ISLAMABAD, Aug 22: The second highest bidder of Karachi Electric Supply Corporation — Hassan Associates — has agreed to match the highest bid of Rs15.86 billion to take over 73 per cent shares along with management of the utility.

Minister for Privatization and Investment Dr Abdul Hafeez Sheikh told reporters here on Monday that the group had informally agreed to match the highest bid and formalities would be finalized soon.

He also said the Etisalat of UAE would submit on September 7, 2005 the remaining 75 per cent bid money to take over 26 per cent shares and management control of Pakistan Telecommunication Company Limited (PTCL). He said the sale process of Pakistan State Oil (PSO) would be completed within the current year.

A consortium led by Kanooz Al Watan for Projects of Saudi Arabia had offered the highest bid of Rs1.65 per share or Rs15.85974 billion for 73 per cent ordinary shares of Karachi Electric Supply Corporation (KESC) in February this year but later on backed out.

The Privatization Commission had later contacted the Hassan Associates to match the highest bid and take over the management of the KESC.

The Privatization Commission had worked out the total bid price at Rs20.24bn for 73 per cent shares because the new buyer was required to inject another Rs4.3bn as preference share price.

The government had injected through debt equity swaps Rs98 billion into the power utility in the last five years. The utility should have been privatized by end of 1999 under the original schedule but adverse market conditions delayed it for more than five years.

The company has been running at Rs12 billion operational losses every year but how much its cheap energy or low billing contributed positively to the national GDP is not known.

The real challenge for the new buyer will be to ensure uninterrupted power supply to Karachiites who have become accustomed to long shut downs particularly in summer. The KESC’s 1,800-mw installed capacity — mostly thermal based — has de-rated to about 1,200-mw at present.

The capabilities of Hassan Associates — a local group would come to real test in regaining the de-rated 600-mw capacity and expand further to meet overall shortfall of about 1,200-mw of power in Karachi.

Under the privatization plan, permanent KESC employees would be allowed to purchase 10 per cent shares and another 6.7 per cent shares to the Asian Development Bank out of the 73 per cent shares of the new investor at the same rate of Rs1.65 per share if they so desire. The government will continue holding 26 per cent shares and with this ratio its members on the KESC board of directors.

Hassan Associates had offered Rs1.01 per share or Rs9.7081bn for 73 per cent ordinary shares in the bidding held in February.

Our Staff Reporter from Karachi adds: regularization of jobs of about 10,000 contract labourers of the KESC by federal minister of power and water Liaquat Jatoi is bound to emerge as a big problem for the new management that will take over the utility.

Questions are being raised on the timing of the announcement of the federal minister to regularise the jobs of contract workers which will virtually double the number of workforce of the utility and raise the financial liability for the new owner. One of the bid conditions is that no new financial liability will be created after the utility has been put on the auction bloc.

The Cabinet Committee on Privatization (CCoP), headed by Prime Minister Shaukat Aziz, is expected to meet soon -— tentatively in next two weeks -— to take up Hassan Associates offer.

Financial losses of the KESC in nine months of 2004-05 have increased to Rs6.75 billion from about Rs5 billion in nine months of 03-04. The transmission losses of the KESC have been put at 34 per cent. The generation capacity of the KESC system showed a decline over 254,000 units. The fuel cost is up by more than Rs2.32 billion.

With no respite in the international oil price, the operational cost of the KESC coupled with rise in wage bill is bound to emerge as a big challenge to the new group of investors.