro rata its shares, to maintain its overall shareholding percentage. Accordingly, GOP voluntarily spent for its own shareholding interests Rs. 10.567 Billion (and not the incorrect amount of Rs.12.2 Billion mentioned in the Concise Statement), to ensure that its shareholding in KE remained intact. If GOP had not bought the said shares, the same would have been available to the sponsor shareholders or members of general public to subscribe in accordance with the laws of Pakistan. Therefore, treating this subscription by GOP as a concession is absurd. In fact, GOP benefited from an increase in the market value of the shares, which has now grown in value from the amount previously invested by it.
The purpose of the AA was to bind the new investor (Abraaj) for an injection of US$ 361 million in KE and to simultaneously clarify the issues pertaining to financial matters arising post privatization including the marginal cost issue. Through extension in the term, the Strategic Customers (whose electricity cannot be disconnected), also got a further extension in protection from disconnection in case of default.
On the other hand, the commitments made to KE on account of payments on behalf of Strategic Consumers guaranteed in 2005 under the IA and re-affirmed in 2009 (through the AA) were not complied with by GOP. An amount of over Rs. 31.4 Billion is still outstanding against KE’s claim due to non-payment by KWSB which was classified as a Strategic Consumer under the IA/AA.
While the Concise Statement acknowledges enhancement of generating facilities by KE, it wrongly alleges KE of under-utilizing its own generation resources which is denied. KE follows prudent utility practices which require procurement/ generation of power from the cheapest resources (economic dispatch) to ensure the minimization of tariff. Please refer to the Suo Moto Case No. 14392 of 2013 (2014 SCMR 220, see paras-36(iii) - (iii) it is the responsibility of NEPRA to reduce the prices while ensuring that electricity is generated though less-costing value of production from hydel power. As far as thermal power is concerned, preference must be given to generate electricity by using coal and gas, and unless there is no compulsion, the electricity should not be generated from RFO as it is costing higher prices, which ultimately has to be borne by the consumers/GOP. Further, the renewable sources for generating electricity including wind and solar power must be utilized.)
Supply of 650 MW
The procurement of power from the NTDC was formalized post privatization in January 2010 in the form of a mutually agreed Power Purchase Agreement. It ensures that the citizens of Karachi get their due share in the cheaper hydel source of electricity. The matter is sub judice before the Hon’ble High Court of Sindh in another case. Any changes involved in the AA were based on the fresh foreign direct investment being made by Abraaj in KE which was duly injected in KE. On the contrary, KE is still owed huge sums of money from GOP on account of tariff differential claims and energy dues from Strategic Customers including KWSB as shown in Annexure “B” to the Statement dated 9.12.2017.
As regards the alleged KE Payables, the figures mentioned in the Concise Statement are factually incorrect and need to be considered in the background of the substantial amounts owed to KE from the GOP entities (which are not being paid due to the ‘Circular Debt’ issue), and the same pursuant to a GOP exercise of reconciliation will be settled/adjusted on the basis of mutual adjustments.
(A Chart dated 4.12.2017, giving the updated position in this regard is attached with Statement dated 9.12.2017 as Annexure “B” on Page 1315 PART II.)
Whenever a foreign company incorporated outside Pakistan seeks to do business inside Pakistan, the same, including its directors and shareholders, are subjected to strict scrutiny not only of the security agencies under the Ministry of Interior but also of the Defence Services.
Even otherwise, under the Share Purchase Agreement dated 14.11.2005 signed between GOP and Hasan Associates Consortium, in terms of Article 5.3 (b) (Page 1773 of Paperbook No. 11), it is stated that the Purchaser may directly or indirectly, inter alia, sell or transfer its interest in the shares after three years of the Closing Date, provided the Purchaser has obtained GOP’s certification that the proposed transfer/transaction does not affect national security interests of Pakistan. As such, based on the above, it is highly unlikely that any enemy alien could obtain control of KE or any other such company.
It is further submitted that under Section 461 of the Companies Act 2017, the SECP, inter alia, has the power to obtain and does obtain the security clearance of a foreign shareholder, a director or any office bearer of a local company, such as KE. Under the standard operating procedure in vogue, the same is obtained after a thorough scrutiny by the concerned agencies listed above.
10. 1993 and 2006 CCI Approvals
In this respect we adopt and reiterate the submissions made on behalf of the PC, that the above CCI approvals for the privatization of KESC were duly obtained. If there is any doubt about the CCI’s approval being obtained in 1993, the CCI’s approval “accorded post facto” in 2006 relation to several “Completed Privatizations” including KESC, as listed in Annexure 2, Page 1979 of Paperbook No. 13, further clarified the position conclusively. The obtaining of the post facto approval in the Watan Party’s case was recommended by the Honourable Supreme Court reported as PLD 2006 SC 697, (See Paragraph 2, Page 707).
It is submitted that electricity may be a fundamental right (right to life), but there is nothing that precluded a fundamental right being provided by a privatized and a more efficient entity. Reference is made to the list of privatized entities in the U.K. submitted during the course of the Respondents’ Arguments as well as on behalf of KE (See Page 1219 PART II). The same reflects the best practices followed internationally with good results. It is respectfully submitted that the world is a ‘Global Village’ and Pakistan cannot shy away from following the said best international practices.
It may be added that the Steel Mills’ current woes resulting from its not being privatized has resulted in GOP spending Billions of Rupees of public funds and taxpayers’ money to ensure its being a going concern. Today even salaries of the employees of Steel Mills have not been paid. (See Page 1265 PART II).
Privatization in general and of utilities in particular, was the GOP’s prerogative i.e. a policy matter as per established law and significantly, the Petitioners have not challenged the same in the Petition. As such, the Petitioners cannot be allowed to go beyond their pleadings and even otherwise, there is no law or other restriction on privatization of a utility.
[Reliance is placed on reported judgments 2015 SCMR 21 (See Paragraph 3, Page 25), 2015 SCMR 1698 (See Paragraph 3, Page 1702) and 2011 PLD SC 155 (See Paragraph 5, Page 160)].
