T&D network should also be improved to contain losses

June 09 - 15, 2003

The Karachi Electric Supply Corporation (KESC) is responsible for generation, transmission and distribution of electricity to Karachi and parts of Sindh and Balocistan provinces. Its franchised area is hub of industrial and trading activities. Despite colossal losses, the GoP is obliged to keep on injecting additional funds to ensure supply of electricity to consumers. The GoP has undertaken numerous financial restructuring plans but the utility continues to incur losses. KESC's revenue is not sufficient to meet fuel cost and power purchases.

According to some analysts, the various financial restructuring plans undertaken so far were not more than cosmetic surgery. Neither the problem ridden utility has the funds to improve its operational efficiency nor the GoP has provided funds to improve its T&D network, the root cause of all the evils. Analysts strongly believe that as long as T&D losses, mainly comprising of theft, remain as high whereas 40% injection of additional funds is waste of resources and futile effort.

It seems that the KESC buys electricity only for those who pilfer it. During year 2000-01 the self-generated available units were 7,455,231 MWH and units billed were 6,924,192 MWH. That means part of self-generated and the entire 3,688,230 MWH purchased went towards T&D losses (37.86%). The situation further deteriorated in 2001-2002. KESC self-generated units availability increased to 8,141,400 MWH but units billed came down to 6,717,304 MWH and T&D losses exceeded 41.82%. The situation has improved only marginally during first nine months of 2002-03 because T&D losses were contained to 40.5%. However, availability self-generated units declined and units purchased increased. As against available self-generated 5,955,950 MWH, units billed were 5,100,160 MWH.

The positive impact of financial restructuring is that despite colossal increase in fuel expenditure and value of electricity purchased, loss before tax was lower as compared to corresponding period of previous year. Financial charges came down from Rs 6.436 billion to Rs 1.571 billion. Loss before tax came down from Rs 11.963 billion to Rs 9.864 billion. It was also stated in third quarter report current recovery ratio has increased to the level of 96% of the total billing in the period.

KESC has been suffering from two contentious problems, i.e. out of proportion T&D losses and poor cash flow. The present management has succeeded in bringing down T&D losses and improve billing as well as recovery. Further strength has been provided with debt equity swap, reduction in financial charges. To further reduce the losses two immediate measures are required reduction in cost of electricity and improvement in T&D network to stop pilferage.

KESC's Bin Qasim thermal plant is being converted from furnace oil to gas that will help in containing fuel cost on self-generated units. However, it will not be sufficient unless WAPDA also reduces the tariff being charged from KESC. It is suggested that keeping the strategic importance of Karachi in mind, KESC must get at least 10% share of hydel electricity and the tariff charged should not be more than one rupee per unit.

It is also a fact that WAPDA is not in a position to bridge the gap in demand and supply being faced by KESC. The GoP must immediately call Expression of Interest (EoI) for establishing two IPPs of 500MW each or one unit of 1,000MW in KESC's franchised area. This unit should also be allowed to use gas as fuel. Fast track implementation of this project will help in achieving the twin objectives, ensuring uninterrupted supply of electricity to KESC's consumers at affordable cost and improving cash flow of liquidity starved utility.

Many critics ask, for long the GoP should keep on injecting funds in KESC? The reply is simple and obvious, as long as the GoP succeeds in privatizing the utility. It is known fact that KESC needs billions of rupees to improve its T&D network to prevent theft. Some analysts suggest that instead of making budgetary allocation the GoP should sell another 10% shares of KESC's through stock exchanges and give the proceed to the KESC as interest free loan to undertake T&D improvement plan.

Under the prevailing domestic, regional and global economic scenario, privatization of KESC as a compact utility seems an unachievable target. Saying this, the analysts still believe that KESC can be privatized, provided the GoP establishes separate entities for generation, transmission and distribution, the way WAPDA's Power Wing has been restructured. Many strategic investors will be interested in buying out distribution network, having the potential to enhance return with proper investment. It is understood that donors have expressed their willingness to provide funds once management of KESC is transferred to private sector.