KARACHI ELECTRIC SUPPLY CORPORATION

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Nov 29 - Dec 5, 2010

KESC is the only vertically-integrated power utility in Pakistan and manages the generation, transmission and distribution of electricity. KESC covers a vast area of 6,000 square kilometers and supplies electricity to all the industrial, commercial, agricultural, and residential areas that fall under its network.

The company provides electricity to 2.1 million customers in Karachi, Dhabeji and Gharo in the province of Sindh and Hub, and Uthal, Vindhar and Bela in Balochistan.

FINANCIAL PERFORMANCE (RS IN '000)

INDICATOR FY2010 FY2009
Total Revenue 103,936,515 85,224,084
Consumption of fuel & oil 37,180,851 37,450,620
loss before tax (14,737,490) (15,451,004)
Net Loss for the year (14,641,216) (15,484,942)
(Loss) per share ? basic (Rs) (0.74) (1.18)

KESC entered into loan agreements in 2007 with the international finance corporation (IFC) and the Asian Development Bank (ADB) in order to avail long-term financing of up to USD275 million to finance the Korangi 220 MW and 560 MW BQPS power plants. Extensive engagements with IFC and ADB were necessary during the year to ensure that committed loans remain available to be drawn for the upcoming 560 MW project as significant changes in the country's environment and international financing markets have made international lenders much more cautious. After exhaustive negotiations, IFC and ADB agreed to maintain the loan commitments signed in 2007 and to restructure the loans. This restructuring includes a re-profiling of the repayments, changes to pricing and to the terms of IFC and ADB's equity subscription. The revised shareholders approval was obtained in the EGM of the country held in January 2010 and SECP's approval was granted in June 2010.

Following completion of these arrangements, a further USD 115 million was drawn down in June 2010, a total of USD 210 million of foreign currency debt has now been drawn under the IFC and ADB loan facilities to fund new generation projects and the remaining facility of USD 65 million will be availed in the next 12-14 months.

OPERATING RESULTS OF GENERATING STATIONS (JULY-JUNE)

OPERATIONAL 2009-10 2008-09
Maximum demand (MW) 2,562 2,462
Units generated (MWH) 7,964,073 8,262,115
Auxiliary consumption (%) 7.4 7.5
Units sent out (MWH) 7,372,661 7,643,389
Total power purchased (MWH) 7,841,551 7,005,362
Total units available (MWH) 15,214,212 14,648,751
Units billed (MWH) 9,904,988 9,396,469
T&D Losses (%) 34.9 35.8

However, Abraaj/KESP has invested a sum of USD 208 million through two successive right issues. The first right issue was subscribed in August 2009 by KESP in an amount of USD 125.07 million and the second right issue was subscribed in Feb 2010 amounting to USD 75.5 million. Abraaj/KESP in addition to its own subscription also funded the entire unsubscribed portion of the minority shareholders of both the right issues which cumulatively amounted to USD7.15 million. Government of Pakistan fully subscribed to its 25.66 percent portion of the first and second right issues of the company in the amounts of PKR3.665 billion and PKR2.245 billion respectively.

As in the previous two right issues, KESP has undertaken to subscribe for any unsubscribed minority shares in addition to its 72.45 percent portion of the right issue. With fresh equity injection of approximately USD92 million in the upcoming rights issues, Abraaj/KESP will invest USD300 million in 2010.

KESC will continue to receive up to 650 MW of power under a 5-year power purchase agreement signed with NTDC/PEPCO earlier in 2010.

In spite of these, Pakistan having about 30 percent standby electricity few years back has been facing a severe power crisis for the last three years. Due to a fast growing demand, high system losses, and seasonal reduction in the availability of hydropower, the gap between the demand and supply of electricity is resulting in routine load shedding. Inadequate power generation capacity is just one of the factors affecting power supply. Total installed generation capacity witnessed an increase of 2.1 per cent during 2009?10 against the one percent growth in corresponding period last year.

With the share of 31.6 percent in total installed capacity during 2009?10, private sector witnessed the prominent growth of 7.1 per cent in its installed capacity during the period under review. On the other hand, installed capacity of Wapda has declined by 0.5 percent during July-March 2009?10. A number of independent power producers were (IPP's) established since 1994 are also contributing significantly to the electricity sector of the country.

CONCLUSION

Energy is the lifeline of any nation. The economic engine and the wheels of industry, agriculture, and business need energy to move forward. On the social aspect, energy consumption per capita is a key indicator of the quality of life of the citizens and community. Unfortunately, Pakistan is getting huge losses in terms of electricity shortage. KESC is focusing on distribution with main emphasis on the areas of billing and recovery to achieve significant and sustainable reduction in commercial losses in order to address the related issues for the financial stability of the business.