49. We have heard the learned counsel for the parties, perused the detailed written synopsis and the relevant record pertaining to privatization of Karachi Electric Supply Corporation (KESC) and have also gone through with the judgments cited by the learned counsel for the parties in support of their arguments. The precise controversy agitated through above petitions, relates to examination of the privatization process adopted by the respondent No.2 i.e. Privatization Commission in respect of sale of share and management control in KESC to M/s. Hassan Associates Consortium, however, in view of certain development in respect of privatization of KESC an application under Order 1 Rule 10 CPC filed with the prayer to join M/s. Abraaj Investment Management Limited as one of the respondent on the ground that KESC was transferred to M/s. Hassan Associates Consortium in terms of shareholding (with the power) in favour of M/s. Abraaj Investment Management Limited, therefore, the transaction is to be examined by the Court. In view of no objection made by Mr. Sajid Zahid, appearing on behalf of M/s. Abraaj Investment Management Limited, the said party was added as respondent No.10 pursuant to order dated 15.05.2011, whereafter, amended title was filed to this effect. The process of privatization of KESC has been challenged by the petitioners by raising various constitutional and legal grounds, whereas, learned counsel for the petitioners had made serious efforts to point out various defects in the process of privatization of KESC through sale of its share to M/s. Hassan Associates Consortium and M/s. Abraaj Investment Management Limited. Since preliminary objections have been raised on behalf of the respondents with regard to maintainability of instant petitions on various grounds, it will be appropriate to record our finding as to maintainability of instant petitions, before dilating upon the merits of the case. Learned counsel for the respondents have raised objection that petitioners have no locus-standi to file above petitions as privatization of KESC is not the case of public importance, whereas, petitioners are either employees of KESC and have personal interest, therefore, the aforesaid petitions are not important for public at large, whereas, malafide on the part of petitioners have also been alleged by the respondents. It has been further agitated that this Court has no jurisdiction to examine the process of privatization of KESC under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, as it includes disputed facts. An objection has also been raised as to maintainability on the ground that the process of privatization undertaken by the Federal Government under the Privatization Commission Ordinance, 2000, is otherwise the policy decision and in the absence of any violation of the provisions of the Ordinance, 2000, or non-complier of statutory provisions of law, there can be no judicial review of such policy decision, therefore, petitions are liable to be dismissed. The objection as to maintainability of above petitions has been duly dealt with in the aforecited decision including in the case of Wattan Pary through President v. Federation of Pakistan through Cabinet Committee of Privatization, Islamabad and others (PLD 2006 Supreme Court 697, wherein, the process of privatization of Pakistan Steel Mills Corporation was challenged directly before the Hon’ble Supreme Court of Pakistan while invoking the provisions of Article 184 (3) of the Constitution of Islamic Republic of Pakistan, 1973, whereas, the Hon’ble Supreme Court was pleased to hold that normally in exercise of the power of judicial review, Courts will not scrutinize the policy decision or to substitute its own opinion in such matters unless the policy decision shown against the constitution and the law. Accordingly, it was held that petitioners have locus-standi to challenge privatization of government owned organization to private sector under the Privatization Commission Ordinance, 2000, and the petitioners have locus-standi to file similar public interest litigation. It has been further held that any member of the public having sufficient interest can maintain an action for judicial redress of public injury arising from breach of the public duty or from violation of some provision of the Constitution or the law and for enforcement of such public duty and observance of such constitutional provision.
50. We have heard the learned counsel for the parties at length and have also examined the record and the synopses of written arguments as well as the case law relied upon by the learned counsel for the parties in support of their respective submissions. Scrutiny of facts, relevant documents and the procedure adopted for the privatization of the KESC through sale/transfer of its 72% shares to KES Power, 1% share to M/s. Hassan Associates and 0.5% share to M/s. Premium Mercantile under the Privatization Commission Ordinance, 2000, read with Privatization (Modes and Procedures) Rules 2001, has also been made with the assistance of learned counsel for the parties on the basis of available record. Relevant constitutional provisions and the case law relied upon by the learned counsel for the parties relating to maintainability of instant Constitutional Petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, and declaration to the effect as to whether the privatization of KESC to KES Power was illegal or otherwise, have also been examined in detail. Since all the relevant facts and chronology of events relating to privatization of KESC twice under the Privatization Commission Ordinance, 2000, read with Privatization (Modes and Procedures) Rules, 2001, has been recorded in detail in hereinabove paras, we need not to repeat such facts, except the relevant events, and the steps taken towards compliance of constitutional and legal requirements, relevant rules and procedural fulfillment for the purposes of privatization process, and would also examine as to whether the constitutional, legal and procedural requirements have been met in the process of privatization of KESC or not? We would first address the preliminary objection raised by the respondents as to maintainability of instant petitions filed under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, on various grounds, including malafide on the part of the petitioners, lack of an element of public interest, availability of alternate adequate remedy under Section 28, 29 and 30 of the Privatization Commission Ordinance, 2000, interference in the policy making decision of the executive etc. It is pertinent to note that process of privatization of KESC and transfer of its shares was completed through negotiated sale as per Rule 6 of the Privatization (Modes and Procedures) Rules, 2001, after failure of two attempts at privatization, whereas, the transaction was completed by the closing date i.e. 28.11.2005 pursuant to decision of Cabinet Committee on Privatization (CCOP), taken in its meeting dated 26.09.2005, which was ratified by the CCOP on 01.11.2005. Constitutional Petition No.D-1511/2005 has been filed by the KESC Labour Union (Petitioner No.1) along with Administration Officer of KESC (Petitioner No.2), a shareholder (Petitioner No.3) and a local businessman, claiming to be a public spirited taxpayer (Petitioner No.4), seeking declaration to the effect that process of privatization of KESC adopted by the respondent No.2 and 3 and transfer of its shares and management control to respondent consortium is illegal, void and of no legal effect. Since, there is an objection raised by the learned counsel for the respondents relating to maintainability of above Constitutional Petitions filed under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, on the grounds of locus potentia and malafide on the part of petitioners, whereas, matter relates to a transaction, which is governed by the Constitution of Islamic Republic of Pakistan, 1973, legal provisions of a Statute i.e. Pakistan Privatization Commission Ordinance, 2000, and also involving policy decision of executive authority. In the garb of public interest litigation, any individual or small group of persons cannot be allowed to invoke the constitutional jurisdiction of this Court under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, on mere allegation of malafide in respect of any decision of the executive authority, whereas, Courts are required to exercise restraint, and to ensure that unless there is a matter of public interest or enforcement of fundamental rights only, then its discretion under Article 199 of the Constitution should be invoked and exercised by the Courts. In such type of cases, extra caution and care has to be exercised, and unless good faith on the part of petitioner is established and the matter is found to be of a public interest, and the respondent is not in a position to distinguish that the impugned transaction does not suffer from any jurisdictional defect or patent illegality, the Courts may not encourage frivolous litigation between the parties and miscarriage of justice. Privatization of KESC under the Privatization Commission Ordinance, 2000, is however a matter of public interest and cannot be considered as a simple transaction, transfer of shares from one company to another, on the contrary, in view of clear instance of the government to its privatization and the sale and transfer of its shares to the respondent, clearly reflects that the matter is of a public importance, therefore, the said transaction involving scrutiny of some constitutional, legal and procedural aspect can be subjected to judicial scrutiny by this Court under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, particularly, when respondents have not been able to point out any malafide on the part of the petitioners. Moreover, above petitions are pending before this Court since 2005 and unfortunately could not be decided during all these years, whereas, several developments have accrued during pendency of these petitions, which have now been taken cognizance by the learned counsel for the parties, who have made their respective submissions keeping in view such changed circumstances, therefore, it appears that the issue of maintainability has not been vehemently argued by the learned counsel for the respondents towards conclusion of hearing the above petitions by this bench. Since merits of the case have been argued in detail by all the learned counsel for the parties, who have filed their written synopses on all such legal issues, we deem it appropriate to reject the plea of the respondents with regard to maintainability of above petitions and would examine the merits of the above petitions in accordance with law.
