05 November 2004	Friday	21 Ramazan 1425

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KARACHI, Nov 4: Karachi Electric Supply Corporation Limited has announced that at the shareholders' annual meeting scheduled for December 2, the corporation would seek approval for conversion of KESC's debt payable to the government of Pakistan (GoP) into equity.

The outstanding sum of debt is Rs15.284 billion and the corporation plans to swap it with 4.367 million shares at a par value of Rs3.50 each. The conversion, says the corporation, will mark a "full and final settlement of KESC's debt payable to the government".

That could be a prelude to the privatization of the troubled utility. Late last month, the Cabinet Committee on Privatisation (CCoP) signalled the Privatization Commission to proceed with the sale of 51 to 73pc shares held by the government to the highest bidder or a strategic buyer.

Now the trouble is that neither of the two is new. The government has been pouring millions of rupees for the last many years in KESC or has kept swapping debt for equity. The government's privatization plan for the corporation has emerged and submerged for at least last five years. Whereas the privatization is concerned, promises are more often made to be broken, than kept. For such mega units as PSO and PTCL, investors' sentiments have ebbed and flowed with every revised target date of their sale.

Though nothing has come of it, being listed equities, some people have been able to make big money by taking the tide in their stride. There is, therefore, a big question mark in the minds of investors and consumers whether the government would be able to sell out controlling stake in KESC in the next four weeks.

The share in KESC of the reduced par value of Rs3.50 is currently trading at around Rs8. The offer of additional shares to the GoP would raise the corporation's paid-up capital by as much as 50 per cent, from Rs30.801 billion to Rs46.085 billion.

It would require a big leap of faith for a strategic investor to put his money into the corporation, which is now short of six years to complete a century of operations. More than a third of the electricity generated by KESC goes missing in transmission and distribution (T&D) losses. Theft, though the major reason, T&D losses are also caused due to the dilapidated state of transmission lines.

The purchaser would understandably have to make huge investment for revamping and expansion of the entire system. The Privatization Commission had to step back on its earlier condition that the buyer would have to invest Rs38 billion on capital expenditures when it realized that in case of KESC, the buyer and not the seller was the chooser. The prime minister was said to have declared that privatization was a matter of critical importance for improving the performance of KESC.

Commenting on the Q1 results for the current year, several claims were made by KESC: that the T&D losses had been brought down from 41 to 36 per cent; the revenue recovery was up by 103 per cent; for July-Sept 2004, revenue collection stood at Rs11.52 billion against the target of Rs11.20 billion; Since 1999-2000, the recoveries had improved from Rs20 to Rs42 billion and subsidy from the federal government, which stood at Rs17 billion in 1999-00, was pulled down to Rs9.5 million by "improving revenue receipts during 2003-04" and that efforts were afoot to further reduce subsidy to Rs6.8 billion during the current financial year. Power generation capacity of KESC was enhanced by 113 per cent, but the corporation is still looking at a shortfall of about 600 megawatt of electricity in the ongoing year.

For the year ended June 30, 2004, the financial figures announced by KESC on October 29, the corporation posted a profit after tax of Rs1.086 billion, which compared with a loss of Rs8.311 billion suffered the previous year. The accounts did show a 13 per cent increase in revenue from energy sales amounting to Rs36.544 billion, from a year ago revenue at Rs32.279 billion. Operating losses could also be trimmed down by 39 per cent to Rs7.200 billion from Rs11.755 billion. But among two other items that made some difference was the increase of Rs1.6 billion in subsidy from the government, which stood at Rs9.6 billion for 2004 compared with Rs8 billion the year ago. Financial charges were also reduced by Rs1.2 billion to Rs621 million from Rs1.9 billion in 2003.

At the close of financial year 2004, KESC still carried on its balance sheet, the debris of past deficit in the sum of Rs16.5 billion. Investors can not surely visualise a dividend in the near future. And the corporation may find it more difficult to remunerate the increased capital unless profitability takes a big leap forward. By December 2, when the AGM is scheduled to be held, the board of directors should be able to tell the shareholders whether the Privatization plan is on track or if the PC is still out there in the dark, peering for a buyer.