KARACHI, Jan 12: Two bidders, a Saudi sponsored group Kanooz and an all Pakistan investors group Hasan Associates, are participating in an open bid for acquisition of 73 per cent of the Karachi Electric Supply Corporation (KESC) shares on February 4 at Islamabad, well-placed and reliable sources informed Dawn on Wednesday.
The much awaited bidding for the KESC is taking place after a long delay and amidst strong protests and rallies by the employees who are now being supported by many trade unions and political groups of the city.
The government is retaining 25 per cent shareholding in the KESC out of which it is expected to offer 10 per cent to the employees. The government will have representation with three directors on the board provided it retains 25 per cent shares. But the government has expressed intention of staying aloof from participation in day-to-day management affairs. The Asian Development Bank is willing to acquire 7.5 per cent shares in the corporation.
The International Finance Corporation (IFC), the private sector investment arm of the World Bank, has also indicated that it would too willing to finance KESC investors after the privatization.
The Price Water house Cooper in its information memorandum for the prospective bidders had indicated an upfront investment of $150 million and a total investment over $1 billion. The upfront investment was to be in the form of a subordinated loan which could be converted into equity shares.
The federal government has committed to invest Rs13 billion in the up gradation of the transmission and distribution system. The government has already invested Rs2 billion and Rs11 billion will be invested in years to come. All this investment is a grant and will help the successful bidder of the KESC to cut down on technical losses.
The transmission losses of KESC are estimated at around 40 per cent which are not coming down despite army's total control since 1999. A campaign in the year 2000 to check illegal power connections and power theft detected a flour mill involved in meter tampering.
The owners of the flour mill were left off after it was found that they were close relatives of a retired corps commander. Enjoying a monopoly in the supply of electricity to about 1.8 million domestic, industrial, commercial and agricultural consumers spread over a franchise area of 6,000 square kilometres that has a population of about 15 million, the KESC was established way back in 1913 as a private company and remained a financially sound, profitable and efficient company till the decade of eighties when it was slow poisoned to death by Wapda and federal government control.
Own generation by captive power plants operated by industrial, commercial and other users is permitted, provided electricity is not delivered directly or sold to the users. KESC gets substantial quantity of electricity from a few private plants and about 500 megawatt from Wapda.
The KESC owns six generating stations of which four are operational. The largest power generating station is at Bin Qasim which was commissioned between 1983 and 1997. Other plants were commissioned between 1965 and 1980.
Total installed power generation capacity of the KESC system is around 1,900 megawatt but hardly 1,200 megawatt is being generated. As against this, the demand is over 2,200 megawatt.
The demand fluctuates in winter and summer. The KESC is purchasing power from Karachi Nuclear Power Plant (Kanupp), Pakistan Steel and three private power operators. Total demand of power in the city is expected to go beyond 4,500 megawatt in next five years provided the industrial and commercial activities pick up in the city.
Total liabilities of the KESC -- over Rs82 billion -- have already been reduced by way of debt-equity swap in the year 2002. First Rs17.8 billion liabilities were converted into equity in February 2002 and then Rs65 billion in July 2002.
Also in July 2002 the government agreed to fund for the settlement of Rs5.7 billion due to Wapda out of Rs6.7 billion. The settlement deal also includes KESC recognizing Rs2.3 billion of interest to Wapda.
As against these liabilities, the book value of the KESC assets was over Rs49 billion in late 2002. At present the KESC is also under pressure from suspension of gas supply and its operational cost is rising because of increasing dependence on the furnace oil.