51. The issue regarding maintainability of a Constitutional Petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, in respect of matters involving public interest litigation as well as the locus poenitentiae of a person to file such Constitutional Petition has been dealt with in detail by the Hon’ble Supreme Court in the case of Wattan Party through President v. Federation of Pakistan through Cabinet Committee of Privatization, Islamabad and others (PLD 2006 Supreme Court 697, wherein, it has been held as under:-
21. This Court in the referred cases and the Indian Supreme Court in the case of S.P. Gupta ibid have laid down a rule namely that any member of the public having sufficient interest can maintain an action for judicial redress of public injury arising from breach of the public duty or from violation of some provision of the Constitution or the law and for enforcement of such public duty and observance of such Constitutional provision.
In the case of Benazir Bhutto ibid, it was held that only when the element of public importance is involved , the Supreme Court can exercise its power to issue the writ while sub Article 1(c) of Article 199 of the Constitution has a wider scope as there is no such limitation therein.
In Al-Jehad Trust ibid, it has been held that, "question of locus standi is relevant in a High Court but not in the Supreme Court when the jurisdiction is invoked under Article 184(3) of the Constitution."
In Malik Asad Ali ibid it was observed that under Article 184(3) of the Constitution, this Court is entitled to take cognizance of any hatter which involves a question of public importance with reference to the enforcement of any of the fundamental rights conferred by Chapter I Part II of the Constitution even suo motu, without having any formal petition.
In Multiline Associates ibid this Court held that requirement of the locus standi in the case of pro bono publico (public interest litigation is not so rigid) has extended scope. This principle has been reiterated in Wukala Mahaz Barai Tahafuz Dastoor v. Federation of Pakistan (PLD 1998 SC 1263).
Similarly, the issue regarding availability of alternate remedy in terms of provision of Section 27 and 28 of the Privatization Commission Ordinance, 2000, has also been dealt with by the Hon’ble Supreme Court of Pakistan in the same judgment in the following terms:-
“22. Now we turn to the question relating to availability of alternate remedy to petitioner in terms of sections 27 and 28 of the Privatization Commission Ordinance, 2000. For facility of reference both these sections are reproduced hereinbelow:-
"27. Investigations.--(1) The Federal Government or any of its agencies authorized by it, may of its own or on a complaint oversee, scrutinize or investigate any privatization transaction within one year of the completion of the privatization.
(2) After the expiry of the period referred to in sub-section (1), the Federal Government or any of its agencies shall not be empowered to carry out any such scrutiny or investigation.
28. Jurisdiction of High Courts.--Notwithstanding anything contained in any other law for the time being in force, the High Court shall exercise exclusive civil and criminal jurisdiction-
(a) to adjudicate and settle all matters related to, arising from or under or in connection with this Ordinance;
(b) to adjudicate and settle all matters transferred pursuant to section 31; and
(c) to try offences punishable under this Ordinance. "
23. Learned counsel Mr. Abdul Mujeeb Pirzada contended that the Federal Government itself is petitioner in one of the petitions (C. P. No.394 of 2006), in the memo of the petition it is supporting the process of privatization as prayer has been made for the dismissal of petition filed on behalf of the Workers Union before the High Court bearing C.P. No.D-240/2006. Besides from day one when the proceedings started the matter was discussed at considerable length wherein number of omissions and commissions in the privatization of the project under consideration have been pointed out which according to him were sufficient to annul the Letter of Acceptance' (LoA) dated 31st March, 2006 and the subsequent Share Purchase Agreement between the parties dated 24th April, 2006. But no concern was shown at all on its behalf, therefore, under these circumstances availing an opportunity to lodge complaint before the Federal Government in terms of section 27 of the Ordinance would be nothing but a futile exercise. In this behalf lie has placed reliance on Anjuman-e-Ahmadiya, Sargodha v. The Dy. Commissioner Sargodha (PLD 1966 SC 639) and The Murree Brewery Co. Ltd v. Pakistan thr. The Secretary to Government of Pakistan, Works Division (PLD 1972 SC 279). He also submitted that because he is challenging the very vires of the Ordinance, he cannot be compelled to avail the so-called remedies.
24. Syed Sharif ud Din Pirzada, learned ASC for the Privatization Commission opposed the arguments put forward by Mr. Abdul Mujeeb Pirzada learned ASC and stated that in presence of a statutory remedy the petition under Article 199 or Article 184(3) of the Constitution is not maintainable.
25. Learned Attorney General contended by relying on the principles laid down in The Chairman East Pak Railway Board Chittagong etc v. Abdul Majid Sardar, Ticket Collector Pak Eastern Railway Laksam (PLD 1966 SC 725) and Lahore Improvement Trust, Lahore through its Chairman v. The Custodian Evacuee Property West Pak Lahore (PLD 1971 SC 811) that "the Court to explore possibility of every possible explanation for the validity of an order passed by public authority," suggested resort to section 27 of the Ordinance by making reference to the Federal Government for the purpose of further probe into the case to examine the legality and validity of transaction.
26. It is important to note that as far as the principle of law discussed in the cases of Anjuman-e-Ahmadiya, Sargodha and Lahore Improvement Trust ibid is concerned, there is no cavil with the same and we with utmost respect approve the same. But at the same time, we have also to keep in.mind another very important principle of law enunciated by this Court in the case of Syed Ali Abbas v. Vishan Singh (PLD 1967 SC 294) i.e. petitioner cannot be refused relief and penalized for not throwing himself again (by way of revision or review) on mercy of authorities who are responsible for such excesses. This principle has to be read along with the principle laid down in the case of Anjuman-e-Ahmadiya, Sargodha ibid 'wherein it has been held that if an adequate remedy provided by law is less convenient, beneficial and effective in case of a legal right to performance of a legal duty, the jurisdiction of the High Court can be invoked. Similarly this principle has been reiterated in the The Murree Brewery's case ibid wherein it has been held that it' a statutory functionary acts mala fide or in a partial, unjust and oppressive manner the High Court in exercise of its writ jurisdiction has power to grant relief to the aggrieved party.
