ISLAMABAD, 14 February 2005 — Good dividends and secure business, plus close political relations, are helping step up Saudi Arabian and Gulf investment inflows into Pakistan.

Energy, telecom and banking are the hot favorites, being picked up by foreign investors. The latest instance is this week’s purchase of the giant, state-owned Karachi Electric Supply Company (KESC), by a consortium led by Kanooz Al-Watan for projects of Saudi Arabia for $341 million, or Rs.20.24 billion. Kanooz offered the highest bid of $267.3 million, or Rs.15.85974 billion, that it will pay within one-month after the government delivers its letter of acceptance of the bid. The Karachi-based electricity giant supplies power to that industrial and business hub, located close to the Gulf and Saudi Arabia, and a large part of flourishing southern Sindh province.

Kanooz made the bid for 73 percent shares of KESC priced at Rs.1.65 a share that was the highest among the two final bidders and was accepted, to hand over the company’s management. Kanooz has purchased 9.7 billion ordinary shares of the company, out of a total of 13.67 billion shares. The consortium included Siemens Pakistan Ltd., a subsidiary of the parent Siemens of Germany.

Prime Minister Shaukat Aziz, after the bidding, chaired a meeting of the Cabinet and accepted the Kanooz bid. The consortium has also committed to inject Rs.4.23 billion, or $71.27 million as a preference share price to ensure KESC’s turnaround. When this amount is added to the purchase price of 73 percent shares, the total Kanooz investment comes to $341 million or Rs.20.24 billion.

The bidding and the sale deal was handled by Dr. Abdul Hafeez Shaikh, minister for investment and privatization. Shaikh and the Privatization Commission under him have the mandate to step up privatization of state-owned enterprises (SOEs), to encourage foreign and domestic investment. The government will retain 26 percent KESC shares for the time being, as a measure of comfort to Kanooz and to monitor the company’s business.

The second bidder after Kanooz was Hassan Associates. It offered Rs.1.01 per share or Rs.9.7081 billion for 73 percent shares. Farooq Hassan, who headed this group, after losing to Kanooz said, “the transactions took place in a very transparent and fair manner. KESC received a good offer from Kanooz consortium.”

Prime Minister Aziz, an international banker of global repute, is upbeat over the KESC deal and the company going to a Saudi consortium. Approving the sale deal Aziz said, “now the consumers will have the advantage of an uninterrupted power supply and the right level of voltage as a result of Kanooz’ committed professional management that is sure to be more efficient and responsive to the consumer’s needs and expectations. The new buyer, I hope, will also invest the cash required for upgrading the KESC’s power network.”

KESC was established in 1911. After energy was nationalized in 1974, it fell on bad times, running losses for more than a decade. It has an installed capacity of 1,800 megawatts of mostly thermal-based. But the actual capacity generation is now down to 1,200 mw.

Now the question is: How soon can Siemens, technical partners of Kanooz, retrieve the lost 600 mw capacity, and meet the currently estimated shortfall of 1,200 mw?

A lawyer from Price Waterhouse UK, financial advisers to the KESC sale, said, the government of Pakistan injected Rs.98 billion into KESC through debt-equity swaps in the last fives years. It also has passed on Rs.19 billion liabilities to the new buyer.

What is the significance of KESC’s sale, and other deals with Saudi Arabian and Gulf investors? “KESC’s sale will provide impetus to our privatization program that is being accelerated aggressively, on a fast track basis, with proper care, and ensuring good financial returns to Pakistan,” Dr. Abdul Hafeez Shaikh says.

Next on the auctioneers’ block are early sales and initial public offering (IPO) of the remaining government shares in the United Bank Ltd. State Life Insurance Company, Pakistan Steel, Pakistan State Oil (PSO), and IPO of 20 percent shares of Kot Addu Electric Power Company to the general public.

A host of Saudi investors recently announced to undertake a number of projects, or purchase existing enterprises, in Pakistan. These range from oil marketing, to construction of houses, and real estate. A Saudi group will establish a 100,000-ton steel mill.