KARACHI, May 25: The army has been running the Karachi Electric Supply Corporation in such an inefficient manner for the past four years that the two foreign investors who had shown interest in purchasing the power utility have backed out.
Speaking to Dawn recently in the city, the federal minister for privatization and investment, Dr Hafeez Shaikh, conceded that the KESC’s sell-off was “a complicated and eternal problem”. Referring to the financial woes of the power utility, he added that the government would come up with a strategy within three months to privatize the KESC in the best possible manner. He termed the high transmission and distribution losses of the KESC as one of the main obstacles in its privatization.
It may be pointed out that over the past four years the transmission and distribution losses of the power utility have actually risen to 40 per cent. In May 1999, when the army took over the KESC management, the transmission and distribution losses had stood at 38.64 per cent.
Sources in the KESC said the two foreign investors — a US-based company AES and a Germany-based company ABB — had taken an interest in the power utility’s sell-off. They added that the foreign investors had been scared off by the financial indiscipline of the power utility, particularly high transmission and distribution losses.
They recalled that the government of Pakistan had decided to privatize the KESC in Feb 2002. “The target date for privatization was Sept 2002. The Asian Development Bank and the privatization commission jointly engaged the Price Waterhouse Coopers to prepare a report on the sell-off of the power utility. Expressions of interest were invited in May 2002. The AES and ABB showed interest but backed out afterwards.”
The sources said that in Sept 2002 a financial improvement plan about the KESC had been approved by the government and the International Monetary Fund. “The so-called financial improvement plan was based on a number of assumptions. First, it was assumed that the transmission and distribution losses would decrease in the following manner: by 2003, 38 per cent; by 2004, 34 per cent; by 2005, 30 per cent and by 2006, 24 per cent. Tariff would increase by 6.5 per cent from Sept 13, 2002. Recovery ratio would also rise to 100 per cent.”
They said that the in order to restructure the books of the power utility, the government had carried out the much-trumpeted debt-equity swap, which was in fact a glorified term for the conversion of debt into equity.
They added that the privatisation commission had approached international finance institutions like the Asian Development Bank and the International Finance Corporation for the privatization of KESC.
Analysts point out that the army wants to cling to the KESC even after its privatization. They say that the KESC managing director, Brig Tariq Saddozai, is on record as declaring that not only will the army remain in the KESC even after its privatization but its expense will also be borne by the buyer of the power utility. They maintain that at present more than Rs18 million is spent on the army in the KESC. Little wonder, then, that the foreign investors backed out.
