Karachi Electric Supply Corporation (KESC) has filed a petition with National Electric Power Regulatory Authority (NEPRA) for 16pc increase in average sale rate, effective 1st July 2002.

The request is part of a larger package demanding fixation of multi-year tariff for ten years until 2012. NEPRA has in turn asked interested/affected persons and parties through an advertisement in the newspapers of June 04 and 05, 2002 to file a reply within 15 days.

KESC has demanded “an immediate tariff increase of 16% to enable KESC to meet its cash requirements, including the payment of fuel and power suppliers to secure adequate fuel supply, and to provide an adequate base tariff for the application of the formula for future tariff revisions.”

A longer term tariff, spread over ten years period, is claimed to represent a design to facilitate the financing of continued operations, including the necessary capital expenditure required to rehabilitate the distribution network and other assets of the company. “This will also ensure availability and reliability of supply and improve customer service.”

The proposed increase, it is promised, will bring significant benefits to the economy of Karachi and to the people of the city. The proposed tariff increase of 16% for the year 2002-03 will raise the price from 430 (Ps/kwh) to 498.8 (Ps/kwh).

Category wise tariff for domestic will increase from 318 paisas to 373 and for commercial from 705 paisas to 805, public lighting from 657 paisas to 737. That the rates are insane is beside the point. The usual complaint that the Corporation makes is the ever rising price of fuel, although the element of fuel cost is less than 50%; and yet the entire increase in fuel prices is being applied to all the other components including transmission, distribution and generation.

Going by the figures attached with the petition, one has to be very brave to accept KESC’s promise to ensure ‘availability and reliability as well as improved customer service.’ The recent three years do not offer much scope for optimism.

According to Einstein, it is sheer insanity to keep trying the same experiment over and over again in the expectation of a different outcome. The Corporation has sunken so low with its share price at negative Rs37 that no amount of raise can uplift it from its morass.

In financial terms, its loss before tax increased from Rs. 7.5 billion (1999) to Rs. 16 billion in 2001. Transmission and distribution losses increased from 38.6% (1999) to 40.2% (2000), declined briefly to 36.8% (2001) and going by nine months of 2001-02, ending March 31, jumped back again to 39.8%.

Unrelentingly high level energy losses of around 40% reflect on poor management and translate into an extremely pitiable financial performance of the company. Each point of loss, a euphemism for theft, and inconceivable without connivance, translates into Rs.520m according to President, The Institution of Electrical and Electronics Engineers Pakistan (IEEE).

This means a total loss of Rs.31b, roughly equal to its collection of Rs.28b during a year. And yet without regard to consequences, KESC has not tried to control the expenditure which to quote IEEE again, is of the order of Rs.47.6b per annum.

The attitude of the management is predicated on a tried and tested premise that the taxpayer will periodically bail it out and the GOP is doing precisely that. There are no surprises in the package or the petition.

It is a pack of promises to continue its new initiatives with the help of monitoring teams, aggressive loss reduction plans, elaborate strategies, profound tactics and efficient tasking of the personnel. The corporation has rued the fact that tariff increases have not matched fuel price increases. As if with the suggested increase the corporation will stop sinking and come afloat.

It has also blamed NEPRA for not agreeing to all its proposals. Even if NEPRA were abolished or were subordinated to the KESC, the promised outcome will appear far from realization. Obviously promises present no substitute to bridge the gap. KESC requires 56% increase according to IEEE to break even during 2002-03.

One should not be unmindful of the fact, that any increase in tariff, howsoever small, will push the remaining honest consumers to the wall and to the lineman. The incompetence and corruption of the management cannot be cured with tariff increases. The remedy has to be apposite to the malady.

One big advantage that last civilian MD saw in the transfer of KESC’s control to WAPDA was an uninterrupted supply of electricity, which used to be denied for want of payment by one bankrupt organization to another. WAPDA has since stopped insisting on this minor detail; and has been providing uninterrupted supply of power.

KESC used to be a reasonably functioning organization, until such time that its control passed on to WAPDA in early 80s. Its line losses started climbing and have never climbed back down.

The novel element forming part of the petition is a ten-year plan implying that the same management, horrors of horrors, will continue to be in place armed with its usual determination to take forward its excellent performance of the past.

According to the perspective plan spread over ten years, average tariff (Ps/kwh) will increase from 527 (FY03) to 705 (FY12). Energy losses will decrease from 37% to 19% (a miracle never likely to happen, going by the track record) and profit before tax will change from a loss of Rs. 5.0 billion to Rs. 11.0 billion. An empty bluster that. That also means the oft repeated commitment of Government of Pakistan to privatize this sunken organization goes overboard.

Some disturbing trends do not portend well. The perspective plan of the KESC is based on the following assumptions, which belie its tall claims:-

(a) Installed capacity instead of increasing will decrease from 1756 MW to 1565 MW in 2012. IPPs will continue to contribute precisely the same quantity over all these years, i.e. 252 MW, a technical absurdity. WAPDA’s contribution will increase more than three fold from 450 MW to 1500 MW. This is assumed to be based on deferred payment and deferral being indeterminate. Available capacity, which in the advanced countries is usually the same as the installed capacity, will decrease 24.43% from 1327 MW to 1254 MW in 2012. IPPs will provide available power at the same level of 227 MW throughout the decade, albeit at 9.92% less as compared to 24.43% for its own plants. WAPDA’s available capacity for KESC has been assumed to be just about the same as its installed capacity.

(b) Demand has been forecast to increase from 6843 GWH to 13585, by 98.5%.Whether KESC will still be around so long is another matter; and if it is, whether its crumbled infrastructure permit it to supply the power according to demand.

All methods of state control having been tried in the past have failed. Repeating the experiment will be insanity. Governance failure will continue to impact on efficiency and honesty.

The only option is its immediate privatization irrespective of the price. But infusing $350 before its privatization will amount to a rip off of the voiceless taxpayer. It is high time that the gravity of the consequences of KESC’s collapse is realized and it is handed over to efficient private management.

Tariff raise offers no solution at all without structural defects having been addressed first. And it is here that NEPRA’s role becomes paramount. It must assert its independence and demand of the KESC to address the management issues first before proposing a tariff raise.

A raise at this stage will be a counterproductive strategy and will only increase theft ,losses as the management would like to characterize it.