KARACHI, Nov 16: The company that will own and run the privatized Karachi Electric and Supply Corporation (KESC) is registered in the tax-free haven of Cayman Islands in the Caribbean. The ownership is divided between the Riyadh-based Al-Jumaih group with 60 per cent shareholding and 40 per cent is with its subsidiary based in Cayman Islands. Hasan Associates and Premier Mercantile are also the shareholders of the company.

The transfer of ownership and management control of the monopoly utility will be formalized on November 30 in the annual general meeting of KESC shareholders that will also finalize the accounts for 2004-05. The ownership and management will be transferred to Karachi Electric Power Supply Company registered in Cayman Islands.

The Privatization Commission finalized the disinvestment deal of 73 per cent shares of KESC with Al-Jumaih investors group and Hasan Associates early this month after the federal cabinet gave its approval. At Rs1.65 a share, the deal involves a total payment of Rs20.24 billion. The group paid $100 million on Monday and is expected to pay the remaining $165 million by the end of this month.

A new German executive chief and a chief financial officer of the new owners are expected to take charge of their responsibilities in the first week of December. The proposed German chief executive of the privatized KESC is said to have experience of managing an electric utility in East Berlin. A new board of directors with three from the government and eight from the new owners is likely to be in place in December.

“The military officers will be withdrawn from KESC in the next three months during which the new owners/managers will acquire the full control of the utility,” KESC chief executive Brigadier Tariq Sadozai informed Dawn on Wednesday in his office.

Neither the Brigadier nor two directors on the KESC board are aware that the company that will henceforth run and manage the biggest monopoly utility in Pakistan is registered in the tax-free haven of Cayman Islands.

Mirza Ikhtiar Baig, Chairman of the SITE Association of Industry and a director on the KESC board, said it was the responsibility of the Privatization Commission to decide on the status of the company that has been given an approval for acquiring the ownership-management control of KESC.

“So long as the bidder is paying cash, it does not matter where the company is registered,” remarked Khalid Feroze, former president of the Karachi Chamber and Commerce and Industry and director on the KESC board.

The KESC chief executive expressed the satisfaction on his performance in the last four years during which he, with his team and staff, has claimed to have made a turnaround and added that if everything goes well, the utility should show a profit of Rs1.5 billion in 2006-07.

“We improved our recovery of bills to 98 per cent from 80 per cent, reduced transmission and distribution losses from 41 to 30 per cent, introduced check and balance systems in the operations and motivated staff to perform and respond to public complaints and punished those who were found incorrigible,” Mr Sadozai explained.

Every one per cent saved in T and D loss amounts to generation of Rs500 million resources, he said while stressing that more than Rs5.50 billion extra resources had been generated on this count alone. Power pilferage has been effectively curbed with the help of technology and administrative measures. The recovery of bills is 100 per cent in many areas of the city but is unsatisfactory in North Karachi, Orangi, Korangi and some other parts. As a consequence, the government subsidy to KESC for meeting cash shortfall has come down from Rs17 billion in 1999 to Rs3.5 billion in the current fiscal year, he added.

He explained that the government was giving a subsidy on tariff also because the impact of international oil price hike was not being passed on to the consumers under a policy.

In the last few years, KESC incurred Rs50 billion extra expenditures for the purchase of fuel. Against this, the government increased the tariff by Rs11 billion only, leaving a wide margin of Rs39 billion to be met by the subsidy.

During the last four months (July-October 2005), the government gave a subsidy of Rs1.7 billion because no raise in tariff is being allowed since October 2004 and oil prices remain high. The Brigadier says the government will continue to provide tariff subsidy to the private owners also if they decide to keep the tariff structure unchanged.

Also the Rs13 billion programme to improve transmission and distribution of electricity in the city will continue with the government support after the privatization. Under this programme, the government has given Rs2.5 billion and is providing guarantee to help KESC in acquiring Rs3 billion loans from banks.

The latest un-audited accounts for the first quarter (July-September 2005) show that KESC posts a profit of Rs766.40 million on the assumption that the government will provide a total subsidy of Rs5.29 billion in the entire fiscal year 2005-06.

Without this subsidy, KESC shows a loss of Rs4.53 billion in the first quarter as against Rs187.36 million it suffered in the same period last year. The main reason for this mounting loss has come from high cost of fuel -— gas and oil —- increased by almost 31 per cent or Rs3.32 billion to Rs13.69 billion in July-September 2005 from Rs10.49 billion in first quarter of 2004.

In his note on the un-audited accounts for the first quarter, the KESC chief executive has expressed the confidence in the improvement of financial position of the utility in the coming years. He hopes that KESC will turn into a profitable organization in 2006-07.