While speaking at the ceremony held on November 29, 2005 for transfer of the government’s 73 per cent KESC shares with management control to the consortium led by Al-Jomaih Holding Company of Saudi Arabia, the federal minister for privatisation said that the divestment would result in improving its efficiency and better service to the consumers.
Seventeen months later, the situation has not improved, instead it has worsened.. It is just the beginning of the summer season in Karachi and its 16-million residents are already suffering miserably due to long-hours of load-shedding and frequent power breakdowns. The activities related to economy, commerce, industry and civic life in Karachi have been badly hit as a result of power failures for 5-6 hours almost on a daily basis
As an interim arrangement, Water and Power Development Authority (Wapda) was asked last week to increase its electricity supply to the KESC from present 660 MW to 715 mw at peak hours, whereas Wapda is committed to supply 500 mw under normal conditions. Simultaneously, the KESC has been directed to expedite implementation of its capacity enhancement plan. But will these ad-hoc measures help solving the acute problem in the short term? What will be the shape of things to come in the months of June and July, when the weather will be extremely hot, is anybody’s guess. WAPDA would not be in a position to further increase its supply as the rest of the country also faces load-shedding, and on the other hand, KESC’s transmission and distribution system is not capable of taking any additional load.
There is no respite in sight and the city will remain in the grip of darkness in the years to come. The utility company spokesman said on April 18, 2007 that the load-shedding would continue not only during this whole summer but also until 2009. Earlier, the management repeatedly promised that there would be no load-shedding after October 2006 and then revising timeline to April 2007..
On takeover, KESC’s CEO Engineer Frank Scherschmidt, recently replaced by a retired Pakistani General, had promised to make Karachi the ‘city of lights’ again and the company much more customer-oriented . It was expected that the new management would be able to bring in better services through professional management, new investment, latest technology and employment benefits. The poor performance of the company is reflected in the fact that the current share of the KESC has gone down by over 40 per cent-to Rs6.85 from its 52 weeks’ high price at Rs11.55.
The strategic buyers, according to the Implementation Agreement (IA) signed with the Privatisation Commission (PC) on November 19, 2005, were committed to invest $500 million in the KESC over a period of three years in order to turn the company around, out of which $75 million were to be spent within the financial year 2005-06 for installing a power plant to be operative by summer 2007. The proposed total investment was to be made in rehabilitation and revamping of existing power generation facilities, enhancement of power generation capacity, improving transmission and distribution network, and modernising operational controls through installation of supervisory control and data acquisition) (SCADA) system.
The major factor causing the power crisis in the city is the lack of timely implementation of the short-term power generation enhancement plan, which was mandatory on the part of the new buyers. There has been no substantial investment so far. KESC is reported to have spent Rs2 billion on strengthening its transmission and distribution system only, whereas order has recently been placed for procuring SCADA . It may be added that the government provided to the KESC a subsidy or grant amounting to Rs7.57 billion during the year ended June 30,2006.
A time-bound action plan for increasing the generation capacity was unveiled by the new management, as late as in July 2006, specifically announcing that a new power plant of 750 MW capacity was being added, in the first phase, to the existing power generation system. Initially, the plant was to generate 400 MW by the first quarter of 2007, whereas the 750 MW-project was to go on stream by early 2008. No physical progress on the project however has been achieved .
It was only in January 2007 that the project to raise power generation and transmission capacity has been firmed up, seeking financial assistance from the International Finance Corporation (IFC), at a highly-inflated total cost of $935 million, the IFC financing being $ 125 million. It is planned to install two new gas-fired thermal power-generating plants on the KESC existing facilities, namely 575 MW at Bin Qasim and 220 MW at Korangi, without giving any timeframe. The other component of the project is up-gradation of transmission and distribution network.
However, the KESC has claimed last month that a 50- mw power plant would be operational by August this year. Even that happens, it shall have no significant impact on improving the situation as the current shortfall is around 200 MW The management has said again that work has started on a 220-MW power plant project, presumably the expansion of Korangi power station that would be operational next year.
