The much talked about privatization of Karachi
Electric Supply Corporation (KESC), being considered as a turning
point in the power sector of the country, is still in the process.
The new buyer Qanooz Al-Watan, a business group
from Saudi Arabia has deposited the price i.e. around Rs20 billion in
the New York branch of the National Bank. According to informed
sources, the amount of sale proceed has yet to be transferred to the
bank account of the Privatization Commission of Pakistan after
addressing certain issues and reservations raised by the successful
bidder before taking-over the charge of the KESC.
It is also learnt that the Saudi Group before
transferring the money to the Government of Pakistan has sought
certain assurances from the Government of Pakistan especially for
guaranteed supply of fuel at a fixed price for next 10-15 years or
permission to pass on the additional fuel cost to the consumers.
However, according to Brig. Tariq Sadduzai, the
Managing Director of KESC, a five-year tariff formula has been agreed
in an agreement between the Privatization Commission and the new buyer
ensures that no increase in electricity charges would be made at least
for next five years.
If the demand for guaranteed supply of fuel at a
fixed price was true, it should be a matter of serious concern for all
the stake holders' i.e. over 1.9 million consumers as well as the
government having burnt their fingers in the past due to power
purchase agreement with the Independent Power Producers.
Actually, people have started making comments out
of curiosity due to delay in transfer of management to the private
sector buyers. Since no official clarification has been made regarding
change of hands in KESC management, rumors were also in circulation
whether the deal would be materialized or not.
It may be recalled that under the existing
arrangement for fuel purchase, the KESC had fuel purchase agreements
with PSO and SSGC for supply of gas. However, under the privatization
agreement, the new buyer is free either to enter into agreements with
PSO or other Oil Marketing Companies or import fuel through their own
According to Tariq Kirmani, Managing Director PSO,
import of fuel oil especially for power generation costs around $600
million a year as the IPPs were operating through oil-fired system in
Pakistan. On the other, the government under its new power policy did
not allow new power generating units based on oil-fired system because
of exorbitant rise in international oil prices. New power generating
units are required either to operate on gas-fired system or other
cheaper fuel like coal-fired or based on hydropower generating
With this back ground the government would have the
only option to offer guaranteed supply of indigenous natural gas or
coal from Thar coal fields as the supply of fuel oil is obviously out
of question because of its rocketing international prices.
Making comments over the situation, the chairman of
SITE Association of Industry said that the interest of the industrial
consumers was to get rid of the load shedding, power breakdowns and
power fluctuations which cost heavily to the industrial output.
In order to ensure uninterrupted power supply, the
new buyers would have to make substantial investment in the entire
KESC network i.e. power generation, transmission, and the distribution
system as the three segments have already come to their age and cannot
deliver the job unless they are completely refurbished. He said that
power consumers were already overburdened due to high tariff rates and
government levies on power consumption, hence they may not sustain any
further hike in power tariff if the new management was allowed to pass
on the additional fuel cost to consumers.
The Site Chairman was of the view that the best
option to make easy sailing was to ensure supply of natural gas to the
new buyer to avoid increase in cost of power generation.
Summer has always been giving difficult times to
the KESC and the consumers. The utility company operating with
outdated generating units, has heavily overloaded transmission and
distribution network. Confronted with a shortfall of around 1000mw,
KESC has to manipulate to overcome the electricity demand through load
shedding and the shutdowns in the face of a quantum jump in demand
amidst scorching heat of the summer. The privatization of the KESC is
being taken place at the threshold of the summer heat. It is the time
when the KESC people would have to face the music from all corners of
the city due to poor supply of electricity.
The insiders were of the view that the private
sector management was deliberately avoiding to assume responsibility
during the summer as they don't want to become the target of criticism
of the consumers soon after taking over the charge of the utility. It
is said that prior to take charge, they are waiting for completion of
KESC-HUBCO direct link. The direct link with HUBCO is currently in the
pipeline at an estimated cost of Rs3 billion. Once the project of
direct link with HUBCO was established, it will turn the entire power
supply situation enabling KESC to meet the city demand, which is
currently exceeded to over 2000mw. Though the KESC has an installed
power generating capacity of 1730mw, yet its old generators hardly
produce 100-1200mw a day and renders this largest industrial hub to
face breakdowns, shutdowns and load shedding obviously due to
shortfall of around 1000mw. The new buyer is not willing to earn a bad
name of poor management in the eyes of the consumers. Hence, it
cleverly waiting to get through the hue and cry of the consumers
during the summer.
