Problems all-around

Oct 02 - Oct 08, 2000

Heavy line losses, massive power theft (approximately 60 per cent) and unprecedented rise in furnace oil prices altogether have put the Karachi Electric Supply Corporation in a situation where it is burning candle from both ends and suffering a loss of around Rs2.5 billion every month.

Practically speaking, it may not be possible for any power company to serve or survive if the above situation allowed prevailing unless remedial steps are not taken immediately. The recent petition filed by KESC with NEPRA seeking a 15 per cent increase in its tariff and a massive crack down launched by the KESC against power theft are the steps to help out the organization from the financial mess. The Karachi Electric Supply Corporation (KESC) has filed a petition with the National Electric Power Regulatory Authority (NEPRA) seeking an increase of 15 per cent in the power charges from November.

The KESC, in fact, has requested for an overall 32.7 per cent increase in power rates from November towards the end of year 2002. The KESC has pleaded in its request that it is not possible to sustain in the face of ever-growing fuel cost and huge deficit the KESC is facing.

The increase in tariff has to be implemented in phases by the end of 2002. The petition says that an increase of 63.3 per cent has been effected in the furnace oil prices which runs the generators mostly based on thermal technology. The prices of gas, which is another source for power generation, have also been increased by 23.9 per cent in the same period.

At the present rate of power supply, the KESC is incurring heavy and unsustainable losses; hence the increase is imperative for running the system. It is also pleaded that downswing of rupee against dollar has also burdened the furnace oil prices which is an additional cost paid by KESC for power generation.

In order to shed this unbearable load, the government has been requested to allow a fuel adjustment under a new formula, pay subsidy to KESC and allow the company to adjust its rates in a manner that the consumers are made to pay the additional cost of generation and supply.

WAPDA, it may be mentioned has already been allowed an increase of 13 paisa per unit to raise its revenues by Rs3 billion per annum.

Currently, the KESC is struggling to survive with an overall deficit of around Rs68 billion, says a report.

Brig. Syed Shahid Mukhtar Shah, who is leading the KESC management agrees that increase in power tariff may not be required, unfortunately the theft culture is so deeply rooted among all segments of the consumers which cannot be weeded out in one go. The survey and combing of electricity connections is however going on seriously throughout the city for an effective check on power theft cases. He feels that majority of industrial consumers are giving a positive response to the combing operations, while the black sheep would be track down in a systematic manner.

While going for combing operations it is necessary for the KESC management to look out for those moles within its own fold who are instrumental in facilitating the theft. Power theft costing Rs2.50 billion per month cannot take place on such a massive scale without the connivance of KESC's own staff. A massive combing operation against the corrupt irrespective to the status and rank of the employees within the KESC seems to be a pre-requisite to make combing drive a success. Putting the house in order first may also help winning the overall support from the masses instead of going for the unpopular decision of increasing the tariff.

A survey conducted by PAGE in all categories of end users including manufacturing, commercial and domestic consumers indicates that people in general find it hard to co-exist with the existing power tariffs. They feel that one of the major reasons for such a massive power theft is unaffordable power tariff. The consumers expressed their apprehensions that any increase in tariff may also increase theft average.

The industrial consumers have welcomed the government's decision to exempt all industries from payment of sales tax on import of electric generating sets of 250kva and above. It was a long standing demand of the manufacturing sector. The notification issued by the CBR on Sept 28 says that only registered manufacturers can import these generators for use in the process of manufacturing of taxable goods. The decision has been widely welcomed by the industry as they were feeling uncomfortable with irregular supplies due to break downs and inflated bills.

It is unfortunate that despite having a monopoly, which is considered as an ideal situation for selling any commodity in the market, the rampant corruption over the years has eroded the system to such an extent that instead of becoming a profit making entity, KESC is suffering huge losses.

In order to get rid of the situation, privatization of this public sector entity is another option before the government. Earlier the government had put KESC on the list of privatization and had appointed UBS as its financial consultants for carrying out financial restructuring before changing the hands. That effort of the previous government's could not produce any result. Now the present government has again decided to sell it out and yet another financial consultants being hired.

The Muslim Commercial Bank (MCB) has also agreed to provide a loan of Rs10 billion to the Karachi Electric Supply Corporation (KESC) which is required to fulfil one of the Asian Development Bank's conditions to release a $150 million tranche for the power utility and the energy Sector Restructuring Programme.

It may be recalled that the government had signed a Memorandum of Understanding with the Asian Development Bank to provide $225 million for the financial re-structuring of KESC. The agreement signed on May 2 provides for the KESC to commit itself to rise the tariff by 25 per cent within three years. The availability of Rs.10 billion from MCB and meeting other conditions including a phased increased of 25 per cent in tariff may enable the government to get the first tranche of $150 million shortly, sources said. The ADB had asked the government of Pakistan to guarantee the provision of a financing facility to KESC to meet its cumulative cash shortfall from July 1999 to June 2003.