Not a day passes without national newspapers reporting consumers’ woes on account of frequent breakdowns in Karachi.

The shutdowns or the breakdowns are so frequent that people have stopped taking notice of the news. The one in Dawn of 11th June says: Regular consumers suffer as KESC checks thefts. On 13th June, Dawn headlined: Many areas faced intermittent power breakdowns on Wednesday as the temperature stood at 36 degrees centigrade. It went on to say:

‘People calling from Clifton, Defence, Nazimabad, Muslimabad (New M.A. Jinnah Road), Federal B Area, North Nazimabad and Lea Market told Dawn that they had faced power shutdowns. A resident of Federal B Area, Block 19, wondered why the KESC claimed that it was not carrying out any load shedding. “Last night, the locality on our left remained without electricity from 11 pm to midnight. On the dot of midnight, the area on our right plunged into darkness and the area on our left regains its power supply. We thought that soon it would be our turn to lose electricity. Sure enough, at 2am the area on our right regained its power supply and we lost it.”

A steep decline in KESC’s fortunes has been manifest over the past decade. As a business entity, it has long since ceased to be viable and should have long since gone out of business. It has not, because the taxpayers have been resuscitating it through fresh infusion of cash and credit Earning per share is negative Rs33.87. Shareholding of the KESC belongs mostly to the GOP with 63 per cent of its share. Individuals (residents and non-residents) own just 6 per cent. Banks and other institutions own the rest.

It should not be surprising, then, for the Governor, State Bank of Pakistan to have suggested in the recent past that we would be better off selling the KESC to the private sector for a rupee. There was an indignant and sharp reaction from the Chairman of the KESC who reportedly alleged that the Governor did not know his economics. Unfortunately, the facts seem to confirm the diagnosis of the Governor. The much-maligned Governor bailed out the KESC of its terminal crisis when its lenders, National Bank of Pakistan etc. showed their unwillingness to accept Pakistan Investment Bonds (PIBs), by paying Rs22 billion to them. Three years back when the KESC was handed over to its present management, brimming with confidence, it was hoped that things would improve. In one of the highest level meetings held to review the lack of progress on the KESC’s privatization, the new management strongly urged postponement for two years, during which period he would change the fortunes of the Corporation, so that it would fetch a better price. And there we are placed in a much worse position. If we look at the published facts, which, as the reader knows, are usually tailored by public entities to suit the occasion so as to present a rosy picture of their performance, ugly reality stares starkly in the face.

A review of the Annual Report for the year ending June 30, 2001 shows current income of Rs28 billion, which does not match the current expenditure of Rs36.6 billion rupees. There is a loss of Rs16.4 billion. The losses brought forward from the previous years amounted to Rs32 billion. Thus the Corporation has so far suffered a total loss of Rs48.6 billion, which is almost equal to $0.8 billion. A staggering figure indeed! Tide has not been stemmed and the haemorrhaging goes on!

Reviewing the revenue expenditure position for the year, there is an increase of 12.3 per cent in revenue from sale of energy but a 28 per cent fall of in other income. In expenditure, the cost of fuel and power purchased rose by 20.6 per cent but provision for doubtful debts increased by a phenomenal 58 per cent. On expenditure side the charges for gas increased from Rs2.6 billion to Rs5 billion and for fuel oil from Rs11.3 billion to Rs12.7 billion. Total generation expenses increased from 56 per cent of the total expenditure in 1999-00 to 63.6 per cent. Administrative and general expenses increased by 33 per cent from Rs1.5 billion to Rs2 billion. The management can legitimately claim some successes. It succeeded in bringing down the overtime payment to the employees to 77.5 per cent of the basic salary from 83.83 per cent in the previous year. The figure in absolute term stayed just about the same. Units sold showed a slight improvement and increased from 6429 to 6924 GHW. FY1998-99 had registered a decline from 6385 GWH to 6130 over the previous year. Revenue from sale of energy increased from Rs23 billion (1998-99) to Rs25 billion (1999-00) and to Rs28 billion (2000-01). Other revenue declined from Rs1.0 billion (1999-00) to Rs722 million (2000-01). During the year under review, line losses on account of auxiliary power consumed increased from 512,000 MW (6.61%) to 533,000 MW (6.68%). Units imported from Wapda, KANUPP etc. decreased from 370 MW to 368. Internal consumption by departments and staff also increased. The transmission and distribution (T&D) losses, which were 34.62 per cent in 1997-98, went up to 40.23 per cent in 1999-00 and are claimed to have been brought down to 36.81 per cent in 2000-01. An insider source puts the figure of T&D losses during the year at 38.2 per cent.

