KARACHI, May 22: While there has been no let-up in power outages and load-shedding in the city, sources in the Karachi Electric Supply Corporation have held Siemens responsible for aggravating the power crisis and accused it of not fulfilling its obligations under the six-year operation and management agreement it signed with the privatized management of the utility in November 2005.

The agreement was signed following the share purchase agreement which the Privatization Commission had finalized with the KES Power Ltd, Hasan Associates (Pvt) Ltd and Premier Mercantile Services (Pvt) Ltd.

The sources claim that Siemens had no track-record of operating electricity generation and distribution networks and had not proved its “Prudent Utility Practice” capability that envisaged those standard practices, methods and procedures conforming to safety requirements which are expected from a skilled and experienced international operator of an electricity distribution system.

However, the KESC’s power generation over the last one and half years has saturated and its distribution system collapsed despite a Siemens action plan for cost-efficient generation of a maximized number of units and transmission system reliability.

Line losses have increased and complaints about the metering system have been on the rise. There has been no sign of a pragmatic action plan for enhancing the KESC’s generation capacity.

On the other hand, under Siemens’s advice the 11KV distribution system was reduced to 10KV, putting more pressure on the system and causing damage to electrical appliances of the KESC consumers. Due to this reduction, consumers are not getting 220 volts, which is damaging their appliances.

Under the agreement, a copy of which has been obtained by Dawn, Siemens will at “all times employ at least eight full-time expatriate specialists and 15 full-time local specialists in operation services to provide services in such a manner to make the company profitable within the first two years”.

The sources say Siemens would remain beneficiary if the agreement was terminated after November this year, as envisaged in Clause 7.4 of the agreement. Under the Clause 8.3, if the agreement is terminated by the KESC in terms of Clause 7.4, it “shall pay compensation to Siemens for each year of the remaining term of the agreement in an amount which is equal in aggregate to the lower of 16 million dollars or 65 per cent of the fixed fee for the remaining term of agreement”.

That the agreement was designed to be advantageous to Siemens rather than to the KESC was evident from the fact that the KESC has acknowledged that Siemens has structured the Services Fee in a manner that the German company can “only be fairly compensated if this agreement remains valid for its full-term”.

While there is growing pressure in the utility to put responsibility for the current power outage on Siemens, the sources in the KESC are wondering as to why the management is not proceeding against that company for the current power outages and declining generation which they say could be described as “losses resulting from grossly negligence acts, or grossly negligent omissions” under Clause 9.1 of the agreement.

The agreement says that the KESC is obliged to pay Service Fee to Siemens, which include a fixed fee payable on a quarterly basis in advance for every contract year while the variable fee is payable on a quarterly basis in arrears for every contract year.

According to Annexure-B, fixed fee for the first and second contract year is nine million dollars and eight million dollars respectively. For the third contract year onwards, it would be eight million dollars plus the rate of inflation, determined by the Consumer Price Index, as announced by the Federal Bureau of Statistics.

The variable fee is based on 1.5 per cent of energy sales, as mentioned in the immediately preceding audited annual accounts of the company for the revenue generated from sale of energy.

When contacted, a spokesman for Siemens Pakistan maintained that the company had helped in the KESC privatization in the ‘national interest’ and contracted for operational management responsibilities to assist the owners in the turnaround of the utility. He said Siemens had the mandate to suggest policies to bring KESC departments in line with international practices which it did. “Siemens is basically involved in four areas: generation, information technology, network and distribution and engineering,” he claimed.

He said “in these areas substantial improvements have been made like the complete refurbishment of Bin Qasim power station which has resulted in an additional production of 300MW that is equivalent to production of a new power station that could have cost US$300 million to the utility and the city”.

But, the sources said, the Bin Qasim power station is still not fully operational as one of its units has been under repairs.

The spokesman claimed that major work has also been accomplished in the areas of networking, distribution and engineering with revamping of the distribution system, change of transformers and new cabling.

“As per the agreement Siemens has defined the road map for much-needed improvements and as these are implemented the utility will improve and better serve the people of Karachi,” he said.

He claimed that Siemens Pakistan had established 18 grid stations and recently won additional prestigious contracts. This testifies to the competence of Siemens in the field and should put to rest speculation about Siemens inability to carry out work assigned to it by the KESC, he asserted.

Rejecting speculation that there are any differences between the KESC and Siemens management, he said it was “unfortunate that improvements in distribution and networking cannot be felt by the ordinary citizen due to the extraordinary load created by unexpectedly hot weather, increased industrial activity and influx of cheap air conditioners in the market”.