Somehow the government could not monitor the progress on the fast-track project asking the foreign buyers to meet the erstwhile commitment of enhancing power generation capacity and it has not yet invoked the relevant clauses of the agreement to pressurise the new buyers to overcome the energy situation.
Interestingly, actual capability of the KESC power generation, which is half of its total supply, has meanwhile gone down---from 1,387 MW in June 2005 to 1,324 in June 2006 and about 1,200 MW at present, as Bin Qasim power station remains out of operation due to repairs since July 2006.
Another factor is that power demand in the city has not recently increased to the level of 7- 8 per cent per annum as generally perceived. In 2004-05, the optimum electricity demand in the KESC system was 2,197 mw that rose to 2,223 mw in 2005-06, registering an increase of just over one per cent only. Likewise, currently the power demand is estimated 2,220 MW, which is comparable to that of the last year.
It is obvious that the management worked out no contingency plan for the current summer. This reflects grossly on inadequate planning and lack of experience and expertise with the new management. The basic and foremost fault is that the utility company has been handed over to a group that had no previous experience of being in similar business. The foreign buyer under the name KES Power Ltd, a company incorporated in The Caymen Islands, is composed of 60 per cent shares by Al-Jomaih Holding Co and 40 per cent by National Industries Holding of Kuwait through its subsidiary Denham Investment Ltd created in 2005 specially for the purpose. Al-Jomaih is a private partnership company engaged in importing General Motors (GM) automobiles and Yokohama tyres etc, and operating a Pepsi Cola plant in Saudi Arabia, while National Industries are in the business of construction materials and real estate.
The group engaged Siemens of Germany as operations and maintenance (O&M) contractor to the KESC. As is well known, Siemens are only the manufacturers and suppliers of power generation equipment and have no activities or past experience as O&M contractor in the area to their credit in any country. The result is a bleak future for the consumers as well as for the utility company itself that has incurred operating loss of Rs14.4 billion in 2005-06.
At this juncture, one fails to understand as to how the group was pre-qualified by the PC to bid, in the first instance. Again, the government had the option to offload company’s shares in the range of 51-73 per cent, as per the terms of its divestment. The government however chose to transfer maximum shares of the KESC to the private sector. Currently, KES Power Ltd holds 71.5 per cent shares of the KESC, the government 25.9 per cent and the balance by local investors, including Hassan Associates one per cent and Premier Mercantile Services 0.5 per cent.
Another important factor causing electricity demand-supply imbalance is the refusal by the post-privatisation KESC to purchase electricity from the two gas-based independent power producer projects (IPP) planned to be located in Karachi that were originally scheduled to start operations by 2007. These are Tapal Group’s Western Electric Power and Fauji Foundation’s Fauji Korangi Power, each of 150 MW capacity, which are being relocated elsewhere in Sindh aiming to supply power to Wapda now. It suits the KESC well to continue to purchase electricity from Wapda, which is cheaper compared to the IPPs, and practically obtained on "long-term credit", thus fully exploiting the Karachi power situation to its advantage, particularly during peak load.
It was expected that on completion of HUBCO-KESC interconnection, comprising 500 kv and 220 kv transmission lines and 500-kv/220-kv switching station, the KESC would directly purchase electricity from Hub Power Company (HUBCO) of 1,250 mw installed capacity. Though the interconnection is complete, the KESC still prefers to purchase power through Wapda for obvious reasons. Currently, KESC owes a hefty sum of Rs19 billion to Wapda since its divestment (and another Rs5 billion to Sui Southern Gas Co Ltd), and there appears to be no possibility of KESC clearing its dues soon.
Over and above, the line losses due to theft and system inefficiency remain too high and could not be curtailed. The government is already financing a project for the KESC system improvement and reduction of transmission and distribution losses at a cost of Rs13.7 billion. On completion of the on-going project by June this year, it is envisaged that the line losses would be reduced by 10 per cent of total billing by end 2007.
Under the given conditions, industrial consumers have resorted to self-generation by installing captive power plants, with a cumulative capacity of 400 MW or so. Interrupted and unstable power supply in the city has also resulted in commercial and domestic consumers’ dependence on installation of generators, UPS systems, battery backups and emergency lights, rather in a big way.