27. Thus we are of the opinion that under the circumstances of the case, it would not be in the, interest of justice to push the petitioners back to the authority who had already exercised the jurisdiction and is insisting that the action so taken by it is not only in accordance with law as it suffers from no legal discrepancy or infirmity but is also transparent. Therefore under the circumstances, referring the case of the petitioner to the Federal Government or this Court directing investigation under section 27 of the Ordinance would be inappropriate and an exercise in futility and it would also not serve the interests of justice.
28. Now turning towards the implication of section 28 of the Ordinance a perusal whereof indicates that civil and criminal jurisdiction has been conferred on the High Court to adjudicate and settle all matters related, arising from or under or in connection with the Ordinance as also all matters transferred pursuant to section 31 and to try offences punishable under the Ordinance. In our opinion the matters shall be arising in respect of the rights and obligations of the parties who are the subject of the Ordinance. As far as pro bono publico cases are concerned, those shall not be covered under this provision of law because in such cases Court has been called upon to exercise Constitutional jurisdiction on the basis of the information laid before it that the matter involves question of public importance relating to their fundamental rights individually or collectively. A perusal of section 28 clauses a, b, c, indicates that for such like litigants this section provides no remedy for redressal of their grievances.
29. Besides above reasons there is an important aspect of the case namely these remedies are available within the Ordinance and Mr. Abdul Mujeeb Pirzada learned ASC has challenged its vires on the touchstone of Articles 153 & 154 of the Constitution. Therefore the law vires, of which have been challenged, it would not be fair to compel the petitioner to avail the remedy under the same law. The High Court within its limited jurisdiction under section 28 cannot strike down any of the provisions of the Ordinance. Furthermore, petitioner's learned counsel has raised issues of great public importance falling within the Constitutional domain of this Court which could not have been adequately addressed to by the Court in terms of section 28 of the Ordinance.”
52. Perusal of the above cited judgment in the case of Wattan Party (supra) reflects that once the process of privatization of a public asset has been challenged by any citizen of Pakistan as pro bono in a public interest litigation, for being violative of the Constitutional mandate and contrary to the legal requirements as per Privatization Commission Ordinance, 2000, then the same cannot be entertained or decided by High Court while exercising limited jurisdiction in terms of Articles 28-A, 29 and 30 of the Privatization Commission Ordinance, 2000 read with Privatization (Modes and Procedures) Rules, 2001, therefore, any citizen having locus standi to file a Constitutional Petitions for seeking enforcement of fundamental rights, under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, can file a constitutional petition for the scrutiny of the process of privatization of a public asset. Accordingly, the objection raised by the respondents as to the maintainability of the above petitions on this account is found to be misconceived, hence, overruled. We are of the opinion that right of electricity is part of right to life, which includes right to quality of life, hence part of fundamental right of a citizen of Pakistan. To provide electricity to the citizen is the responsibility of a State, whereas, Electricity service is part of the essential services to be provided by the State to its citizens. In view of hereinabove facts, we are of the view that respondents have not been able to point out any mala fide on the part of the petitioners, nor this is the case, which could have been dealt with by this Court while exercising jurisdiction in terms of Sections 28, 29 and 30 of the Privatization Commission Ordinance, 2000, therefore, instant petitions are maintainable and the objection raised by the respondents in this regard is hereby overruled. However, we would like to observe that maintainability of the Constitution Petitions in respect of any challenge to sale/transfer of share of any public asset or property under the Privatization Commission Ordinance, 2000 read with Privatization (Modes and Procedures) Rules, 2001 should be treated as an obstacle to cross in appropriate cases so that the cumbersome process of privatization, subject to fulfillment of the Constitutional and the legal requirements under the Privatization Commission Ordinance, 2000, may not be allowed to be hampered or thwart at the instance of some unscrupulous individuals having vested interest and/or mala fide intentions to thwart such process of privatization, otherwise initiated in the public interest as a Policy Decision by the Executive.
53. Having dealt with the objection regarding maintainability of the above petitions, we would now examine the merits of the above petitions, wherein, a declaration has been sought to the effect that the process of privatization of Karachi Electric Supply Corporation (KESC) has been made in violation of the Constitutional mandate and the requirements of Law i.e. Privatization Commission Ordinance, 2000 as well as Rules i.e. Privatization (Modes and Procedures) Rules, 2001. All the relevant facts relating to the process of privatization of the KESC appears to have been placed on record by all the parties in the above petitions alongwith relevant documents, therefore, we would not repeat entire facts to avoid repetition in this regard, however, would examine certain relevant facts and documents before reaching to any conclusion, as to whether, while selling/transferring the share of KESC to the respondents, the Constitutional and the Legal requirements have been fulfilled or not? We would also like to examine, as to whether under the peculiar facts and circumstances of the instant case, substantial compliance of the provisions of Law and Rules has been made or not; and, therefore, instead of going to the minute details of the entire process subjectively, we would examine the process of privatization objectively, to the extent of substantial compliance and the transparency required to be maintained by the respondents. It is pertinent to note that in the above petitions, none of the provisions of the Privatization Commission Ordinance, 2000 as well as Privatization (Modes and Procedures) Rules, 2001 have been challenged by the petitioners for being ultra vires to the Constitution of Pakistan, therefore, we would not dilate upon the authority of the respondents to sell/transfer of public asset, including the assets meant to provide essential services by the State to its citizen. During course of the hearing of the above petitions, a query was raised by the Court to the learned counsel for the parties to assist the Court, as to whether KESC could be termed as “National Asset” and as to whether “National Asset” can also be sold/transferred under the Privatization Commission Ordinance, 2000. However, in response to such query, reference was made to Article 173(1) of the Constitution of Pakistan, which authorizes the executive authority to sell, mortgage or dispose of the property by Federal or Provincial Government(s). Reference in this regard was also made to some of the judgments, including Calicon (Pvt.) Ltd. vs. Federal Government of Pakistan and others (1996 MLD 705) and Atique Hussain and another vs. Federation of Pakistan through Secretary, Ministry of Communication and 2 others (2005 CLC 1931), wherein, it has been held that under the provisions of Article 173(1) of the Constitution, the Federal Government has the right to sell, mortgage or dispose of the State’s property in accordance with law in a transparent manner. Learned counsel for the petitioners have not been able to make out a case by referring to any Constitutional provisions or the provision of the Privatization Commission Ordinance, 2000, whereby, there would have been an embargo upon the sell/transfer of a public corporation and its assets through process of privatization, therefore, we are not inclined to record our findings to this effect. However, we would certainly express our concern to the extent that even if, there is no specific embargo either under the Constitution of Islamic Republic of Pakistan 1973 or under the Privatization Commission Ordinance, 2000 read with Privatization (Modes and Procedures) Rules, 2001 putting restriction on the sale/transfer of “National Asset” having strategic position, relatable to exercise of sovereign rights by a State, in such situation, extraordinary caution and due care has to be exercised by the Executive, so that in the garb of privatization of a public asset purportedly in the public interest, while referring to some financial exigency, with an intention to avoid losses to public exchequer and to earn profits, sovereign rights of the State and obligation to provide essential services, and to safeguard the fundamental rights of the citizen, should not in any manner, be diminished or effected.
