KESC & PTCL set-backs

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
June 11 - 17, 2007

The Prime Minister Shaukat Aziz has expressed his concern over the slow pace of the privatization process and stressed upon the concerned authorities to speed matters up. It is learnt that the Privatization Commission is far behind in achieving its targets set for the financial year 2006-07. None of the major units such as PSO, PPL, SSGC, SNGPL and OGDC, included in the list for privatization during the current year, have found new majority owners.

After the Pakistan Steel Mills fiasco, the failure of KESC to deliver in the aftermaths of its privatization seems to have put a dampening effect on Privatization process. It received another jolt when the Sindh High Court, through an interim order, has restrained the transfer of PTCL land to Etisalat.

Press reports quoting PESCO sources claimed that the unsatisfactory performance of KESC has induced the Privatization Commission to slow down the disposal of other 'discos' (Distribution Companies). According to a PESCO (Peshawar) source, the private management of KESC has done 'nothing' to bring abut improvement in transmission infrastructure or to ensure a smooth and uninterrupted supply of electricity to consumers. The thinking in government circles at the moment is to allow financial autonomy to the distribution companies. The first Disco to be given financial autonomy is the Islamabad Electricity Supply Company (IESCO.) PESCO and the remaining companies will be free to manage their finances from next financial year.

However, there is a catch. Out of PESCO's 2.2 million consumers, over 1.2 million are using less than 100 units a month, and depend heavily on the subsidy provided on power consumption. Such consumers are charged at nominal rates, which a private sector management may not agree to. This factor is the main reason why there has been to date a go slow approach. Interestingly, the new management of KESC had reportedly indicated its willingness at the time of sale of the countryís second largest power utility that it would inject an investment of US $ 400 million in three years to enhance its power generation and supply capacity. It has not been done. According to one estimate, the current daily demand in Karachi stands at 2,000 megawatts. About 60 percent is generated by KESC.

The current deficit of 300 to 400 megawatts in Karachi has promoted KESC to resort to daily load shedding of six to eight hours in different parts of the city. This has badly hit industrial production in Karachi, which is home to more than 65 percent of the countryís industry and 80 percent of its financial activity besides causing immense discomfort to residents of Karachi.

To make things worse, Wapda may not be able to meet the present demand in Karachi as its own system is short of power due to increased load in its service area. A major cause of Karachi's chronic poor supply breakdowns is KESC's highly defective and inefficient transmission and distribution network. As the power utility continues to sustain operational losses, it has been demanding that it be allowed to raise power tariff so as to invest it in improving the existing infrastructure.


The Sindh High Court gave its ruling in case of PTCL based a petition filed by the PTCL lions staff Union. The petitioner took the plea that the privatization was carried out in a 'mala fide' manner by which Etisalat failed to meet the deadline for depositing $ 2.5 billion, being allowed to pay the amount in Pak rupees over a period of five years from the profits earned from PTCL. It further challenged it on the grounds that PTCL is a profit making company and also a strategic asset, and as such, was not justified to be sold off.

Raising a technical point, the petitioner pleaded that on the basis of 26 percent shares, PTCL could not be handed over to Etisalat, adding it was in violation of Article 173 of the Constitution. The said article, named Power to Acquire Property and to make Contracts, has laid down certain rules for selling state assets, and such it must be ascertained as to whether the rules had been followed.

What has raised the most eyebrows over this deal is that Etisalat could not deposit the amount by October 28, 2006 which was the cut-off date and instead of terminating the deal, the government rather nervously allowed it to pay the purchase price in Pakistani rupees as against dollars, as originally agreed, over a period of five years. Neither parliament nor any other forum was taken into confidence.


It will be also be recalled that in its decision against the PSM deal, the Supreme Court had put the blame on Cabinet Committee for Privatization. The government accepted the decision with a pinch of salt, as there was no alternative available to it. Again, as the decision was announced not against the privatization process but its methodology and procedures, many questions were raised about the privatization of State Owned Entities (SOEs) already carried out. It is believed that the process has received a serious blow in the wake of Supreme Court decision and can hardly be taken with full velocity unless the Presidential reference against the Chief Justice reaches its logical conclusion. With the former Chief Justice facing a reference against him, any haste in the privatization process will not augur well for the overall transparency of future deals. It is necessary for the privatization of organization mentioned above to follow the SOPs properly, as intense scrutiny is necessary to avoid any laxity in operational procedures in this regard.

As the privatization process of the country enjoys consensus across the political divide, it would be more prudent if the process is delayed further particularly when there is so much in the air about early elections. For the privatizations of SOEs is a national issue, it would be expedient if the government has a fresh mandate in this regard. It may be true that privatization proceeds are pivotal for macroeconomic stabilization but one should not overlook the importance of transparency fulfilling legal requirements to the satisfaction of the critics. Already the estimates of foreign investment are high and there is no reason why one should be in haste or hurry so far as offloading of government institutions is concerned.