PRIVATISATION OF ELECTRICITY UTILITIES

AN EXERCISE ON WHICH BILLIONS OF RUPEES WERE SPENT PROVED FUTILE DUE TO ABSENCE OF SUPPORTING POLICIES

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
May 3 - 16, 20
10

The process of deregulation, liberalization and privatisation of electric utilities had actually started during the regime of President Ziaul Haq, when the international donors agreed to finance power generation projects in Pakistan. Over the year the three milestones achieved are creation of Hubco, sale of 36 per cent shares of KAPCO and privatisation of KESC.

Though, the government has remained under fire for undertaking these transactions the two major failures are 1) privatisation of corporate entities now working under PEPCO and 2) inability to find a strategic investor for FESCO, which has been on privatization list nearly three decades.

It may be the easiest to blame the successive governments for the failure in achieving complete privatisation of electric utilities but a peep into the affairs of WAPDA and KESC under the state control shows existence of various groups having vested interest trying the derail the privatisation process.

These groups have opposed creation of HUBCO and privatisation of KAPCO and KESC. The long drawn legal battle between WAPDA and HUBCO and worst criticism on privatisation of KAPCO and KESC is on record.

Certain groups within WAPDA/PEPCO are the biggest opponents of privatisation only because they have been 'milking the cow' and transferring the blame of mismanagement and inefficiencies to the rulers. Rampant corruption and colossal transmission and distribution losses (mostly comprising of theft going on with the connivance of employees of utilities) are the basic reasons behind deteriorating financial condition of these entities.

These groups have been misleading the governments as well as the multilateral donors. They have been demanding regular injection of funds and hike in electricity tariff for improving cash flow of the most inefficient entities but hardly taking steps to contain T&D losses.

The basic purpose behind creation of PEPCO has not been achieved during the last fifteen years, in fact it has proved to be even worse than WAPDA. It is true that at time WAPDA also tried to cover up its inefficiencies but uttering by the PEPCO officials is not only incorrect but completely misleading.

The smallest example of the disinformation being spread over the last two years is the daily data released about generation, demand and shortfall. According to data the shortfall has reduced from over 6000MW to less than 4000MW but outages have grown from 12 to 18 hours in many of the areas.

The height of PEPCO's inefficiency can be gauged from the numbers released couple of days ago. According to the data hydropower generation an exclusive domain of WAPDA Water Wing was 3254MW, IPPs delivered 4873MW and the output of generation companies working under PEPCO was collectively just 2576MWM.

While lower hydropower generation can be attributed to lower water levels in the dams, only PEPCO could be held responsible for its own pathetic performance and running of IPPs at lower capacities. It is on record that IPPs are being run on lower capacities because PEPCO owes those billion of rupees. However, the most disappointing fact is that at least three of the generators of KAPCO have been shutdown due to no supply of low sulphur furnace oil and/or suspension in supply of gas.

Since the units have dual firing system even if gas supply is completely disconnected generators should be run on fossil oil.

Shutting down of the generators is tantamount to unpardonable crime because demonstration against load shedding has turned violent and resulted in huge losses to government and public properties.

The efforts to privatise FESCO are also spreading over nearly three decades. Ideally, privatisation of FESCO should have been the easiest because it is said to be the highest revenue yielding and rather efficient entity. However, it has not been privatised because PEPCO does not want to lose the money minting entity.

According to the information placed on the website of Privatisation, Expressions of Interest for privatisation of FESCO were invited in February 2006 from investors or consortia of strategic/financial investors interested in acquiring 56 per cent interest in Faisalabad Electric Supply Company (FESCO) along with transfer of management control.

It was stated that it was Pakistan's first and one of the best distribution companies.

At that time it was serving approximately 1.8 million customers in the central region of the province of Punjab. The company with sales of about US$400 million, low distribution losses and high rate of bill collection was one of the best electricity distribution companies in Pakistan. Being in the heart of the industrial area of Pakistan, FESCO sells nearly half of its electricity to the industrial and bulk consumers.

Privatisation of KESC has attracted a lot of criticism for its failure in containing load shedding and enhancing power generation. At one of the latest meeting of the Senate Standing Committee on Privatisation (SSCOP), which met under the chairmanship of Senator Adnan Khan it was observed that the management of KESC has failed in fulfilling the contractual obligations in November 2005.

It was stated that the optimal installed capacity of KESC was 1600MW while at the time of its privatisation it was generating 1200MW. It was also stated that the new management failed in installing 1000MW generation within 3 years as per sale agreement. The GoP has also invested Rs10 billion in the entity for improving its generation. Senator Waqar Ahmed Khan informed that the company was facing major issues, which include lack of management and operating efficiency and circular debt.

While all the blame goes to the new management of KESC for the prevailing outages, it is also a fact that the electricity demand in its franchise area exceeds 5000MW as against an availability of less than 2500MW from all sources, including much talked about supply from PEPCO. The KESC can't undertake expansion/revamping plans unless its cash flow is improved. It does not need hike in tariff instead containing T&D losses, and blatant power theft. These losses can't be contained without the help on provincial government and CDGK in removing kundas, both from individual consumers but more importantly bulk consumers, including government and semi autonomous entities.