54. As per Article 142 (A) of the Constitution of Islamic Republic of Pakistan, 1973, the Parliament has exclusive power to make laws with respect to any matter in the Federal Legislative List, whereas, as per Entry No.4 of Part-II of Fourth Schedule to the Constitution electricity is the subject matter of Federal Legislative List, therefore, any legislation relating to electricity falls within the domain of the Legislative Authority of the Parliament. Article 173 (1) of the Constitution of the Islamic Republic of Pakistan, 1973, gives powers to the Federation and to the Provinces to exercise Executive Authority, subject to any act of the appropriate legislature, to grant, sell, disposition or mortgage of any property vested in, and to purchase or acquisition of any property on behalf of the Federal Government or as the case may be the Provincial Government, and also to make contract. It is pertinent to note that the vires of the provisions of Privatization Commission Ordinance, 2000, has already been examined by the Hon’ble Supreme in the case of Wattan Party through President v. Federation of Pakistan through Cabinet Committee of Privatization, Islamabad and others (PLD 2006 Supreme Court 697), wherein, it has been held that the provisions of the Privatization Commission of Pakistan, 2000, are not unconstitutional. Having examined hereinabove constitutional provisions, which authorizes legislation in respect of electricity and privatization of shares of Government Corporation or any Organization, we would now examine the relevant provision of the Privatization Commission Ordinance, 2000, whereby, the process of privatization of KESC has been completed.
Section 2 (b) of the Privatization Commission Ordinance, 2000, defines “Cabinet”, which means the Cabinet of the Federal Government, and where authorized, includes the Cabinet Committee on Privatization (CCOP) as constituted by the Cabinet from time to time.
Section 2(i) defines “privatization”, which includes a transaction by virtue of which any property, right, interest, concession or management thereof is transferred to any person from the Federal Government or any enterprise owned or controlled, wholly or partially, directly or indirectly, by the Federal Government;
Section 2(l) provides that subject to the provisions herein after provided, the Commission shall, after approval by the Cabinet, carry on the privatization programme in the prescribed manner, whereas, Section 25 provides for “Modes of privatization” according to which, the Commission shall carry out privatization, in accordance with the prescribed procedure, through any of the following modes- (a) sale of assets and business; (b) sale of shares through public auction or tender; (c) public offering of shares through a stock exchange; (d) management or employee buyouts by management or employees of a state owned enterprise; (e) lease, management or concession contracts; or (f) any other method as may be prescribed.
The detailed procedure to be adopted for the purposes of privatization of the public assets has been provided under the Privatization (Modes and Procedures) Rules, 2001. Rule 3 of the Privatization (Modes and Procedures) Rules, 2001, provides for the manner and procedure for privatization programme under Section 22 of the Ordinance.
Rule 4 of Privatization (Modes and Procedure) Rules 2001, provides for approval and rejection of highest ranked bidder, according to which, Commission shall carry out a bidding process which is suited to the need of the privatization with the objective of selecting the highest ranked bidder amongst the bidders that he;-
(a) Has satisfied the pre-qualification criteria determined by the Commission, if required; and
(b) Complied with instructions for bidding provided by the Commission to bidders.
(2) Upon selection of a highest ranked bidder as specified in sub-rule (1), the Board shall refer the matter for approval, or rejection of such highest ranked bidder with full justification, to the Cabinet.
Similarly, Rule 5 provides for additional modes of privatization, according to which, in terms of Clause (f) of Rule 23 of the Ordinance, there shall be the following modes of privatization namely:-
(a) public offering of shares other than through a stock exchange; and
(b) sale of shares, assets, business and property to a person that has a pre-emptive right to acquire the same (or any part thereof) subject to fulfillment of conditions attached to such rights.
In the instant case, according to the respondents, the approval of CCA for privatization of KESC was made on 12.09.1993 as per para-4 of conclusion and recommendations recorded in the minutes of the meeting of CCI held on 12.09.1993 in the following terms:-
“The Commission took the view that Karachi Electricity Supply Corporation (KESC) should be privatized as such without disaggregation of generations, transmission and distribution.”
Thereafter, post-facto approval was also obtained from CCI on 02.08.2006, in the following terms:-
“ DECISION
The CCI considered the Summary, dated 1st August, 2006 submitted by the Privatization & Investment Division on “Privatization Programme” and approved, (with the Chief Minister, NWFP abstaining) the proposals made at para 12 of the Summary and:
d) accorded post facto approval to the completed privatizations at Annex-2 of the Summary;
e) accorded approval for inclusion of the privatizations listed at Annex-3 of the Summary and;
f) re-affirmed the approval granted on 29 May 1997 for privatization of Pakistan Steel Mills Corporation (PSMC)
It is pertinent to mention that similar post-facto approval was granted by the Privatization Commission to the Habib Bank Limited, which process of privatization and post facto approval has been upheld by the Hon’ble Supreme Court in the case of Dr. Akhtar Hassan Khan v. Federation of Pakistan and others (2012 SCMR 455).
