ALJOMAIH ASSURES LONG-TERM COMMITMENT TO PAKISTAN
Keen to invest in PSO-SSGC-Jamshoro
June 25 - July 01, 2007
Abdulaziz Al-Jomaih, Chairman board of directors Karachi Electric Supply Corporation (KESC) visited Pakistan last week in connection with foundation stone laying ceremony of a 220mw power plant being set up at Korangi Thermal Power Station. The stone laying ceremony was however presided over by Dr. Ishratul Ebad, Governor Sindh.
Actually, the event made headlines in the media because it held at a time when the city was confronted with a severe power crisis mainly due to shortage of power generation and the poor distribution network causing frequent power breakdowns and load shedding. On many occasion, angry people demonstrated against what they called the failure of KESC to ensure uninterrupted power supply to the consumers.
Speaking on the occasion, Abdulaziz al-Jomaih admitted that basically, at the time of acquiring KESC, they were aware of the fact there would be political, commercial and technical challenges. Bearing them in mind, the acquisition was completed because it was strongly felt that the asset would provide good returns in the long run. As a Saudi establishment, Al- Jomaih wanted to assure Pakistan that they had a long-term commitment to be a part of the social and economic growth of the country and, for that reason, KESC was the perfect acquisition being the economic powerhouse of Karachi.
During the course of his speech, the chairman board of directors raised many points including :
Why he had acquired KESC?
What is the corporate strategy in terms of enhancing and expanding its generation capacity and what is the way forward as we see it?
He also remarked that at the same time, his group was aware of the fact that KESC would require financial support for operational deficit and capital expansion program, if energy demand of Karachi was to be met. The turn around strategy is based on the following three factors:
1. Balancing, modernization and rehabilitation of existing assets
2. Organizational restructuring
3. Additional generation capacity
Contrary to what certain sections of the press had publicized that claimed that no financial support had been forthcoming and that shares had been sold to a third party, Abdulaziz al-Jomaih said that for the last one year, they had been working with multilateral agencies like IFC and ADB, together with the consortium of local banks to fund the capital expansion plan of three years amounting to over 800 million US dollars that would enhance the existing generation and the infrastructure of the company. In addition to this, a total debt fund of over 500 million US dollars, as part of the capital expansion program have been raised by the sponsors without any guarantee from Government of Pakistan and a weak balance sheet of KESC.
The funding will bring new generation of 780 MW by 2009. For this purpose, a contract of 220 MW plant was given and for which foundation-laying ceremony of which "was being witnessed today. The Board is now in the process of evaluating the final bidding of 560 MW, which Insha-Allah would be awarded in the next couple of months.
Once the 3-year Rehabilitation and Capital Expansion Program was complete, the network reliability would improve from the current 70 percent to 90 percent by 2008 along with in-house generation by over 1000 MW, he assured.
He conceded that there was no denial to the fact that they had faced a lot of challenges in terms of delivering to the expectations of Karachiites and the Government. He stated that if one was to look at it from a fair perspective, one would see that a company, which had no new generation for over 15 years, no investment in improving the network and no training opportunities to the staff, cannot be fixed over night but requires persistent efforts, unwavering commitment and, hence, time and patience.
In view of this scenario al-Jomaih said "we would only expect to be fairly evaluated in terms of our performance and financial commitment. He assured that we have a long-term commitment to KESC, to Karachi and to Pakistan". This is evident that we are looking forward to invest in other assets like PSO, Gas Companies, Jamshoro Electric and other energy-related assets, he disclosed.
In his presidential address, Dr. Ishratul Ebad, Governor Sindh observed that KESC served as the backbone to Karachi, one of the largest metropolises of the world, with a population of 14 million and a growth rate of 5 percent. This city alone accounted for 15 percent of Pakistan's GDP and over 60 percent of the country's industrial production, with per capita income estimated at 2205 US dollars, which happens to be 200 percent above the national average.
Considering this city as the heart of the country, what energizes it is KESC. "You can well comprehend the significance of this establishment as it empowers the industrial, corporate and domestic sectors of Karachi. And this city in turn, plays an indispensable role in where Pakistan stands today in terms of economic growth".
KESC has a customer base of 1.8 million, historically growing at 5 percent, with an expected acceleration in growth rate to 8 percent due to robust economic indicators. This institution has exclusive rights to distribute electricity in a 6000 square kilometers area, reaching across Karachi from Gharo to Winder. It is the only electricity utility in Pakistan, which is allowed to own power generation facilities, making it the only integrated utility in the country.
Dr. Ishratul Ebad said that the challenge that stood before the government in privatization of KESC was tri-faceted. One: To overcome the financial deficit. Since 1999, KESC had been incurring losses to the government, which has been offering subsidies to sustain the corporation. To overcome this, evolution was required. Evolution of KESC into an effective, efficient and self-sustaining organization with a corporate culture that emphasizes creativity and high performance.
The second face was to overcome the power supply deficit. This included load-shedding issues emerging due to shortage of generation, overloading of grid transformers and frequent breakdowns due to outdated distribution systems. Realizing that the Corporation was being sustained on subsidies, it was not feasible for the government to revolutionize the technological infrastructure on which KESC was standing. Still, we could not leave it unattended and unimproved.
So the government turned to the third and most important face of its strategy, which was to overcome the trust deficit, as I may call it. The objective was to regain the trust of the consumers in KESC for becoming an affordable and reliable source of electricity, and to instate the trust of local and foreign investors in KESC for being an organization worth investing in. And thus it was offered to the private sector for investment influx, profitability and a corporate transformation.
Now looking at it from the consumer's perspective, the turnaround they would expect would be as early as yesterday. But if we look at the mammoth task of transmission network rehabilitation and installation of new generation facilities that the management is faced with, it cannot be realistically possible overnight. As rightly pointed out by Mr. AbdulAziz, the foundation stone laying ceremony of 220 MW power plant is a milestone in itself in KESC's history, since this is the first power generating unit of KESC being set up in 15 years.
He said, "the government believes in the commitment demonstrated by KESC's management in terms of investing in the utility, improving network infrastructure and increasing generation. And we also hope that they will continue with an ever-increasing zeal to deliver upon this commitment.