Chinese interest in K-Electric

Published August 31, 2016

NOW that the management of Karachi’s K-Electric has notified the stock exchange of its plans to divest its shares in the company, a whole host of questions arises.

This is going to be the fourth change of management that the utility has undergone since its privatisation more than a decade ago, and the third change of ownership.

The journey the utility has made along the way has been marked with severe crises and occasional confrontations with the management of Pepco and the water and power ministry, and drawn-out wrangling with the finance ministry, as well as with entities belonging to the Sindh government over the settlement of outstanding dues. It has been used as an example of the pitfalls of privatisation in the power sector on some occasions, and as an avatar of its promise on others.

The present management deserves credit for bringing the company into profitability after many years of accumulating losses, and investing in the upgrade of its infrastructure. But along the way, a few crucial lessons have also been learned which should play an important role in structuring the sale and the handing over of the enterprise whenever the time comes.

Chief amongst these lessons is the fact that being a monopoly power utility serving the country’s largest city, there is a strong and abiding public interest in how it is run. This goes far beyond the recovery-based load-shedding regime that the present management inaugurated a few years ago.

There is the matter of the power purchase agreement with the federal government, gas allocations, fuel adjustment surcharges and the roster of items to be considered as passed through in the tariff. In each case, strong public interest is touched upon and for this reason it is crucial that the transaction, if and when it occurs, be as transparent as possible with all opportunities to solicit stakeholder input.

The forthcoming determination of a multi-year tariff for K-Electric provides a good opportunity for this. Nepra should ensure that the hearing on the tariff is conducted in Karachi and advertised well in advance.

There is a tendency in Pakistan these days to view Chinese investors through a national security lens and see them as deserving of special treatment.

This perception should be meticulously kept away from any K-Electric deal, which is not part of CPEC, nor does it merit any special treatment. This is the time for the power regulator to step forward and do its job in safeguarding the public interest, through strong stakeholder input. The multi-year tariff is only part of this obligation.

We need to know more about the investment scheme of the new investor, should there be one, as well as the plans it has to reduce distribution losses, even as we ensure that it does not turn its back on the poorer neighbourhoods of the city.

Published in Dawn, August 31st, 2016

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