Jan 19 - 25, 2009

Power crisis has assumed highest proportion across almost all electrified and gasified areas in the country. The suffering is evident clearly in places where consumption of electricity and gas is relatively high. Thus, industrial areas and densely populated settlements appear to be prime casualties of gas or electricity outages nationwide due to many reasons. Of that, demand and supply staggering gap is highlighted as an excuse by the government. Rising needs of utilities outweighing present power generation capacity is a well understood cause behind energy shortfall, though energy experts believe wrangling over ownership of explored wellheads amongst different claimants obstructs addition of 'substantial' energy reserves to mainstream. They contend reserves are enough to get through national energy demands.

While furnace and other imported oils are popularly used to run electricity producing plants by power generation companies nationwide, gas is alternatively utilized. However, in some cases gas fired plants are dominantly or preferably run to cut recurrent expenditures of imported oil. In past upward trend in crude oil prices in international market has been forcing power producers to shift to gas-based electricity production resulting in petroleum policy to induce moderation in gas consumption or tariff amplification.

Although, Karachi which is a hub of national industrial activities is also reeling under the power crisis, its vulnerability to shortfall is aggravated more by the structural weakness in the electricity supply system governed by the private management. Gas outage has not reached to unravel compounding impact as yet in the city. In spite of this, government's price pull step to discourage and tone down natural gas usage has led a forceful impact onto commercial and domestic consumption from two ways. One tariff of gas is increased for industrial and domestic consumers. Besides, increase would incite increment in per unit price of electricity.

The use of gas in power plants of Kesc was recorded significantly higher than of furnace oil in first quarter of this fiscal year. The amount spent by the supplier on purchase of natural gas was approximately Rs. 7.4 billion in a considerable difference to Rs. 4.1 billion on furnace and other oils. Apart from this, the company purchased electricity from National Transmission and Dispatch Company of Rs. 4.7 billion, Independent Power Producers (Rs. 5.8 billion), KANUPP (Rs. 504 million), and Pakistan Steel (Rs. 133 million). It spent Rs. 11 billion on electricity, as against Rs. 8.9 billion in July-Sep, 2007 while combined fuel and power purchase cost it Rs. 18.5 billion in first quarter of this fiscal year as against Rs. 14.6 billion in the previous corresponding period. The cost was net of subsidy. It is worthwhile to remember that 90% of Rs. 12 billion annual subsidy to Kesc on price differential claims is directly transferred to Pepco on account of circular debt, according to Raja Pervez Ashraf, Water and Power Minister. That how much Kesc owes to Pepco is disputed. The amount is Rs. 60 billion or Rs. 80 billion, defended by Kesc or Pepco respectively.

Government pushed 38% natural gas rate during this period. A company with a tri-month loss of Rs. 6.6 billion must have sought scapegoat for pass-through to hold ballooning deficit widened by 41.7% from Rs. 4.6 over corresponding period and finally been allowed 10% up in tariff in March last, which sharply jacked up its sale on energy revenue by 18.7% to Rs. 16.2 billion in July-Sep, 2008 from Rs. 13.7 billion in July-Sep, 2007. From other sources, it accumulated Rs. 437 million. Another green signal by Nepra to 35% increase may have shortened deficit but lashed out publicly. The widespread protest by Karachittes got government retracted the decision temporarily, perhaps.

According to Kesc 87% of its total expenditures are formed by cost of fuel and power purchase, depreciation, and financial charges. These are beyond its control, it says. In a media report, newly appointed Chief Executive of Kesc also expressed inability to control line losses, which were 33.6% during the period under review. The veracity of his statement is proved through latest quarter financial report of the company. As against total units available for distribution of 4.0 billion Kwh, only 2.7 billion was billed. In this duration, its cost of provision of bed debts soared to Rs. 375 million from an earlier Rs. 338 million.

Theft and nonpayment of bills are two of important precipitants of operator's financial charges and its downward revenue far below breakeven. The supplier has realized that this anomaly causes over billing. While pilferage goes in connivance with Kesc employees or is ignored, nonpayment of due bills is possible due to lethargy in counteractions or lack of punitive measures such as line disconnection by the supplier. It is observed that people under clout escape unscathed of any such action while common bungler gets caught. Sadly, innocent and law-abiding consumers bear the brunt and receive bills over-billed.

The new computerized system, which is said to functional by March end, would reduce technical and T&D losses of Kesc. This would also help minimize outage according to the company. Maintenance expenditures continue to increase and can be curtailed only through flawless monitoring and management of supply. For generation the company said to have earmarked USD 10 million. Rental generation facility and steam turbine would add 50 MW and 26 MW to grid by March and July this year, mentioned in the financial statement. It seems that thrust of Kesc will be installation and rehabilitation of gas and steam turbines for power generation in years to come.

To make in particular Kesc profitable increase in unit price will be detrimental to public image of top management eulogized for its achievements with reference to revival of power companies in Georgia, Chile, a central Asian country, and elsewhere. Profitability is inseparably associated with reduction in power pilferage, investment in operation and maintenance, detection of misdirected budget allocation in O&M account. Dissatisfaction of underserved or less privileged staff over revised pay scale may militate against any financial improvement plan.

Transmission and distribution infrastructure needs huge cash flows and Kesc can not mobilize such sum by its own-or it is not considered strategically pertinent-nor has it balance sheet attractive to draw attention of foreign money lenders or shareholders, a fact illustrated by the supplier itself as a central obstruction to tenable FIP. In this context, an option left to frugal management spending hermetically perhaps is unrelenting effort to bring transmission and distribution losses to zero and weed out unfair company affairs. At national and city levels both generation needs to be enhanced. (TS)