ISLAMABAD: The government is considering unbundling K-Electric into separate generation, transmission and distribution companies instead of transferring it as a single entity to some other large foreign firm.
The new policy consideration has officially come to the fore after recent spar between Karachi-based trade bodies led by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and K-Electric over reported poor power supply in the country’s largest city.
Special Assistant to the Prime Minister (SAPM) on Power & Petroleum Tabish Gauhar has confirmed in writing that the government supported recommendation of various industrial associations to “unbundle KE into separate generation, transmission, and more than one distribution company as opposed to handing over its management to yet another single buyer of an integrated utility company”.
PM’s aide terms privatisation of integrated, monopolised power provider to Karachi a ‘policy mistake’
This meant “an unbundled KE should be managed by a different set of private entities going forward to avoid monopoly control and single point of management failure or success”, wrote the PM’s aide in a letter to FPCCI president Mian Nasser Hayat Maggo.
He said he had been asked by the PM Office to respond to the proposal.
Mr Gauhar also shared the contents of his letter with the prime minister, besides members of the cabinet committee on privatisation including ministers for finance, energy and privatisation as well as Nepra chairman.
He recalled in the hindsight that privatising an integrated and monopoly provider of an essential service of electricity to more than 20 million people was a ‘policy mistake’.
This may attract reaction from KE’s foreign investors particularly a Saudi business tycoon who in recent months had met PM Imran Khan and the other stakeholders seeking support for smooth transfer of KE’s over 66pc shares to Shanghai Electric Limited of China.
Mr Gauhar said the government believed that prior to unbundling, the overall cost of electricity for KE and, therefore, the implied subsidy burden on the government of Pakistan should be reduced by “integrating its own generating units and its IPPs into the national network on the basis of economic order dispatch”.
This may also help absorb the excess and relatively cheaper power available in the national grid/pool for the benefit of the entire power sector with lower circular debt, consumers of Pakistan with lower tariff and reduce the need for KE to set up additional, more expensive, power plants on its own and create space on its balance sheet to finance the augmentation of its transmission and distribution network.
Mr Gauhar said the PTI government had already started working in that direction by increasing power supply to Karachi from the national grid from 650MW to up to 2000MW, subject to signing a commercial-based Power Purchase Agreement that is still pending.
The PM’s aide said the government also had to provide choice of retail supply to all of KE’s end-consumers once its exclusivity and monopoly expired in 2023, as in other distribution companies, in line with the government’s power liberalisation policy.
Interestingly, the Economic Coordination Committee (ECC) of the cabinet on May 21 approved de-linking past payables and receivables of KE for settlement through arbitration and its additional future power supplies from national grid with fresh payment mechanism.
The ECC had directed expeditious signing of new PPA for smooth payment mechanism and uninterrupted power supply to Karachi and approved “settlement of issues out of past transactions through arbitration”. The new PPA has not yet materialised though Energy Minister Hammad Azhar had said the new PPA would be signed with K-Electric soon.
Earlier on Tuesday, FPCCI president Nasser Hyatt Maggo in a letter written to the prime minister sought his intervention to postpone the proposed sale of KE shares by its current owners. Mr Maggo had contended that in KE’s current monopoly structure, “it will have disastrous consequences for the industry of Karachi, Hub, and Dhabeji”.
The FPCCI reminded the premier that the current power monopoly had already cost the national exchequer hundreds of billions and would continue to do so if corrective decisions were not taken before its impending change of ownership. It said the Karachi Electric Supply Company (KESC) was privatised in the hope that it would bring efficiency in the system and result in lower tariffs for the citizens and industry of Karachi, Hub and Dhabeji — the area licensed to the KESC.
However, the major flaw in the privatisation at the time was giving it monopoly over power generation, transmission and distribution with exclusive licences. Subsequently, the KE continued with inefficient generation plants and higher losses in distribution, whereas for K-Electric consumers Nepra-determined tariffs were higher than the five Discos (of Lahore, Gujranwala, Faisalabad, Multan and Islamabad) in Punjab.
The KE continued to report transmission and distribution losses at 19.5pc although it was bound to reduce the losses to 15pc by 2015 as a condition for privatisation in 2005. The losses of Discos in Punjab ranged between 8.89pc and 15.73pc, Mr Maggo added.
While the KE defended its position arguing that the FPCCI claims were merely myths, as the utility had reduced losses significantly higher than any other Disco and losses of some other Discos were higher that KE’s, it declined to comment on the stance of Mr Gauhar, the PM’s aide and former chief executive officer of the KE.
Published in Dawn, May 31st, 2021