As a die-hard Karachiite born and brought up in this resilient, diverse and fast-paced city, I remember the progressiveness, turmoil and uncertainty that Karachi has gone through over the last four decades. I also distinctly remember the decline of the city’s industrial potential, employment and incomes during the late nineties and vividly recall frustration with every sudden load-shedding spell underpinned by an off-the-hook helpline number, the worry about when power would be restored and the unwelcome realisation that a physical visit to a Karachi Electric Supply Corporation (KESC) office would have to be made in the hopes of restoring power.
Those who’ve lived through that era, can attest that KESC was unquestionably an underutilised strategic asset; years of neglect, underinvestment and incompetence had eroded its ability to serve customers. According to records, only 6 percent of the city was exempt from load-shedding at the time with most of the city experiencing between 6-9 hours of outages frequently during summer months; power theft and collection losses accounted for 43 percent Aggregate Technical & Commercial (AT&C) losses; aged and inefficient power generation consumed expensive furnace oil and no generation was added for more than a decade; financially the company had sustained years of continuous losses which had rendered it incapable of reversing its downwards descent into complete chaos.
Private investment in KESC in November 2005 laid foundation for the journey which enabled Karachi to pivot away from chronic power shortages, benefitting citizens through reliability of power supply, reduced costs and improved customer service. During the 15 years of privatisation, K-Electric has invested more than it has earned; over Rs330 billion have been invested in generation, transmission and distribution infrastructure – I must emphasise that this is unprecedented investment in any single entity in Pakistan’s power sector. The company added 1,057MW of efficient generation capacity, leading to efficiency improvement of 25 percent. KE’s transmission and distribution capacity has nearly doubled compared to 2005 resulting in more than 75 percent of Karachi being load-shed exempt today as compared to 6 percent at the time of privatisation. Further, KE’s T&D losses have come down to 19 percent since 2009, a significant improvement also attested in NEPRA’s State of Industry Reports, which depicts that in comparison, state-owned DISCOs have shown deterioration over the same period. KE’s post privatisation improvements through loss reduction, efficiency improvements and elimination of operational subsidy from the government have benefited the national exchequer with savings of over Rs550 Billion since 2009, despite multiple challenges including non-payment by government entities.
The public misconception that KE is a monopolistic entity committed only to profit-making is far from reality. While monopolies can charge exorbitant prices, as a fully regulated entity K-Electric is bound to sell electricity only at rates set by the government. While monopolies have little incentive to invest due to the absence of competition, KE has invested over Rs330 billion in 15 years while it returns on average have remained below 5 percent.
In FY2020 alone, the company incurred a loss of Rs3 billion while it invested over Rs55 billion across the power value chain during the year. Monopolistic or even competitive entities prioritise service to profitable customers, neglecting the economically vulnerable: KE in contrast has aggressively invested in those localities which are marked by low-income propensity, economic disadvantages and high-power theft. By reducing power theft and strengthening reliability of power supply in these areas, KE has enabled economic upliftment of these areas through improved access to income opportunities, healthcare and education facilities. KE’s current regulated model thus enables broad-based social equality by ensuring that even marginalised areas are served and invested in. And in contrast to a monopoly which has no reason to improve its customer-centricity, customer-service is an area that KE has consistently strived to strengthen through improved access and transparency – backed by over 7 customer-facing mediums including an app and social media platforms.
KE is cognizant of Karachi’s growing power demand and has developed robust investment roadmaps to serve it. These included high-efficiency generation plants consuming affordable fuels like RLNG and coal. Generation self-reliance was the priority in light of federal government direction to reduce dependence on a struggling national grid. Unfortunately, delayed governmental and regulatory project and tariff approvals have resulted in only one project materialising – the $650 million, 900MW RLNG power plant which will further enable KE’s shift away from RFO towards affordable power generation backed by 59 percent operational efficiency. This is on track for commissioning this year and will improve the city’s power supply situation considerably. K-Electric’s increased drawal of power from the national grid whilst oft-debated, is undoubtedly in national interest as it off-sets the capacity costs that the federal government would have to bear on account of unutilised generation excess.
Karachi, while vibrant and resilient, is not without unique operational complexities which challenge service delivery. A third of the city comprises unplanned settlements and encroachments; there is fragmentation of civic responsibilities and in the absence of a master plan, KE is unable to proactively plan its investments. At the same time, power theft is a very real challenge underpinned by law and order issues. These issues are outside KE’s ambit and need support from other civic bodies and law enforcement.
Compounding these operational challenges, KE’s burgeoning dues of over Rs80 billion on net principal basis to be paid by various governmental entities damage KE’s finances, and were the primary reason for driving up finance cost by 166 percent during the last financial year, potentially impacting the investment capability. Likewise delays in regulatory and governmental approvals affect KE’s investment timelines and the citizens’ access to reliable power. All these issues are larger than KE and go beyond Karachi – addressing them requires collaboration of all stakeholders, strong governance, consistent legal, regulatory frameworks, clear investment roadmaps protecting the sector’s fiscal sustainability and an enabling environment which streamlines decisions around fuel-allocations, power project approvals, tariff adjustments, law-enforcement and legal support against power theft.
KE is absolutely not opposed to competition, nor unbundling – there are obvious benefits of both – provided these are implemented according to a clearly communicated, agreed roadmap with sufficient time-frame for transition and protect both public and investor interest. Ad hoc decision-making, changes in regulation and licenses ahead of contractual periods and shifting policies can dent financial sustainability of utility companies, affect their investment viabilities and render them incapable of serving their customers.
WAPDA’s unbundling is a cautionary tale – the entity was unbundled almost 2 decades ago with the intent to address sectoral inefficiencies – in contrast, today’s power sector has accumulated over Rs2.3 trillion in circular debt which drains the economy and costs customers. Important to note that while other DISCOs continue to pile on losses and exacerbate the circular debt year on year, K-Electric has zero contribution to circular debt and in fact is in net receivable position.
Karachi contributes over 20 percent to national GDP, generates more than 50 percent of federal tax revenue and underpins the country’s economic progress. Investments and expansion plans must be put in place today anticipating the needs of the next decade and meticulous planning, execution – and lots of capital - are required to ensure that the city becomes a prime investment destination.
There is simply too much at stake, if Karachi’s power supply is experimented with. On KE’s part, I can say with complete faith, we are as unwavering in our commitment to serve Karachi and power its prosperity today, as we were 15 years ago when KESC was a neglected national asset that only needed management capability, investment and public support to be transformed into a leading power utility.
We are fully committed to investing another Rs260 billion in the next three years to realise our vision of a power-surplus Karachi by 2022 and propelling the socio-economic growth of Karachi and resultantly Pakistan.
The writer is currently the Chief Financial Officer of K-Electric