55. Since there seems no dispute among the parties and their respective counsel to the effect that privatization of KESC has been the result of a policy decision taken by the executive authority, therefore, under Article 199 of the Constitution, we would exercise the authority of judicial review only to the extent as to whether, such policy decision of the executive authority is in violation of any law, irrational and unreasonable or otherwise. We would also examine as to whether in the process of privatization of KESC, compliance of the Privatization Commission Ordinance, 2000 and the Privatization (Mode & Procedure) Rules, 2001 has been made or not, and as to whether, the entire process of privatization has been completed in a transparent manner or otherwise. It has come on record that the decision of privatization of KESC was subject to scrutiny and detailed deliberation before the Council of Common Interest [CCI], which gave its approval for privatization of KESC initially in its meeting held on 12.09.1993, whereby, a summary dated 09.09.1993 submitted by Ministry of Water and Power on privatization of WAPDA and amendment of WAPDA Act, was duly considered and approved by CCI, whereas, “plan for privatization of WAPDA was also recommended by the Privatization Commission. (See Para: 5 and Annexure 6 of the summary, page: 999 Paper Book 1). In addition to hereinabove approval, under the conclusion recommendation section, paragraph 6 of Annexure 6, it has been stated that “Commission took the view that KESC should be privatized” (see page 1019 Paper Book1). It has also come on record that the CCI on 02.08.2006, has granted post-facto approval in respect of privatization of KESC (Paper Book 13 relevant page 1939). The aforesaid undisputed facts show that privatization of KESC has remained under consideration for the last several years by various Governments, whereas, its formal approval by the CCI was granted twice, therefore, we are of the opinion that the requirements of Article 153 of the Constitution of Islamic Republic of Pakistan, 1973 were fulfilled in the process of privatization of KESC in the instant case. The detailed record produced by the respondents in these petitions reveals that in the process of privatization of KESC, with the approval of CCI, number of steps have been taken under the Privatization Commission Ordinance, 2000 read with Privatization (Modes and Procedures) Rules, 2001, whereas, it has been brought on record that at the time of privatization, KESC was hemorrhaging around PKR 16 billion annually, which arose to approximately PKR 80 billion in 2002, therefore, the Government of Pakistan had taken the decision to initiate privatization process of KESC. The first attempt to privatize KESC in terms of Section 25 of the Privatization Commission Ordinance, 2000, was made in March 2002, when Expression of Interests (EOIs) were invited from strategic investors in acquiring 51-73% of the share capital of KESC, pursuant to which, only two parties submitted their EOIs, however, when a request to submit statement of qualification (SOQ) was forwarded to both the parties, only one party submitted a requisite statement by closing date. A pre-qualification committee of the Privatization Commission considered the SOQ of such party, however, when such party was cleared for the due diligence phase, it withdrew from the transaction. The process of privatization was re-launched by the Government of Pakistan in September 2003 inviting fresh EOIs from the parties interested to acquire 51-73% share capital of KESC, pursuant to which five interested parties submitted their EOIs, to whom further request for submitting their SOQs was sent. Four (4) out of Five (5) parties namely Kanooz-ul-Watan (Saudi Arabia)(“KW”), Hasan Associates (Pakistan)(“HA”), IPC (UK) and Cornerstone Partners (USA) submitted their SOQ. The Financial Adviser assessed the SOQs, and HA, IPC and KW were deemed appropriate to proceed with the next stage of the transaction. The three selected parties were asked to conduct the due diligence, however, subsequently IPC withdrew from the bidding process in October, 2004, leaving only two parties in the bidding process (Paper Book 4, Page 1093). At this point, it is pertinent to state the composition of HAL and KaW;
* HAL – Hasan Associates, AKD Securities, Premier Mercantile Services, ABB Pakistan, GE International Operations, with IPC (the company NOT THE CONSORTIUM) Trans Africa as OnM partners
* KaW – Kanooz-ul Watan with Siemens as OnM partner
It may be noted that under Section 2(2.1) of the request for SOQ, parties are allowed to belong to more than one consortium so long as the Lead Bidder in each consortium is different. (Paper Book 2, Page 1037). Prior to the commencement of the actual bidding, the financial valuation submitted by the Financial adviser was considered and reference price was approved at PKR 1.30 per share by the Cabinet Committee on Privatization. The reference price was kept secret and confidential and was only used for internal purpose. The bidding commenced on 04.02.2005 and prior to submitting their bids, each party was required to deposit PKR 100 million as earnest money and subscribe to redeemable preference shares worth PKR 4.38 billion in KESC. Kanooz ul Watan submitted a bid of PKR 20.24 billion (this included PKR 15.68 at 1.65 per share, PKR 4.38 billion subscription for redeemable preference shares and PKR 100 million as earnest money). HAL submitted a bid for PKR 14.9 billion (PKR 9.71 billion at 1.01 per share, PKR 4.38 billion subscription for redeemable preference shares and PKR 100 million as earnest money). Needless to say, HAL’s bid falling well below the reserve price was rejected and therefore Kanooz ul Watan being the highest bidder was accepted. The bid of Kanooz ul Watan was accepted by the CCOP vide letter of acceptance dated 07.02.2005 wherein the successful bidder was called upon to make the balance payment of PKR 20.14 billion by or before 21.02.2005. As per record produced before us, Kanooz ul Watan failed to comply with the terms and conditions of the letter of acceptance and without any intimation whatsoever, disappeared without a trace. Consequently, the earnest money of Rs.100 million was confiscated by the CCOP (although no attempts were made to recover the said amount). As a result of the implied withdrawal of KuW, the second attempt to privatize KESC was unsuccessful.
56. In view of the first two failed attempts at Privatization, according to learned counsel for respondents, two options were left with the Board of Privatization in respect of Privatization of KESC. The first option was to restart the entire privatization process from scratch or in the alternative, to invoke any other option available under the Privatization (Modes and Procedures) Rules, 2001, including the option to invoke Rule 6 of the Privatization (Modes and Procedures) Rules, 2001 and to enter into a negotiated sale with Hasan Associates (HAL). It will not be out of place to mention that policy decision to privatize the KESC with the approval of CCI, it appears to have been taken in the year 1993 for various reasons, however, mainly to avoid huge financial losses borne by the Federal Government in the shape of subsidiary and financial support to the KESC, however, such process of Privatization eventually took place in the year 2003, as instead of two attempts by the Federal Government to privatize the KESC, no one came forwarded pursuant to bidding process as provided under the Privatization Commission Ordinance, 2000 and the Privatization (Modes and Procedures) Rules, 2001, therefore, under hereinabove facts and circumstances of the instant case, the Board of Privatization Commission took a decision to invoke the mechanism provided under Rule 6 through negotiated sale. Learned counsel for the petitioners have not been able to dispute the authority of the Federal Government to transfer/sale the shares of a public corporation through process of Privatization while invoking the provisions of Rule 6 of the Privatization (Modes and Procedures) Rules, 2001. Rule 6 of the Rules 2001 provides that the Privatization Commission can adopt the negotiated sale process for any of the modes of privatization as specified in Section 25 of the Privatization Commission Ordinance, 2000 and rule 5 of the Privatization (Modes and Procedures) Rules, 2001, if –
(a) In the opinion of the Board, sufficient interest for a privatization has not been received;
(b) The Board was recommended to the Cabinet and the Cabinet has authorized the Commission to initiate the negotiated sale process;
(c) The Board has approved the party or parties interested in purchasing the property being privatized;
(d) A team for carrying out the negotiated sale process has been constituted by the Board which shall include a representative from the Ministry under whose jurisdiction the entity being privatized falls; and
(e) The Board has delegated full power to the negotiation team for carrying out the negotiated sale process and defined the parameters for negotiation.
