KARACHI, Feb 9: The top officials of the Karachi Electric Supply Corporation and the proponents of the privatization of the power utility are on a collision course.

Well-placed sources told Dawn here on Thursday that the top brass of the KESC management questions the wisdom of privatizing the power utility after pumping a lot of money into it. They added that eyebrows were raised when the chairman of the Water and Power Development Authority, Lt-Gen Zulfiqar Ali Khan, recently poured scorn on the government policy of converting KESC debt to the tune of Rs80 billion into equity, contending that with such drastic remedial measures even the government could effect a turn-around in the power utility.

Talking to reporters in the city recently, the Wapda chairman minced no words in saying that after such a heavy government investment in the KESC aimed at wiping out the losses, the power utility would have become so profitable that there would be little sense in its sell-off. He, however, stopped short of excoriating the finance managers of the country who maintain that the privatization of utilities is the panacea for all economic ills that afflict the country.

Sources in the PriceWaterhouseCoopers, a financial adviser engaged jointly by the privatization commission and the Asian Development Bank, said the arguments put forward by the Wapda chairman did not stand up to close scrutiny. “The debt-equity swap, which is a glorified term for conversion of debt into equity, is aimed at merely restructuring the books. Besides, we will ask the strategic investor to invest heavily in the KESC before expecting it to yield a high rate of return. Without privatization, where will this investment come from?”

The minister for privatization, Saleem Altaf, recently told Dawn that $400 million would be required to effect a turnaround in the KESC. He admitted that the government did not have the required amount of money to spare. “We are looking for an investor who can pump such a huge amount of money into it and turn it into a profitable organization.”

The PWC sources told Dawn that, at present, the financial adviser was doing “soft marketing” — a process in which expressions of interest are not formally invited but potential buyers are sounded out. They added that while the Sept 11 terrorist attacks in the United States had dealt a severe blow to the privatization process in the country, things are returning to normality and it was expected that the KESC would be up for its sell-off in March.

The sources added that a report prepared by the PWC recommended three measures: conversion of debt into equity; reduction in regulatory uncertainty, especially with respect to tariffs; and assurance to buyers on the payment of government bills.

Analysts, however, insist that if the KESC is “unbundled” before its privatization, it may be better for the country. “The generation system of the KESC has been much more efficient than its transmission and distribution network. The government will do well to retain the generation system and privatize the transmission and distribution system.”