The new managers of the KESC will be operating in
technical cooperation of the Siemens Engineer Company which
specializes in producing electricity equipment such as transformers,
meters, generators and other gadgets. The new management has vowed to
come out with a perfect distribution network without any sort of
overloading in the entire system. To achieve a smooth distribution,
the buyer plans to reinforce the distribution system by installing
over 10,000 PMTs in the initial stage.
According to Brig. Tariq Sadduzai, the new
management determined to reduce the load almost to half to do away
with the power breakdowns or load shedding due to overloaded PMTs or
transmission lines. Uninterrupted power supply would be the hallmark
of the new management for which they would inject at least Rs400
million in the first phase of rehabilitation of the entire system.
Meanwhile, Liaquat Ali Jatoi, Federal Minister for
Water and Power who visited the KESC head office last week has
reassured that even after privatization of the KESC the government
which is a stakeholder by virtue of 25 percent shares of the
corporation would continue to oversee the performance of the
organization, better services to the consumers and job security of the
The main plank of the government policies and the
agenda for economic reforms initiated by President of Pakistan General
Pervez Musharraf was to encourage privatization of the public sector
organizations and to bring foreign investment in the country.
"Government has no business to do
business" Jatoi remarked. Mentioning his experiences during his
recent visit to Moscow, he said that even in Russia, the privatization
of state-owned enterprises were moving ahead. While emerging economies
like Malaysia, Indonesia and Singapore were also pursuing the policy
of deregulating their businesses, industries and services.
Liaquat Jatoi emphasized that the performance
targets determined by the government vis-a-vis reduction of
transmission and distribution losses and recovery of the electricity
bills must be achieved by the organization during the current fiscal
as the government was fully committed to the new buyers of the KESC
regarding the operational performance and would provide protection and
law enforcement support as needed by the new management.
MD-KESC Brig. Tariq Sadduzai informed that the
reduction of T&D losses have already been achieved, in fact the
target was 34% while through better planning the present T&D loss
stood at 33%. One percent loss meant a saving of Rs500 million per
annum. He said efforts for recovery of electricity dues were being
made as usual according to the recovery schedule.
The outstanding dues of the Karachi Water and
Sewerage Board (KWSB) were again accumulated to the tune of Rs1.1
billion. The KWSB was defaulting in payments since last four months.
Liaquat Jatoi, however, while appreciating the
efforts of the KESC billing and recovery officials advised that they
should keep on their efforts to achieve 100% recovery of the current
bills irrespective to the social status of the consumers. The Ministry
of Water and Power will provide them all possible support even after
the new management takes over the corporation, said Jatoi.
Present team of management led by Brig. Tariq
Sadduzai has completed five years of KESC's charge. The army was
inducted in KESC with a special target to reduce T&D losses which
at the time of taking over the charge were soaring to the level of 42
percent and to bring fiscal discipline, reducing financial
liabilities, recover huge outstanding dues and rehabilitation of the
Significant progress has been made during this
period in operation of financial areas by which KESC has in fact been
converted into a viable, efficient and service-oriented utility to a
great extent. In fact, the privatization of KESC proves that
corrective measures taken during last 4-5 years have placed the
utility company in a state to attract attention of the investors.
Present management claims that the situation is
improved to a great extent as the revenue has almost been doubled
during the period through control over leakages, widening of the
consumer base, improvement in sales mix and hectic efforts to control
theft of power with nominal increase in tariff.
The rising trend of T&D loses has been
effectively checked and for he first time in many years a reduction of
3 percent has been achieved last year. Effective implementation of the
project for system improvement and reduction of losses launched since
June 2003 has also started showing positive results in all areas
including the improved consumer services.
