Will ending KE’s exclusive rights prematurely solve the problems or aggravate them?
K-Electric (KE), the sole provider of electricity in Karachi and some other areas, has been facing criticism for unannounced load-shedding, deaths caused by electric shocks from its installations, especially during rains, faulty infrastructure in certain areas, dangerously low hanging wires at particular locations, high-tension transmission lines too close to rooftops in residential areas and so on.
Political parties, civil society organisations, businesses and consumers have been protesting against poor service delivery on the part of KE.
The unprecedented rain spell this year saw an extraordinary increase in the duration of power outages. There were instances of electricity supply not being restored for a whole day.
The situation has caught the attention of the judiciary as well which has taken the power utility’s management to task. Apart from asking for a smooth power supply, it has issued strict orders to KE to ensure that there are no more deaths from electric shocks involving its facilities. Should this happen again, the court has warned, FIRs would be registered against the concerned KE officials. Then there was talk about re-nationalisation of the power utility as some people believe that privatisation of the corporation has proved counter-productive.
What caused the most alarm at the KE however was a proposal to end its exclusive rights. Under the terms of the privatisation deal the exclusivity was guaranteed till June 2023. (The then Karachi Electric Supply Corporation (KESC) was privatised in 2005. There have been reports that the National Electric Power Regulatory Authority (NEPRA) has initiated proceedings to terminate KE’s exclusivity. The Supreme Court of Pakistan has asked it to make its determination in accordance with the law.
Will ending KE’s exclusive rights prove a solution to Karachi’s electricity consumers’ woes or are there other structural and regulatory issues that also need to be addressed? Some analysts doubt whether new investors will be interested in entering the arena immediately after seeing a violation of privatisation agreement’s terms.
TNS talked to KE CEO, Syed Moonis Abdullah Alvi, who has served the organisation in this capacity since June 2018. He says that the last summer there was a serious power shortfall because the company did not have the fuel it needed for its power plants mainly due to Covid-related logistical issues and low pressure of gas supply.
Otherwise, he says, “during the 15 years since privatization, the KE has invested everything it has earned back into the business. He says more than Rs 330 billion has been invested in generation, transmission and distribution capabilities against the NEPRA-mandated investment of Rs 144 billion.” He says this has resulted in the addition of 1,057 MW to generation capacity, nearly doubled the transmission and distribution capacity and made more than 75 percent of Karachi exempt from load shedding and reduced transmission and distribution losses from 35.9 per cent in 2009 to 19.7 per cent. He says distribution infrastructure in particular has been a focus area for investments. Nearly 900 feeders and 20,000 pole-mounted transformers (PMTs) have been added to strengthen the reliability of the service.
According to the utility’s data, today supply deficit exists mainly because of delays in regulator and government approvals for planned KE projects. (A 900 MW project has been delayed due to KE tariff finalisation, a 700 MW coal plant tariff has not been notified since 2016 and there was a delay in the approval of additional power from the national grid.)
KE’s net receivables from various public sector entities stood at over Rs 80 billion on September 30. He says the amounts claimed by Sui Southern Gas Company (SSGC) and the National Transmission and Despatch Company (NTDC)/Central Power Purchasing Agency (CPPA) are grossly inflated through the inclusion of disputed mark-up, which is a sub-judice matter.
Alvi says Karachi Water and Sewerage Board (KWSB) owes KE around Rs 29.5 billion. However due to KWSB’s strategic importance to Karachi, KE continues to prioritise power supply to KWSB pumping stations.
Asked whether KE is afraid of losing its monopoly, Alvi says, this is not the case. He says competition is good as long as there is a level playing field. “The proposed model suggests that new entrants will bring in generation that will be mostly for high-income groups, the distribution infrastructure used will still be provided by the K-Electric. As such, K-Electric will be obligated to provide wheeling services to new distribution licensees - hence all network related investment and performance obligation would remain with the KE.”
Further, he says, as this new investment will result in the reduction of power off-take on account of decrease in good consumer base it will adversely affect KE’s ability to seek financing and consequent investment in power projects and result in further deterioration of the system.”
As the new entrants will not be offering subsidised tariff to low-end consumers and giving competitive rates to high-end consumers, KE will be unable to continue with its cross-subsidisation scheme.
On electricity related accidents and safety TNS received the following version from KE: “In view of the learnings from the 2019 monsoon period, the KE has strengthened safety procedures and practices for earthing and grounding to make them less prone to theft. In addition, the company has undertaken revalidation of earthing and grounding of its network by examining each and every pole in the KE system with a tagging of the same. Over the last year almost Rs 3.2 billion has been spent in making our distribution network safer. Most of the unfortunate incidents occurred on consumer premises due to faulty wiring, etc.”
“The company has filed a constitutional petition against Cable Operators Association of Pakistan and Pakistan Telecommunication Access Providers Association (PTAPA) in the honourable Sindh High Court and is continuously removing illegal cables from its network through regular engagement with relevant authorities.”
As part of preparedness for the next monsoon season, “the company has prepared a robust safety plan, which includes an upgrade of protection system, replacement of bare conductors with aerial bundle cables (ABC), rehabilitation of stolen or damaged grounding on high tension as well as low tension network, public accident prevention plan and other related projects along with extensive public awareness campaigns. Support from relevant authorities is critical to combat external factors, including theft of earthing and grounding material and illegal and unsafe use of KE’s network”.
Former Water and Power secretary, Younus Dagha, is of the opinion that regulation is not a substitute for competition which brings efficiency in the working of organisations and discourages selling of power companies to investments. He has mentioned this at different forums. His point is that KE was given “a tariff whereby all its losses and non-recoveries to the extent of 35 percent were built in the end-consumer rates - making it the highest tariff in the country. The competition should have been there from the start.”
A power sector expert, who does not want to be named, says that “instead of withdrawing exclusivity rights which will be a breach of contract, KE should be penalised according to the terms and conditions under which it was privatised.”
He says that in the current situation nobody would buy it as its receivables and liabilities are huge. He suggests that the best way is to separate generation, transmission and distribution companies and identify those facing the most losses. He also suggests giving areas like Lasbela, to QESCO to reduce the load on KE.
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