New management initially investing $400m for improvement

Jan 23 - 29, 2006

People must have taken a sigh of relief on the commitment of the new management of Karachi Electric Supply Corporation (KESC), which has initiated modernization of the utility by increasing its generation capacity, rehabilitating the transmission and distribution network to make it a world-class company in next 25 years.

Frank Scherschmidt, Chief Executive Officer of KESC, says that $400 million would be invested in rehabilitation and modernization of the corporation in the next three years. In fact, he was talking about improvement plans under the private sector when he recently visited SITE Association along with Sohail Wajahat Siddiqui, President OICCI.

The KESC Chief had a candid interactive discussion with the members. At the outset SITE Chairman Ameen Bandukda mentioned that the biggest relief that has come to all of them has been the privatization of KESC. He congratulated the CEO and his team for taking over control of this utility company which was nothing but a white elephant. Very poor service, frequent breakdowns, inconsistent supply, high tariffs and high corruption were the order of the day.

Admitting the version of Ameen Bandukda, KESC CEO Frank said that the company has prepared an eight-point strategy to improve the working of KESC to provide better and quality services to its customers. He said that the company was giving top priority to its customers' complaints, adding that the consumers would feel a change in KESC services in the next few months.

The CEO said that in the next 25 years, by 2030, the company would be a world-class company. He said that when he took over the KESC, it was in a very bad shape. Transmittal and distribution lines were very old; no repair and maintenance work had been carried out at power generation units and transmission lines. Power meters were old and defective. There was no incentive for the staff. There was no safety equipment, etc. The company has over 3000 vehicles, and its fuel expenses were huge, he added.

He said that KESC was over staffed and if all employees of KESC were lined up they would cover a distance of 10 km. He said efforts were underway to overcome all these problems, and work has already been initiated to improve the working of KESC.

Scherschmidt said that it was not possible for the company to lay underground cable for the entire system

He said that under the prepared plan, the company would replace all defective and substandard power supply lines; replace all defective and old meters; replace defective pole-mounted transformers (PMTs), besides it had already initiated staff training program.

About meters running 30 percent faster, he said that the recently installed (new) meters, before privatization, were the real problem. Billing system of KESC was also a big problem. He said that KESC needs 1000 MW additional power for city's growing demand of power supply. For this purpose, the company would make efforts to get power from all resources besides increasing its power generation capacity.

He said that there was only one tariff for the entire city, and added that consumption-based tariff system would be introduced soon.

The CEO said that the company was computerizing the entire KESC systems, including billing complaints, power generation, defects occurring in power generating system, and incidence of power theft etc.

He said that one air-conditioner uses 6 households' electricity. At present, total city requirement of power for air-conditions alone is around 400 MW, he added. He urged the consumers to conserve energy to meet the city's requirements and to avoid load shedding in the coming summer.

Frank said that the company has also chalked out a plan to provide incentives to its staff and increase their salaries to root out corruption from the organization.

Albeit with snags the privatization finally took place and one could already see a change in the management's attitude for the better. He quoted from a letter written by Fazal Industries who are one of the SITE members (authentic customer statement) addressed to the new CEO of KESC, which states:

"We would like to thank you very much personally for such a quick action taken against our grievances. We salute KESC and its new management for being so much consumer friendly and assure you that if such steps are taken for the industry there is no doubt that KESC would have the most satisfied industrial consumers in Karachi".

This only proves how only one competent person at the helm of affairs can change things. Bandukda hoped that this was just the beginning and Karachi will once again grow to be a city of lights and energy with the help of KESC under the new ownership. To give an idea of how much rot had set in KESC, Ameen Bandukda quoted from a recent study conducted by ADB, which says: "The poor infrastructure particularly in the private sector has increased the cost of growth for firms of all sizes. Poor provision entails high cost, poor quality of service, lack of reliability and corruption in obtaining supplies. This reflects the failure of the then state owned utility providers to deliver and is reflected in high levels of line theft and opaque politically negotiated power tariff rates that significantly distort the growth potential of small and medium enterprises".

Bandukda said that recently SITE Association had conducted a survey and every one of the respondents mentioned poor infrastructure, particularly KESC, to be the main hurdle in planning expansion and growth of their industry. The big players always provided for their own captive power plant, whenever working on a viable business proposition. The small and the medium were left to the mercy of KESC and had to decide either to curtail operations, pack up or convert their factories to warehouses.

The SITE Chairman said: "We need Energy. Energy is food for our industry. We do not want to be in the business of power generation. That is the job of the Utility Company. We want to concentrate on our core business and make it viable and expand. In the developed world, providing electricity is a separate business operated by some utility company. Their task is to cater efficiently, consistently and economically to the growing demands of the industrial and individual consumers. At present, every business feasibility report has to include the cost of a captive power plant. Consequently, two projects have to be worked at simultaneously, which require a huge capital outlay. We would like the new KESC setup to change this."

He showed with the help of this table how short KESC's supply to SITE is and what can be done to meet their requirements.

Total generation of KESC 1795 MW; additional power purchased by KESC 1086 MW; total available load to SITE 260 MW; total requirement of SITE 390 MW; estimated shortfall in SITE 130 MW; average cost per unit of KESC Rs. 5.50; average cost per unit on gas Rs. 3.50 (inclusive of financial charges).

As you can see the shortfall is not much and can easily be managed by improving efficiency and controlling line losses. Bandukda stated that it was heartening to read that the new CEO is customer-oriented and consumer satisfaction is his prime objective. With due apologies the previous management of KESC was an 'apology'. Customer was always wrong. Hope now KESC will not be like that.

He said that Mr. Frank Scherschmidt had a tall order at hand and SITE Association was confident that he would deliver. He means business and they are here to run an efficient company. This belief of ours gets reinforced when we hear the new CEO boldly condemning almost every aspect of KESC's operational procedures. Just the mere admission of failings enforces the belief that substantial change for the better is in sight. He said there was absolutely no concept of giving any benefit to the consumer, who is the most important stakeholder in a utility service organization. The tariffs were also foolishly planned and there was corruption at all levels. Having said this, there are still innumerable problems being faced by our members, which to be fair are a legacy of the previous management. On that point, Bandukda proposed KESC management name a few representatives from their side who can sit with a few of SITE committee members and jointly help resolve the genuine issues of the industrial consumers.