The financial losses and cash shortfall have been
substantially reduced. In fact, cash surplus of Rs1.6 billion on
completion of the project has been targeted by the management by
2006-07 with a targeted reduction of T&D losses to 24 percent and
100 percent recovery ratio.
Within the installed capacity of KESC, generating
stations was 1735mw while the actual capability was claimed at 1342mw.
The maxim demand for power has crossed 2000mw.
On one hand, the KESC was facing continuous growth
in the power demand while also going through acute shortfall in
availability of power on the other hand. In order to overcome the
shortfall, the government has allocated eight gas turbines from UAE
for installation on emergency basis ensuring supply of 240mw power by
June this year. Besides reinforcement of supply through installation
of gas turbine probably donated by Kuwait government, work was also
taking on far footings for establishing direct link of transmission
line from HUBCO to KESC.
Meanwhile various international power generating
players have also approached the government for setting up power
plants within KESC franchised area. Currently, the two IPPs namely Gul
Ahmed and Tapal Energy which are also contributing around 250mw into
the KESC system have also been granted permission to double their
In fact, there is no dearth of investors in power
generating area in Pakistan because of available energy-starved
market. The privatization of the KESC was selling-off the huge
consumer market to one company which would enjoy a monopoly over such
a lucrative consumer market. The new buyers would have keep an eye
over rapid increase in demand of power in Karachi due to establishment
of a number of industrial zones, and industrial cities in outskirts of
Karachi. The growth in economic activity around Karachi would require
enhancement of power generating capacity of KESC which could only be
met through arrival of more generating units by the private sector.
The only bottleneck in the way of growth in power generation is the
cost of fuel. Under the situation, corrective and speedy measures are
required to develop natural gas resources besides early completion of
the cross border pipeline. The targets are uncertainly ambitious but
have to be achieved to attract investment which help in meeting growth
rate set at 8 percent in next two years.
CONSUMERS (ILLEGAL CONNECTIONS)
The theft of power at a massive scale in KESC and
WAPDA is the real contributor to erode the financial stability of the
two utilities which share the power distribution system of the entire
country. This nuisance has been given a technical name i.e.
Transmission & Distribution (T&D) losses. This nasty term is
responsible not only for huge financial losses to the utility company
or the government but consequently instrumental for higher power rates
in Pakistan because the loss is believed to being passed to the
Insiders told an interesting story that when the
issue of power theft was brought into the notice of the new buyers
they put a counter question "are the electricity consumers were
so poor that they cannot pay even their electricity bills? They,
however, come out with a solution to address the issue of power theft
in the KESC network. They would like to accommodate the Kunda
users in the Zakat Fund of their company, provided these illegal
consumers get them registered with the company under the Zakat
provision. This facility would be available to the poor consumers,
however, the consumers willfully involved would be brought under the
revenue generating list for which preventive measures are already
underway. The steps include insulated overhead and underground cables
and other devices to prevent power theft.
The new buyers, however, have identified the root
cause of power theft by saying that the consumers were so poor that
they cannot pay the electricity bills! This statement makes it clear
that the power charges are beyond the reach of the common man.
Whatever the causes for higher electricity price may be whether due to
government duties or growing cost of power generation, the fact
remains that people in the normal income groups cannot afford to pay
huge electricity price which jumps higher in case they consume
slightly above 300 units a month. When the foreign investors can offer
to adjust the poor in their Zakat fund why not the Government of
Pakistan accommodate the power consumers living below poverty line in
its Zakat and other funds allocated for poverty reduction.
Sooner or later, change of hands from public to
private sector would take place in KESC. Over 20,000 employees of the
KESC seemingly were happy as the new management has assured to allow
trade union activity from the day the new management takes over the
charge. They are also assured of getting a 20 percent rise to their
salaries with a promise of complete job security. The consumer's
interest of keeping tariff at an affordable level is the
responsibility of the government. Although the privatization of KESC
would allow a monopoly status to the buyer of the KESC, yet it is
hoped that an improved infrastructure would offer quality service with
uninterrupted supply power to the citizens of this electricity starved
commercial hub of Pakistan.