The KESC dilemma

Reduction in T&D losses can help in improving revenue

By SHABBIR H. KAZMI
August 9 - 15, 1999

National Electric Power Regulatory Authority (NEPRA) has started hearing of second amended petition of The Karachi Electric Supply Corporation (KESC). Many people fail to understand "why KESC has been forced to demand 1.61% reduction in average tariff whereas it needs 19.26% increase mainly to meet loan covenant?" The ultimate decision of NEPRA will be influenced to loan covenant. Besides, the Corporation has no concrete plan to meet the conditions of loan provided by the Asian Development Bank. The condition requires that KESC should generate 25% of capital expenditure internally.

The ritual seems even more surprising due to government's decision to implement uniform tariff throughout the country and NEPRA's notification regarding revised tariff for WAPDA. Therefore, it will be more appropriate to decide first whether the government decision or loan covenant is the deciding factor? Technically, loan covenant surpasses any decision of the government. Internationally, loans are disbursed on the basis of cash flow of the borrower and KESC cannot be an exception.

Even the earlier decision of NEPRA to notify tariff for WAPDA was incorrect as it never examined KESC's request. Apparently, NEPRA was confident that its decision would not impair KESC's financial position, which proved to be incorrect. Therefore, it is necessary to understand and compare the working of KESC and WAPDA before making any decision, even if it is based on the policy of the Government of Pakistan.

The two utilities use different modes for electricity generation. WAPDA still generates nearly 45% of its total electricity mainly at two hydel projects, namely Mangla and Tarbella whereas KESC's entire power generation facility is thermal based. There is a world of difference between the cost of generation at hydel projects and thermal power plants. The average cost of electricity generation at hydel projects is less than 50 paisa/kwh whereas the fuel cost alone for a thermal power plant works out around Rs 1.40/kwh. It becomes even higher for an inefficient company like KESC. The efficiency of KESC's thermal power plants has been going down due to inadequate maintenance. Since the cost of generation for the two utilities are different the sale price/kwh cannot be the same.

This clearly demands that tariff to be charged by WAPDA and KESC should be different under the prevailing circumstances. However, it should not imply, in no manner whatsoever, that KESC should be allowed to charge a higher tariff from customers located in its franchised area. The situation, however, demands some sort of compensation and/or subsidy to the KESC to bring down its average cost of generation/kwh to make it comparable with average cost of generation /kwh in case of WAPDA.

For this purpose, the following alternatives may please be considered to reduce the average cost of generation in case of KESC:

KESC buys electricity from WAPDA mainly to meet its shortfall in supply and the average purchases vary from 200MW to 400MW. WAPDA supplies electricity to KESC at an average cost of Rs 3.60/kwh. Therefore, WAPDA should be asked to charge nothing more than 60 paisa/kwh from KESC. Does not Karachi deserve this at the minimum? Certainly 'YES', because the city is the hub of industrial and commercial activities. Besides 1/10 of Pakistan's total population lives in the city. Therefore, the city must get, at least 1/10, of total hydel generation at the rate of 60 paisa/kwh and not at Rs 3.60/kwh.

The other alternative is that KESC should be provided furnace oil at a realistic price. At present KESC's main source of power generation is Bin Qsaim thermal power station. This facility is very close to Zulfiquar Terminal of Pakistan State Oil (PSO) and furnace oil is supplied to KESC through pipeline. Therefore, PSO should not be allowed to charge KESC a price it charges from WAPDA.

The last, though not prudent, alternative is to allow KESC to charge a higher tariff, as compared to WAPDA, to meet its financial obligations. However, this will be highly unfair to people living in KESC's franchised area.

KESC's dismal financial condition is the result of mismanagement. This includes over 45% T&D losses — mainly comprising theft, poor power generation efficiency, inability to recover receivables, over employment — both executives and workers and out of proportion over-time payments. Therefore, the consumers should not be forced to finance the inefficiency of the Corporation. KESC should be asked to improve its operations rather than demanding any increase in tariff. The increase in tariff allowed in the past has never helped in improving its financial condition.

While it may be true that workers are indulged in unfair practices, it is the senior management which is responsible for the most of the ills of the Corporation. 'Operation Snake Hunt' is the exhibition of the efforts of the senior executives of the KESC to mislead. Domestic Kundas are not the real issue. It is the massive theft by industrial, commercial and large domestic consumers which contribute the largest percentage of total theft or T&D losses.