Fresh out of a bruising round of the blame game following the heatwave deaths, the management of K-Electric finds itself in the middle of another searing series of accusations of negligence and mismanagement.
The latest accusations came in the wake of four major power breakdowns in the past week alone, plunging large portions of the metropolis into darkness for many hours at a stretch. MQM chief Altaf Hussain threatened that angry mobs could storm K-Electric offices, while Sindh Information Minister Sharjeel Inam Memon accused the management of “criminal negligence” and threatened that arrest warrants could be issued against them.
Meanwhile, the power sector regulator, Nepra, is set to release its full inquiry report into the large-scale power outages that afflicted the metropolis during the sizzling heatwave at the start of July. That report is expected to be released some time this week.
In preliminary findings from that inquiry, Nepra said failure to upgrade the transmission system resulted in the power outages during the heatwave, when demand surged and power generation was ramped up but the ageing transmission system could not handle the additional load.
The drawn-out controversies couldn’t come at a worse time for the beleaguered utility. Its Dubai-based sponsors are actively looking for a strategic buyer for their shares for their much anticipated exit from their investment. In February, it kicked off its exit strategy by divesting 2.8pc of its shareholding on the Karachi Stock Exchange, effectively doubling the company’s free float. Two Gulf-based investors still hold the majority shares in the company, which they plan to reduce to 26pc following the exit.
In March, board chairman and past CEO of K-Electric Tabish Gauhar said in an interview to the Times of Oman that the sponsors plan to exit their investment by the end of 2016 and were in talks with five potential investors from East Asia and the Middle East.
It’s not clear how much impact the recent difficulties will have on those plans. What is clear though is that they have given rise to an impression that the “turnaround” in the company’s financial and operational health that the management loves to flaunt is only skin-deep.
Earlier, the company battled a damaging news leak that it was engaging in over-billing to inflate its recoveries, and more sinister allegations of gas theft have also been made.
The view that the “turnaround” is not all that it is made it out to be is gaining currency amongst the city’s power consumers, but it remains to be seen if it will be shared by any prospective investor.
Abdul Khaliq Mirza, the company’s franchisee in one area of the very high loss Orangi Town, says some investments in upgrading the distribution system have been made in his area, though overall investments “have not been as much as we would like to have seen”.
The company resorted to the practice of increased loadshedding in areas where there are low recoveries, a strategy that helped bring transmission and distribution losses down from 32pc at the start of the present management’s tenure to 23.4pc today. But Nepra alleges in its report that one consequence of the strategy has been that most capital expenditure for system improvement also went to high recovery areas, leaving the poorer neighbourhoods more vulnerable to outages during the heatwave.
K-Electric produced an explanation for the power outages during the heatwave, citing the unusual surge in demand was something the system was not built to handle. But the four widespread breakdowns within a week have left the otherwise suave management flustered and looking for a coherent response.
“It has been a combination of three separate factors,” says KE CEO Tayyab Tareen. “Very high humidity in the latest blackouts, the southern part of the country having to perform in island mode due to a bifurcation of the national transmission system following a sandstorm in Guddu in an earlier one, and some faults with the circuit breakers”.
The explanations being offered for each successive blackout leave many unsatisfied. The ministry of water and power is using the difficulties of the country’s only private owned and operated power utility to drive home its own point.
A highly placed source in the ministry, who did not wish to speak for attribution, said the KE system was “deficient in system protection”. Similar blackouts had hit the national grid on at least two occasions earlier this year, following which two senior officials were suspended.
“We have been working on our system protection since [those] trippings early this year,” says the ministry official, adding that KE did “not join us in this”.
“Any fluctuation gets them into trouble”.
For his part, Tareen says the seven-year long track record of the management should not be reduced to the happenings of the past few days only. He lists the investments made in the utility since his team took over back in 2008. More than $1.2 billion has been invested in the system, he claims, of which $550mn was sponsor equity and the rest in debt.
“Look at our balance sheets,” says Tareen. “Everything is being converted into assets. Not a rupee has been taken out of the company by the shareholders, everything has been ploughed back into it. That is our strategy; value creation is the key to making money in private equity.”
The firm’s auditors confirm management’s figures stating that Rs77.7 billion has been spent on capital expenditure in power generation, Rs11.7bn in transmission assets and Rs15.6bn in distribution assets, but add that their procedures to verify these claims “do not constitute an audit or a review” in accordance with international accounting standards.
They’re simply a double check on figures provided by the management.
The company reported its first net profit of Rs2.6 billion in 2012. In the latest period from July to March, the company reported net profit of Rs16.3 billion.
Published in Dawn ,July 14th, 2015