04 February 2005	Friday	24 Zilhaj 1425

KARACHI, Feb 3: The only electric generator and the distributor in the mega city, the Karachi Electric Supply Corporation (KESC) is being put on auction bloc on Friday by the Privatization Commission at Islamabad amid the threat of employees to completely shut off the power generation and supply on Friday.

Participating in the auction on Friday are two contenders, a Saudi investors group Kandooz al Watan and an all Pakistan investors consortium Hassan Associates who are bidding for the acquisition of 51 to 73 per cent of the KESC shares.

Media reports suggest the setting of a reference price of Rs1.30 per KESC share said to have been decided in a meeting of the cabinet committee of the privatization held on December 30, 2004 with Prime Minister Shaukat Aziz in the chair.

The KESC privatization is said to be a very difficult transaction as the corporation suffered huge losses and carried over Rs82 billion debts in last many years. The government loans have been converted into equity. On January 13 the Securities and Exchange Commission of Pakistan approved conversion of Rs15.28 billion loan into government's equity shares in the KESC.

The government will continue to retain 26 per cent shares of the privatized KESC to remain in the Board of directors and oversee the management and functions of the utility. It is expected that 10 per cent shares may be offered to the employees at the price on which the successful investor has bid.

The Asian Development Bank has indicated acquisition of 6 to 7 per cent shares and hinted at participating in the future investment for up-gradation of the system. The privatization of the KESC has triggered off a chain reaction in the city.

The employees of the KESC are against the privatization and have been joined by political leaders and pressure groups. Rallies have been taken out and protests meetings have been held. An All Parties Committee has been formed to continue agitation. The employees fear retrenchment and a rise in power tariff after the privatization.

One of the two bidders has made it clear that there is no plan of retrenchment after the privatization. In fact the privatization of the KESC would necessitate expansion and up-gradation and expansion in the system which would open opportunities for many new jobs.

The people in Karachi have fond memories of the KESC which started operations since 1913 as a private company. The utility served well and efficiently the citizens when Karachi was a small sleepy port town of hardly one lakh population.

After 1947 when its population went up and touched half a million figures in just a few years there were hardly any power breakdown or fault in the cables. The KESC paid dividends regularly to its share holders and its employees were well looked after.

The process reversed for worse during the decade of eighties when Wapda started interfering and Kunda culture set in. Since then there is no halt in the deterioration and eventually the KESC has to be offered to investors as a stock which has to be got rid off.

Khaleeq Kiani adds from Islamabad: The government is expecting to secure Rs6 billion funding through the transaction to turn around the KESC. "The transaction structure involves the sale of between 51 and 73 per cent of the ordinary shares in KESC, with an innovative rights issue of cumulative, redeemable, preference shares to secure Rs6 billion additional funding to support the continued turn around at KESC", an official statement said.

Federal Minister for Privatization and Investment Dr Abdul Hafeez Sheikh will supervise the bidding. Informed sources said the financial adviser - Price Water House Cooper's - had originally recommended reference price for the KESC between Rs0.87 to Rs1.30 per share under three situations but the privatisation board proposed it at Rs1.88 per share.

However, the financial advisor later revised its price range between Rs1.20 and Rs1.30 per share. The cabinet committee on privatisation (CCOP) had directed the privatisation commission to provide necessary comfort for a successful privatisation effort.

The investors have been told by the government that Nepra would continue playing its due role in tariff determination for consumers' protection even after the privatization of the entity.

The purchaser would be barred from disposing of directly or indirectly the 51 percent strategic equity in full or part until the third anniversary of the closing date, sources added.

In case, 73 percent shares are purchased by the strategic investors, the purchaser cannot sell directly or indirectly the non- strategic equity exceeding 51 percent (in full or part) until the first anniversary of the closing date.

The CCOP has also approved in principle that the purchaser would be bound to increase salary of contract employees by 20 per cent with effect from the closing date on a one time basis and the decision to this effect would be announced not later than three months from the closing date.

The bidding will take place in accordance with the approved and agreed instructions to the bidders. The attorney or authorized representative of each qualified bidder will drop sealed bids in the bid box, which will be opened immediately in the presence of media persons.

The results of the bidding of KESC will be placed before the PC Board meeting the same afternoon for its recommendations for the approval of the CCoP. The consortium led by Hasan Associates (Private) Limited, includes AKD Securities & Safe Deposit Company Limited, Marine Services Group Company Premier Mercantile Services (Pvt) Ltd. (from Pakistan), Independent Power Corporation of UK, GE International Operations, ABB (Pvt) Ltd; and Trans-Africa Projects of South Africa.

The second consortium led by Kanooz Al Watan for Project of Saudi Arabia and also comprised Siemens. The two groups have submitted the earnest money of Rs100 million each.