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April 27, 2018

KE’s failed privatisation


April 27, 2018

When the KESC – now K-Electric – was privatised in 2005, we were told that privatising it would transform the ailing company and would bring new investment that would improve the distribution system and control line losses. The new investment would help install more power plants which would produce more electricity to meet the increased demand.

The residents of Karachi were expecting better services and uninterrupted power supply after the privatisation. They hoped that the company would become more efficient and capable of handling any crisis-like situation.

But the city’s residents are facing the same old problem even after 12 years of the power utility’s privatisation. Every crisis has revealed that this method of providing power is ill-prepared, incapable and inefficient. The people of Karachi still spend hours without electricity in extremely hot weather. The system is still inadequate and cannot cope with the rising demand and load. There continues to exist a wide gap between the production and demand of electricity and the national grid is plugging this gap.

Since the last few weeks, Karachi has been facing severe loadshedding following a dispute between KE and Sui Southern Gas Company. The gas utility maintained that KE owes it billions in dues and that gas supply would only be restored after the payment was made The residents bore the brunt of this tug of war, as prolonged power cuts plagued Karachi, with previously exempted areas also being subjected to hours-long loadshedding every day.

Every time the power crisis intensifies, different political parties hold protests, demonstrations and rallies. Some parties even demand rolling back KE’s privatisation. Even the most vocal supporter of the KESC’s privatisation in 2005, the MQM (now divided in different factions), is now demanding renationalisation of the power utility. K-Electric has become a classic example of failed privatisation over the years. There is a general consensus among political parties that KE’s private management seems unable to improve its performance and put an end to daily power outages in the city.

Some experts even argue that the KESC’s privatisation was non-transparent and violated the rules of the Privatisation Commission of Pakistan (PC) and the Nepra Act. They believe that before the privatisation, neither the government nor the PC deemed it necessary to place the matter before parliament and seek its advice, or get approval from the Council of Common Interests (CCI), as per the constitution. The Supreme Court stopped the privatisation of the Pakistan Steel Mills on the same grounds. But the power company’s privatisation was never probed properly and all the wrong doings and illegalities committed in the process remained hidden.

The government sold 73 percent of the KESC’s shares for Rs15.86 billion, at the rate of Rs1.65 per share, to the consortium of KES Power Ltd, Hasan Associates and Premier Mercantile. The reserve price was fixed as Rs1.32 per share, even though, at that time, the KESC’s shares were being traded at more than Rs7 per share in the stock market. The government also wrote off Rs57 billion worth the KESC’s debts and converted Rs83 billion to equity to please the new buyers.

At the time of privatisation, the justification given was that the government wanted to get rid of subsidies that were a burden on the national exchequer. But the buyer was given a huge subsidy. And subsidies continue to be given on one pretext or the other. But more interestingly, there were no conditions imposed and no mechanisms devised to monitor the KESC’s post-privatisation performance.

Whenever the power crisis – which emerges regularly after every few months – gets out of control, the federal government intervenes to solve the crisis temporarily. But the real issues and problems remain unresolved. The real solution is that KE increases its power generation capacity to meet the ever increasing demand, and also improves the distribution system to control line losses. K-Electric needs more investment to improve its services.

The federal minister for power, Sardar Awais Leghari, wrote a plain-worded letter to the Sindh government in which he put the blame on K-Electric and the provincial government. The letter read that, “K-Electric being a power entity is supplying electricity on a commercial basis. The recent energy crisis being faced by Karachi in the form of loadshedding is the result of mismanagement, system inefficiencies and commercial mishandling by K-Electric. This had been very clearly highlighted by Nepra in its report on Karachi’s energy crisis.” The report highlighted that K-Electric had failed to utilise its idle generation capacity on the pretext of absence of gas supply from SSGC despite the fact that closed plants can be run on alternative fuel.

It is clear that after its privatisation in 2005, the KESC has not been able to improve its generation capacity, control line losses or streamline its transmission and distribution system. Why then was it privatised? If the rationale behind the KESC’s privatisation was that it was incurring heavy losses and had become a white elephant, or as was the assumption that the new owners would turn it into an efficient and reliable utility, the assumption has proved wrong.

Since its privatisation, KE has not been able to improve its infrastructure. It has installed some transmission lines and transformers but its generation capacity has not improved. Because of lack of planning Karachi has plunged into a spell of unscheduled loadshedding, which has badly affected the industry and caused numerous hardships to people.

There are some lessons to be drawn from this privatisation and the consequent mess. If privatisation of certain entities is not successful and their management fails to fulfil its obligations, it will not be wrong to renationalise them.

The writer is a freelance journalist.

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