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KESC requires Rs 4 billion to clear its
dues
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A prime example of the
difficulties faced by the GoP in privatization
By SHABBIR H. KAZMI
Feb 05 - 11, 2001
The Karachi Electric Supply Corporation (KESC) has posted loss before tax of
approximately Rs 12.787 billion for the year ending June 30, 2000 as against a loss of Rs
7.364 billion for the previous year — a whooping increase of 72 per cent. As at June
30, 2000, against a paid-up capital of Rs 4.8 billion, accumulated losses were Rs 32.2
billion. The situation seems to have further deteriorated during July-December 2000
period. This demands immediate probe into the factors responsible for persistent increase
in losses. However, it must be kept in mind that the various financial restructuring done
in the past have failed to yield results because hardly any effort was made to improve
operational efficiency.
The most interesting observation is that its revenue of Rs 26.042 billion was not even
enough to cover cost of fuel and power purchase amounting to Rs 26.118 billion. The other
expenses were debt servicing charges (Rs 5.484 billion), depreciation (Rs 2.821 billion)
and administrative, operations and maintenance (Rs 4.406 billion). Therefore loss before
tax came to Rs 12.787 billion. One may also wonder on the quantum of receivables of the
Corporation which is getting fatter with each passing day.
One may wonder about dependable capacity of KESC which has reduced to 1300MW as against
an installed capacity of 1735MW. The maximum demand in its franchised area was 1730MW
during the previous year. This clearly denotes that the Corporation is mainly dependent on
its Bin Qasim power station.
As regards financial restructuring/fresh borrowing, the sector analysts strongly
believe that the KESC is simply transforming the financial burden to a future date. The
Corporation received a loan of US$ 225 million from Asian Development Bank (ADB) for
development and restructuring, but the amount was actually used to payoff short-term
liabilities. In December 2000 the KESC raised Rs 3.4 billion in loans from local banks in
anticipation of release of fund from the ADB. Therefore, the use of fund for paying off
liability instead of revamping generation and T&D network means no improvement in cashflow.
It is true that the persistent hike in furnace oil is a serious problem for the
state-owned power generation companies. However, consumers are totally disgusted by the
demand of KESC and WAPDA for further hike in electricity tariff. Since December 2000
global prices of furnace oil have lowered by nearly 30 per cent. According to the
automatic tariff adjustment policy, approved by NEPRA, the electricity tariff should be
reduced rather than allowing any further increase. Analysts say, "Any hike in tariff
encourages more consumers to pilfer electricity."
Some sector analysts say, "Even the current management of the KESC is working
without a game plan but their first priority remains the same — increase in
electricity tariff." They also raise a question, "If the KESC management is not
able to overcome the problems, despite induction of army, what could be the next
strategy?" We face a situation, "can't shut it down, can't afford to keep it
afloat." Therefore, the last and the only resort is to privatize the corporation. The
sector experts suggest: first divide the company into one GENCO and 5 DISCOS and then sell
each entity. As against a latent demand for more than 2000MW, KESC's existing dependable
capacity is only 1300MW. Therefore, the potential investors would be willing to takeover
small and manageable entities. As such with each passing day the probability to sell KESC
as a compact utility is diminishing fast. They say, "Take any step before the system
totally collapses."
The KESC management attributes these losses to T&D losses, power theft, meter
tampering, wasteful expenditure and high cost of furnace oil. The argument presented by
the KESC may be right to some extent but no one deny the fact that the management has been
failing miserably in taking corrective steps as it has no game plan. According to a KASB
report, "KESC is a prime example of the difficulty that the government will have in
privatizing a majority of its units. The Corporation is heavily in debt, and hopes of
generating positive cash flow in the near term are almost nil. Hence instead of an asset
that can be sold for a positive sum of money, it faces the task of having to inject more
money in from meager budget resources. This is not to say that the privatization of the
unit should not go ahead, the efficiency gains are potentially tremendous of the country.
But realistically, the privatization cannot happen unless the GoP abandons its "keep
afloat" policy and actually sets about restructuring it. Correcting the ills, which
beset this unit, though, will undoubtedly be akin to opening Pandora's box. One thing is
for certain, the shareholder is not going to get any thing out of KESC for a long time to
come.
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Financial Highlights |
| . |
99-2000 |
1998-99 |
|
Revenue (Rs. mln) |
26,042 |
23,781 |
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Expenditure (Rs. mln) |
. |
. |
|
Cost of fuel & power purchases |
26,118 |
20,713 |
|
Debt Servicing Charges |
55,484 |
3,042 |
|
Depreciation expenses |
2,821 |
2,726 |
|
Administrative, Operation & Maintenance
expenses |
4,406 |
4,664 |
| . |
38,829 |
31,145 |
| Loss
before tax |
(12,787) |
(7,364) |
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