(2) On conclusion of the negotiated sale process, the terms and conditions of the transfer of the property to be privatized to the interested party shall be submitted to the Cabinet for consideration and approval.”
57. Since the Board of Privatization Commission resorted to invoking the Rule 6 of the Privatization (Modes and Procedures) Rules, 2001 for the purposes of transfer/sale of shares of KESC, therefore, letter of acceptance issued to Kanooz-ul-Watan (KuW) was cancelled, and consequently their earnest money was also confiscated and the original Hasan Associates consortium was offered the opportunity to match KuW’s bid of PKR 20.24 Billion. In response to the above offer, Hassan Associates Pvt. Limited (HAL) informed the Privatization Commission that certain members of the original consortium were unwilling to match the highest bid and had withdrawn from the consortium, whilst providing no-objection certificates to HAL to form a new consortium. According to Rule 6(1)(d) of the Privatization (Modes and Procedures) Rules, 2001, a team for carrying out the negotiated sale process was constituted. HAL formed a new consortium consisting of the following members:
“Hasan Associates Pvt. Limited and Al-Jomaih Holding alongwith Siemens as a technical partner”
The new consortium informed the Privatization Commission of their willingness to match their bid. (Ref. Paper Book No.7, Page 1599 ‘Summary for the Board of the Privatization Commission”).
The record reflects that extensive summary was prepared by the Privatization Commission and submitted to the CCOP on 01.09.2005. A decision was passed by CCOP on the same date, wherein, HAL was asked to include as many members of the consortium as possible, however, if this was not achievable, the reconstituted HAC and its offer would stand accepted. In its decision dated 26.09.2005, the CCOP noted that the major member of the reconstituted consortium was a financially strong and reputable party known to make and pursue financially viable decisions. It may, however, be observed that a delay in the approval process would likely to shy away the investors. Moreover, it was underscored that the Government of Pakistan could no longer afford to subsidize KESC. In the light of above factors, the CCOP approved the transaction and directed the matter to be forwarded to the Cabinet for authorization.
58. On 08.10.2005, in pursuance of the decision of the CCOP dated 01.09.2005 and 26.09.2005, the CCOP forwarded a summary to the Cabinet for ratification. The relevant paragraph 3 of the summary reads as follows:-
“In view of the forgoing and the importance and sensitivity of the transaction as it has some element of negotiations, in consideration of Rule 6(2) of the Privatization (Modes and Procedures) Rules, 2001 (Annex IV), the decision is placed before the Cabinet for ratification.”
On 01.11.2005, the decision of the CCOP taken in its meeting dated 26.09.2005 as proposed hereinabove paragraph of the summary and eventually the transaction was completed by the closing dated i.e. 28.11.2005, the Hon’ble Supreme Court in the Habib Bank privatization case validated and endorsed the privatization through the process of negotiated sale as provided under Rule 6 of the Privatization Commission (Modes and Procedures) Rules, 2001. In the case of Dr. Akhtar Hassan Khan and others v. Federation of Pakistan and others (2012 SCMR 455), the Hon’ble Supreme Court has been pleased to hold as under:-
“Even under the Privatization Commission (Modes and Procedures) Rules, 2001, Rule 3 spells out the manner and procedure for privatization. Rule 5 provides for additional modes of privatization and Rule 6 even authorizes PC t negotiate sale by adopting any of the modes of privatization specified in section 25 of the Ordinance and Rule 5 of these Rules in certain situations enumerated therein and fifth that the Privatization Ordinance and the Rules as also the Regulations framed there under vest a certain amount of discretion with the PC and the Board during the sale process in line with the best practices in vogue in other countries. This discretion is sought to be regulated by the afore-referred law and Rules and any bona fide decision made in the exercise of the said discretion can only be interfered with in accord with the well recognized principles of judicial review of executive authority discussed while dilating upon question Nos.2 & 3.”
In the same case, the Hon’ble Supreme Court while dilating with the allegation of malafide and examining the scope of judicial review by the Courts in such type of transaction has been pleased to hold as under:-
“A careful perusal of the steps taken in the process for privatization of HBL referred to in the preceding paragraph would indicate that there was substantial compliance with the relevant provisions of the Privatization Commission Ordinance, 2000 and the Rules/Regulations framed thereunder. A minor deviation of Rules or Regulation, if any, in absence of any credible allegation of mala fides or corruption would not furnish a valid ground for interference in judicial review.”
It may be noted that even in the case of Steel Mills Privatization case (PLD 2006 SC 695), wherein, the privatization of the Pakistan Steel Mills Corpration has not been approved by the Hon’ble Supreme Court while considering the question whether the Privatization Commission Ordinance, 2000, was ultravires to the Constitution observed that sale proceeds can be used by the Federal Government for a purposes other than that which has been approved by CCI, therefore, the entire process of privatization pursuant to ex post facto approval from the CCI could not render the entire privatization process as illegal.
59. To sum up hereinabove discussion on the factual and legal aspect involved in these petitions, keeping in view the relevant provisions of Privatization Commission Ordinance, 2000, and Privatization Commission (Modes and Procedures) Rules, 2001, while applying the ratio of the decisions of this Court as well as by the Hon’ble Supreme Court on the subject controversy, we may observe that process of privatization of KESC has remained under discussion and part of policy decision by executive authority for a couple of years by different Governments, however, it eventually concluded by 28.11.2005 after approval of the CCOP. The scrutiny of facts as recorded hereinabove, further reflects that prima-facie, in the process of privatization of KESC, compliance of relevant constitutional Articles and the legal provisions of Privatization Commission Ordinance, 2000, as well as the provisions of Privatization Commission (Modes and Procedures) Rules, 2001, has been substantially made by the official respondents, whereas, nothing has been produced by the petitioners to show that the process of privatization of KESC by the Federal Government was either unconstitutional, illegal or violative of principle of Natural justice.