The main source of the KESC’s power generation is thermal, based on oil and gas. Out of the total installed capacity of 1800 MW, KESC generates only 1290 MW, that is 28 per cent less. According to international standards, only 15 per cent of its capacity should be unavailable on account of repair and maintenance. Almost all the generating units operate at less than the rated capacity and at a much lower thermal efficiency, causing a generation loss of about 2.06 billion units (Kwh). At Rs4 per unit at an average, the financial loss amounts to more than Rs8 billion. Fuel cost per KWH due to lost efficiencies of the units runs at least as high as 12 per cent. This is considered by professionals to be unacceptable and is the result of neglect of repair and maintenance.

To cut down the production cost to the optimum level, it is important to carry out efficient operation and proper maintenance of the generating units. During the year, no new works or upgradation of transmission system or the capacity were undertaken. Maintenance has suffered a criminal neglect because the management focused all its energies in recovering its outstanding bills and/or checking theft. There has been great stress on changing the old guard including some of the efficient and honest officers, which led some of the experienced and trained people to quit jobs and find employment elsewhere. Lack of decision-making has aggravated the problem, particularly in the area of maintenance, because those that remain do not want to lose their jobs.

In the Chairman’s Review to the board of directors for its meeting it was stated, “ that the KESC is the lifeline of Karachi and its health affects the economic well being of the whole country. The management of corporation is fully cognizant of the immense responsibilities placed on their shoulders by the high command of the army”. What has been accomplished for the economic well being of the country is a continual hike in tariff and uninterrupted breakdowns.

It has been claimed in the review that the ECC of the cabinet has approved Rs44 billion financing up to June 2003 as follows:

Rs in million

a) Debt Equity Swap

(foreign debt-servicing up to June2003 15,835

b) Bridge Financing / ADB Loan 13,334

c) Conversion of overdue liabilities of fuel/power purchase into interest free loan 15,000

Total 44,169

KESC showed a profit until 1994-95, and then it went a continuous decline, incurring more and more losses, which are as follows:

(Rs in million)

95-96 96-97 97-98 98-99 99-00 2000-01

469 6,780 6,857 7,364 12,787 16,200

The transmission and distribution losses, which were 20.84 per cent 1989-90 increased in ten years by almost 100 per cent to 40.23 per cent in 1999-00. From 89-90 they have gone on increasing thereby confirming the belief that management is getting poorer and is unsuited to the running of a business entity. Following are the published figures, which borrowing from the phrase of the auditors, remain indeterminate:

89-90: 20.84%, 90-91: 23.80%, 91-92: 26.04%, 92-93: 27.30% , 93-94: 27.47%, 94-95: 31.37%, 95-96: 31.20%, 96-97: 35.53%, 97-98: 34.62%, 98-99: 38.64%, 99-00: 40.23%, 2000-01: 36.81%.

The federal government converted the liabilities of Rs18 billion into equity in August 2001.Foreign loans fully guaranteed by Pakistan amounted to Rs32 billion. They increased in just a year by 21.6 per cent from Rs23 billion. Short term borrowing from local banks amounted to Rs15 billion, which increased by almost 100 per cent from Rs8 billion in the previous year.

A recent loan of $350 million has been obtained from Asian Development Bank on the promise that the utility will be privatized in September this year. Current global climate provides the backdrop of this generosity because the bank had stubbornly refused to entertain the request for five years. Sinking so much money into this organization makes no sense, unless it had private management Government of Pakistan will be stuck with this loan without deriving any benefit out of it. As for privatization, one can safely bet that no such privatization will take place, not so soon anyway. The expenditure incurred on trying to privatize for 10 years would be in millions because the financial advisers are paid in dollars at international rates.

According to the auditor’s M/S Sidat Hyder Qamar & Co. and M/S Rahim Jan & Co. report “one of the factors attributable to these losses is the alleged theft of the electricity, which has directly affected the profitability of the Corporation. (Very perceptive indeed!) These factors, if controlled more effectively, may enable the corporation to minimize its over all losses. (Prophetic!) The amount of theft however, remains indeterminate;” Remember Anderson, the Auditors of Enron of USA. As long as the auditors remain in the pay of their client, they will have no qualms of conscience in covering up disastrous performance of their charge.

The auditors have predicated the validity of the financial statement” upon the continuous support of the Government of Pakistan”. They have shown total lack of faith in the ability of the management to make the utility viable. Borrowing and more borrowing is what has sustained the organization, which if it were a private entity should have gone out of business long ago. Any swap of debt for equity by Pakistan is only transferring the responsibility to the taxpayer. There is no end in sight to the continuing haemorrhage of the organization.