The government has done it again. The KESC has been sold to a real estate developer. Can Pakistan afford another such (mis)adventure which may prove more costly and socially more disastrous? Apparently, care and transparency were not exercised in sale of public assets.

In July this year, the PPP government went whole hog after the owners of the KESC threatening to re-nationalise the utility by invoking certain clauses of the privatisation deal. The KESC was told to either get its house in order or be ready to face action (re-nationalisation). These threats were given by the Federal Minister for Water and Power, Raja Pervaiz Ashraf.

The previous management has left but the questions remain unanswered regarding the terms and conditions on which the new owners have been inducted. Similar questions were raised when the previous owners took over the utility in December 2005. No one answered the questions then, nor anyone is ready to respond now.

What happened to the three-year ban on the sale of KESC to any new buyer? What has the government, which is supposed to save Karachi from darkness and keep economic lifeline of the country intact, has done to ensure that the past mistakes are not repeated?

The Privatisation Commission sold KESC in December 2005 to a consortium comprising Saudi-based Al-Jomiah and Hassan Associates and the Siemens providing technical support. None of them had any previous experience in running a public utility. Siemens is manufacturer of electrical gadgets. The consortium’s claims about the turnaround in KESC proved to be a hoax.

The new buyer, “Al-Abraj,” according to its internet profile, is a land development company based in the UAE, again with no previous experience in running a power utility.

Can an investment company succeed, where one such investor has just failed? Can it be trusted once again? If it can be, as the PPP government seems to believe, on what basis?

To begin with, 73 per cent shares of the KESC were sold at a rate of Rs1.65 per share – at a total cost of Rs15.86 billion – along with management to the previous buyer.

Under the so-called financial improvement plan, the government promised to invest Rs14 billion in next five years, bringing the de facto price down to a mere Rs1.86 billion. As an additional favour, the government reduced face value of KESC shares and total paid capital cost from Rs131 billion to a paltry Rs62 billion.

The government also wrote off Rs92 billion debts to the KESC before handing it over to the new buyer, and a dowry of Rs22 billion receivables from Karachites were given to the new owners – a cumulative loss or accommodation of Rs114 billion on this head alone.

Within weeks, the new owners sold 22 per cent shares to Kuwait Fund at a rate of Rs4.65 per share, thus recovering their own investment in one go. Then what happened to three-year ban on its sale?

Though the government did not make the “covenants of sale” public, the new CEO of the company, however, shed some light on them in his press conference. He pledged to invest $800 million to improve generation, transmission and distribution of the company in next three months (by February 2006).

When the power supply situation deteriorated in next few months, the government immediately transferred Rs14 billion to the KESC instead of forcing it to make its part of investment. Interestingly, no external audit of the amount has been conducted so far and no one knows where and how judiciously the money was spent. In addition to these Rs14 billion, the government also paid Rs30 billion in subsidy till June last and the KESC currently owes Rs60 billion to Pakistan Electric Power Company. If one adds cost of industrial loss, which the Karachi Chamber of Commerce and Industry puts at Rs400 billion, the magnitude of disaster that was wreaked on financial health of the economy becomes evident.

The power failure has also forced the industry to invest $2billion on power generation of its own, hugely affecting the import bill and hiking fuel import bill by $600 million, as per the KCCI claims.

Instead of revisiting the entire privatisation process in the light of these huge damages, the PPP government seems to have chosen to complicate, rather than altering, the big picture. It never cared to make the sale and its terms and condition public, or re-nationalise the KESC or re-sell it through a credible process.

It also failed to attract credible and experienced buyer through a strict pre-qualification process. No one knows what the new owners are supposed to do and what would be the timeframe to bring improvement in service. The government has already paid a huge cost of “non-professional” management of the previous owners. It is not known if the government has ensured that the new owners are professionally competent enough to run the utility – improve generation, transmission, distribution and revenue collection.

Does the new purchase agreement include timeframe for such improvements and very stringent rules and regulations to achieve them? And what about a vigilant watchdog to ensure on-time implementation of agreed covenant? Moreover, does the new sale agreement include the condition that assets of the company would not be used for any purpose but for system augmentation?

All other terms and conditions should also be made public by the government to escape the allegations that it has been levelling against the previous government – cronyism, corruption and existence of a nexus between sellers and buyers.