CAPITAL INVESTMENT IN POWER SECTOR

IFC lends $125m to KESC; 20 thermal power projects in the pipeline

AMANULLAH BASHAR
Mar 26 - Apr 01, 2007

New management of KESC, on the back of its promise to make the utility a world class entity, has entered into an agreement with IFC which is offering financial support worth $125 million enabling the power supply company to upgrade its generation and distribution network.

In fact, IFC financing is to support KESC's US$ 809 million program for improvement in its power generation and distribution network, which is one of the largest investments in Pakistan 's power sector.

Having a look at the power sector one comes to know that currently there are more than 50 power projects, based on various fuels and related technologies, being processed by the Private Power and Infrastructure Board (PPIB), involving an investment of over US$ 11 billion, foreign and domestic. These Independent Power Producer (IPP) projects are at various stages of processing.

About 20 thermal power projects are scheduled to come on stream during the years 2008 and 2009, of which 8 projects are being constructed with the support of foreign investment to the tune of US$ 2 billion. These include:

1. Orient Power at Balloki, 225 MW
2. Hallmore Power (UK investors) at Bhikki, 225 MW
3. Warda Power (Brazil investors) near Gujranwala, 200 MW
4. KAPCO (Kot Addu Power) expansion project, 400 MW
5. Chichoki Mallian Project (UAE investors) near Lahore, 350 MW
6. Star Thermal Power at Daharki, 135 MW
7. Saveri Power at Faisalabad, 750 MW
8. Shaheen Power (Oman investors) at Bhikki, 800 MW

Coming back to International Finance Corporation (IFC), the private sector arm of the World Bank Group has signed an agreement to provide US$ 125 million loan to the Karachi Electric Supply Corporation (KESC). IFC's financing will support KESC's capital investment program of US$ 809 million, designed to increase the company's electricity generation capacity by up to 795 MW in addition to rehabilitation of its existing generation by 220 MW and improve the quality of service to its consumers.

Electricity shortages in Karachi have been widespread, with the summer of 2006 proving to be a period of particularly lengthy outages. KESC is committed to improve service to its customers and has embarked on a sizeable investment program to increase its generation capacity and improve its transmission and distribution network. KESC's investment program is the largest in Pakistan's power sector since the mid nineties and will add 220MW to its existing facility at Korangi and up to 575 MW to its existing facility at Bin Qasim. KESC's privatization is a landmark in power sector reform in Pakistan. IFC is committed to assisting in a successful turnaround of KESC, which would improve quality of service to consumers and demonstrate the benefits of power sector privatization.

IFC has played a lead role in arranging the long term financing packages for KESC with a lender group that is expected to include the Asian Development Bank, National Bank of Pakistan, Habib Bank Limited, United Bank Limited and Muslim Commercial Bank. Access to long-term debt to match the long-term nature of its project assets is important for the viability of KESC's investment program. In addition to its role in the financing, IFC has shared with KESC its global experience in investing in recently privatized power utilities and has helped KESC upgrade its environment and social practices.

IFC's Executive Vice President, Lars Thunell, signed the IFC investment agreement during his visit to Pakistan on March 22. Mr. Thunell said, "IFC is very pleased to be supporting KESC's investment program which will play an important role in improving the reliability and quality of service of Karachi's power supply, a city that accounts for a significant share of Pakistan's industrial and economic activity. This investment is a good example of IFC supporting private investment in strategic sectors to promote sustainable economic development".

Chairman KESC Abdulaziz Hamad Aljomaih appreciated the commitment of IFC and its support for the KESC capital investment program. He said that this would greatly expedite the turnaround strategy, which comprises organizational restructuring & development, balancing, modernization and replacement of network and enhancement of generation capacity. Al-Jomaih Group and National Industries Group are committed to long-term investment in Pakistan which provides an investor friendly climate. The sponsors greatly appreciate the Pakistan government for all the support it has provided to KESC.

"IFC's strategy is focused on supporting local and regional players and enhancing their capacity to invest in key sector traditionally considered in the realm of the public sector. IFC's investment in KESC contributes to such South-South economic growth as it supports the investment program of a Pakistani power utility which is backed by strong Saudi and Kuwaiti investors," said Michael Essex, IFC's Director for Middle East and North Africa.

Incorporated in 1913, the Karachi Electric Supply Corporation (KESC) is the only fully integrated power utility operator having exclusive franchise rights for Karachi and its adjoining areas. Unlike the case with WAPDA, post privatization KESC is still an integrated electrical utility company engaged in generation, transmission, distribution and retail supply of electricity to industrial, commercial, agriculture and residential consumers within its franchised area (6,000 km2).

The International Finance Corporation, the private sector arm of the World Bank Group, is the largest multilateral provider of financing for private enterprises in developing countries. IFC finances private sector investments, mobilizes capital in international financial markets, facilitates trade, helps clients improve social and environmental sustainability and provides technical assistance and advice to business and governments. From its founding in 1956 through FY06, IFC has committed more than US$56 billion of its own funds for private sector investments in the developing countries. With the support of funding from donors, it has also provided more than US$1 billion in technical and advisory services.