60. In addition to objection raised by the petitioner relating to the process of privatization of KESC on various grounds as discussed hereinabove, an objection has also been raised by the petitioner to the effect that electricity being an essential service cannot be privatized as it is the responsibility of the State to provide all the essential services to the citizens and protect the fundamental right as guaranteed under the Constitution including the right to life, whereas, as per finding of the Hon’ble Supreme Court right to life means quality life and includes the right to electricity. In the present case relating to privatization of KESC, after substantial compliance of the Privatization Commission Ordinance, 2000, and Privatization Commission (Modes and Procedures) Rules, 2001, a certain percentage of shares have been sold/transfer to private company, whereas, the Government is still the shareholder and has regulatory control over the affairs of the Company under NEPRA Act No.XL of 1997. The NEPRA being the regulator maintain supervisory control over the function of the K.E. in terms of powers vested under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997. Reference in this regard can be made to the provisions of Section of the Act, which contains details of powers and function of the Authority for regulating the provisions of Electric Power Services, which includes the power to grant license for generation, transmission and distribution of electric power to determine tariff rate, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies and recommend to the Federal Government for notification. Further reference can be made to Rule 6 of NEPRA Licensing (Distribution) Rules, 1999, which provides that unless provided otherwise in the distribution license the licensee shall charge from only consumer including the bulk power consumer, as is approved by the authority pursuant to and in accordance to NEPRA Tariff Standards and Procedure Rules, 1998. In addition to hereinabove, NEPRA Licensing (Generation) Rules, 2000, also provides various regulatory power to NEPRA as regards the function of K.E., therefore, the process of privatization of KESC in the aforesaid terms through negotiated sale/transfer of the percentage share to the private company does not amount to outgrow sale/transfer of ownership of KESC to a private company without keeping a regulatory control over such company. Currently, the structure of shareholding of K.Electric is as under:-
· KES Power 66.4%
· Government of Pakistan 24.4%
· Public 2.9%
61. In view of hereinabove factual legal position, we are of the opinion that in these petitions, the petitioners could not make out the case that electricity being an essential service cannot be privatized under Privatization Commission Ordinance, 2000, read with Privatization Commission (Modes and Procedures) Rules, 2001 nor could establish malafide on the part of respondents or any violation of the provisions of Privatization Commission Ordinance, 2000 or the Privatization Commission (Modes and Procedures) Rules, 2001 in the process of privatization of KESC. On the contrary, respondents have been able to demonstrate that substantial compliance of the provisions of the Privatization Commission Ordinance, 2000 read with Privatization Commission (Modes and Procedures) Rules, 2001 was made by the respondents in the process of privatization of KESC. As we have already observed that privatization of KESC was the result of policy making decision by the executive authority, and once the competent authority in the government has taken a decision, which is backed by law, rules and regulations and does not suffer from any malafide, then it would not be in consonance with the well-established norms of judicial review to interfere in policy making decision of the executive authority. Reliance in this regard can be placed in the judgment of the Hon’ble Supreme Court of Pakistan in the case of Dr. Akhtar Hassan Khan and others vs. Federation of Pakistan and others (2012 SCMR 455).
62. In view of hereinabove facts and circumstances of the case, the aforesaid petitions are disposed of in the following terms:-
a) The privatization process adopted by the respondents No.2 & 3 in respect of sale/transfer of the share of KESC does not violate the constitutional mandate, whereas, substantial compliance of the provisions of Privatization Commission Ordinance, 2000 read with Privatization Commission (Modes and Procedures) Rules, 2001, has also been made, therefore, no interference is required by this Court. Accordingly, aforesaid Constitutional Petitions being devoid of any merit, are hereby dismissed along with listed applications.
b) That without prejudice to above finding, we hereby declare that the petitioners have failed to establish the malafide on the part of respondents in respect of sale/transfer of the share to KESC through negotiated sale to a private company, which is otherwise permissible in law and as per rules referred to hereinabove, therefore, the allegation of malafide by the petitioners on the part of the respondents stands rebutted, hence petitions are dismissed on this ground also.
c) Nothing has been produced by the learned counsel for the petitioners in support of their submission that electricity being an essential service cannot be privatized, therefore, such plea of the petitioners also stands rebutted and the petitions are hereby dismissed on this account also.
63. Before parting with the judgment, we may observe that the request of the petitioners to the effect that the matter may be referred for the scrutiny of public audit by the Auditor General of Pakistan or any independent forum for the purposes of re-appraisal of process of privatization or to introduce certain suggestions for improvement of the working of K-Electric, without disturbing the process of privatization itself, to ensure the maximum relief to the consumer at large and also to minimize the burden upon public exchequer by way of allowing subsidy to K-Electric, if any, cannot be acceded by this Court in these petitions, keeping in view the pleadings and relief sought through instant petitions, as it would amount to go beyond the pleadings and any decision in this regard would change the complexion of proceedings.
Indeed, this Court, while exercising constitutional jurisdiction, particularly, in cases relating to public interest litigation, can take cognizance of subsequent events during pendency of lis before this Court, in order to do complete justice after notice to the parties, however, without changing the complexion of proceedings. From perusal of the pleadings and the relief sought in the above petitions, it is clear that petitioners have primarily challenged the process of privatization of KESC adopted by the respondents No.2 & 3 in respect of sale of shares and management control in KESC for being illegal and opposed to public policy, whereas, no relief has been sought to the effect that entire process of privatization may be reversed either in view of illegality, if any, committed in the process of privatization or on the basis of subsequent performance of K-Electric, by referring the matter to public audit through Auditor General of Pakistan etc. As we have already observed that in matters relating to policy decision of executive authority, the scope of judicial review is limited to the extent of examining as to whether such policy decision of executive authority does violate the constitutional mandate, legal propriety and transparency. However, in the absence of any violation as referred to hereinabove, the Courts abstain from interfering in such policy decision on mere allegations or minor omission or lapses, if any, pointed out in the process of such policy decision, provided substantial compliance of the relevant constitutional and legal provisions has been made by the executive authority in such process. The lengthy process of privatization of KESC as discussed hereinabove, appears to have been completed in accordance with the constitutional mandate, in compliance of the relevant provisions of Privatization Commission Ordinance, 2000 read with Privatization Commission (Modes and Procedures), Rules, 2001, therefore, we are not inclined to record any finding with regard to effect and the consequences of privatization of KESC, and the performance of K-Electric, while issuing directions to the Auditor General of Pakistan for conducting scrutiny of their accounts. Nor we are inclined to examine the subsequent events or the acts of the executive authority towards granting subsidy to K-Electric or any relief in the tariff rates, if any, in these petitions, as it would amount to change the complexion of the proceedings in these petitions. Moreover, it will require detailed scrutiny and verification of disputed facts and examination of different laws relating to economic and financial transactions including Company Law, Contract Act, Economic Reforms Act etc. as well as the contractual obligations between the contracting parties, which otherwise is not permissible under constitutional jurisdiction of this Court. We are of the opinion that this aspect of the matter can be agitated as a separate cause before the relevant forum/authority/Court of law, by filing appropriate proceedings, however, subject to all just exception and in accordance with law. Accordingly, the plea of petitioners to refer the matter for scrutiny of accounts of K-Electric through Auditor General of Pakistan, and for that purpose, to any other independent forum, cannot be acceded in these proceedings, as it would amount to granting a relief to the petitioners beyond the pleadings, while changing the complexion of the proceedings, to the disadvantage of the respondents.
Accordingly, relief sought in the above terms stands declined.
Above petitions are dismissed in the above terms along with listed applications.
J U D G E
J U D G E
Nadeem