KARACHI, Sept 27: Following the Karachi Electric Supply Corporation’s accusation that it’s Germany-based consultant Siemens caused substantial losses to the utility and sabotaged the SAP software used in managerial operations, the operations and management (O&M) agreement between the two parties may be terminated within a few days, long before the expiry of the 45-day notice period given by the foreign company, said KESC sources on Thursday.
The utility has also decided to offer its employees a substantial incentive package while the KESC’s annual deficit has touched Rs12 billion, Dawn has learnt.
On the condition of anonymity, sources told Dawn that the termination of the O&M contract “was only a matter of a day or two,” claiming that the blocking of the SAP software constituted sabotage since it controls the KESC employees’ payroll, vendors’ payments and various other outstanding dues. The KESC cites the blocking as one of the serious breaches committed by Siemens that caused substantial losses to the power utility.
Exchange of allegations
Siemens spokesperson Ziaul Islam Zuberi told Dawn that because the KESC committed breaches of contract, his company had blocked the SAP software. He claimed that the utility had not paid its dues – amounting to Rs3 billion – for the past two years and had poached Zahid Badshah, who left Siemens to join the KESC. Mr Zuberi accused the power company of subverting the SAP software, claiming that this constituted a breach of the O&M agreement and violated Siemens’ intellectual property rights. He maintained that his company had provided the KESC with the roadmap for improving its generation and distribution systems and had outlined the numbers of transformers and generation units required to meet future requirements.
However, the KESC maintains that the notices served by Siemens were an attempt to cover up its failure to rectify a fault the consultant had caused in the SAP software operation. The KESC had given the foreign company a timeframe of September 13 to 24 to rectify the fault and when the system was not operational on September 25, the utility terminated Siemens involvement in the SAP system and made alternative arrangements in order to minimise losses.
In recent months, Siemens has come under severe criticism over its failure, as the foreign consultant, to improve the system that led to the massive power breakdowns experienced this year. Consequently, the consultant firm was stripped of involvement in the billing and distribution system and left with merely the generation and transmission system. A governmental committee held the O&M contractors responsible for the city’s power crisis, criticising Siemens’ HR policies and its failure to invest in or develop the generation and distribution system.
Contract favours Siemens
Siemens signed the six-year O&M agreement with the privatised management of the KESC in November 2005, following a share-purchase agreement finalised by the Privatisation Commission with KESC Power Ltd, Hasan Associates (Pvt) Ltd and Premier Mercantile Services (Pvt.) Ltd. Under the agreement, Siemens would “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 as to make the company profitable within the first two years.”
According to KESC sources, Siemens will remain the beneficiary if the agreement is terminated after November this year, as envisaged in Clause 7.4 of the agreement. Under 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.”
The KESC acknowledges that the consultant structured the Services Fee in such a manner that Siemens can “only be fairly compensated if this agreement remains valid for its full-term”.
According to Annexure-B, the fixed fee for the first and second contract year is nine million 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 the energy sales, as mentioned in the audited annual accounts of the company for revenue generated from the sale of energy.
But, according to the Siemens spokesperson, the contract cannot be terminated so easily. “After all, we are signing another agreement on sub-stations in Islamabad on Friday,” he said.
Incentives for employees
The power utility’s annual deficit has reached a staggering Rs12 billion, around 70 per cent higher as compared to losses incurred during the last financial year. The main reason behind this is the fact that the KESC no longer has access to a government grant — in 2006, the utility was granted Rs7.576 billion by the government of Pakistan.
Meanwhile, the KESC Board of Directors has announced an incentive package for its employees since many skilled workers are leaving the utility. Separate salary scales for specialised and generalist jobs will come into effect from January 1, 2008. All employees (permanent and contract officers and staff) up to and including the position of deputy general manager shall be paid a special relief allowance calculated as 50 per cent of their basic salary as it stood on June 30, 2007. All employees in the positions of general managers or above will receive a special relief allowance at 40 per cent of their basic salary. However, employees hired on or after December 1, 2005, shall not be eligible for this allowance.
At a recent meeting of the KESC Board of Directors, the company’s financial status was deliberated upon but the incentive package’s impact on the utility’s funds was not elaborated upon.
Meanwhile, there has been no let-up in the power breakdowns and load-shedding in the city.
