The Karachi Electric (KE) is in the line of fire — and rightly so. Frequent and prolonged power outages have hit industrial, business and domestic consumers alike, making the life of a vast number of Karachiites miserable. It is not just ordinary consumers, civil society activists and opposition legislators who are in the mood to protest, but even lawmakers belonging to the provincial and federal governments were seen protesting outside the KE head office. The irony could not have been starker.
However, the government bigwigs, including some high-profile federal ministers, failed to move the KE management. The KE bosses, including Chief Executive Officer, Monis Alvi, have successfully weathered the storm of criticism and survived to tell the tale. The end result of all the meetings by federal ministers and calls from governor Sindh to improve the power supply situation was nothing at all. And the KE continues to deal with its consumers as it always has — with rude indifference to the sufferings and problems caused by what it is terms, in its jargon, “load-shedding.”
While there is excess electricity available in the national grid, consumers of Karachi continue to suffer short supply. Why? Because the KE has failed to invest in the upgradation and modernisation of the system, as per agreement. And as the current private management of the KE wants to sell its stakes in the company, there are little chance that it will invest more money or go for structural changes and improvements.
Many politicians, businesspersons and ordinary citizens want the government to take over the company — but that is easier said than done. It is also a fact that even in its present bad shape, the privately-run KE performs better than the government-run KESC of yesteryears. Then, the challenge is, what to do? Is bringing about improvement in KE’s performance possible under the current management? Is breaking the monopoly of KE in the megacity an option? But here again there are many legal issues that prevent the government from taking the plunge.
Monthly Narratives asks former chairman, KE, Ikram Sehgal, Jamaat-e-Islami Karachi chief, Hafiz Naeem-ur Rehman and Chairman All Karachi Tajir Ittehad, Atiq Mir, how they view the challenge.
No Need for New Power Plants
This perception of shortage of electricity is created deliberately to make the case for additional power stations.
The government cannot end KE’s monopoly because its agreement is binding. If the government moves in this direction, it can cite several reasons where the KE violated the agreement, including failing to deliver constant power supply to the people and industries of Karachi. The government will, however, seem to be violating the terms of the agreement, whether good or bad. Pakistan will seem unfair to the world. The confidence of foreign investors will be shaken. This despite the fact that in its entire history, foreign investment has always been secure in Pakistan. Profits are made and repatriated without hitch.
It is preferable that power generation should be separated from transmission with distribution on the lines of DISCOS (Distribution Companies) of the North. But how workable this solution may appear, it cannot materialise given the agreement with investors, who have bought 66.4% of KE’s shares. We’ll have to wait for the agreement to end by 2023 to make any changes.
Reforms, however, are possible. I’m certain that the KE can produce more electricity than it generates now. A foreign national is KE’s chief generation and transmission officer. He is also affiliated with Abraaj Group and Al-Jomaih Group consortium, which holds the majority shares of the K-Electric as KES Power. This is in violation of best corporate practices, because it is a conflict of interest. This perception of shortage of electricity is created deliberately to make the case for additional power stations. KE does not exploit the full potential of power generation and is always looking to set up new power units to expand its hold. Please let me know of any deal for equipment is done without kickbacks. Siemens is infamous for it and penalised not only by the German government but by governments all over the world. The foreign national is alleged to have close links with Siemens.
There should be an independent outsider to assess the KE’s power generation capacity. By not fully utilising its power generation capacity and resorting to load-shedding, the KE wants to force the government to install new power plants.
But there is no need to set-up new plants because 1,200 megawatts of electricity is available with the HUBCO. Then there is around 500 MW available with Lucky Power. I strongly objected to setting up new units and that’s one of the reasons I resigned. The National Transmission and Dispatch Company is the main culprit. They know that extra power is available at Karachi’s doorstep. Instead of its being evacuated elsewhere, it should bring it to Karachi. We also have coal-based Power Plants in Tharparkar. Whatever electricity is being produced in Thar can be brought directly to Karachi. Therefore, I say that we do not new power generation plants. What we need is just the right management and independent assessment of the KE.
If the KE’s private management goes to the international courts, I doubt it could hold its own there because of its poor performance. KES Power always has good connections with every incumbent government. However, KES Power as a corporate entity is itself in doubt, given that 51% of it (Abraaj) is under liquidation.
The irony is that a power company supplying electricity to a big city like Karachi has appointed a chartered accountant as its CEO. If there’s one thing he knows for sure, it is how to fudge figures. Ask them, when they claim to make zero profits, how much did they originally pay for the KE takeover? What multiple gains they stand to make if the deal with Shanghai Electric happens? The only money ever brought in was the $100 million in equity when the first power station was installed, and that happened before the Abraaj Group joined the Al-Jomaih Group consortium and took over KE’s management. And how did Abraaj pay for its share? Defraying against management fees. Though legitimate, the fact remains not a single penny was brought in. The KE is heavily under debt, who is going to pay for all these loans once the agreement is over and the current management leaves without independent audit? We should know that all KE’s assets are used as collateral. The people of Karachi will pay through their noses for these loans.
Ikram Sehgal
Scrap the Agreement
Political rhetoric aside, what we want right now is that the regulator should declare KE’s license void.
Political rhetoric aside, what we want right now is that the regulator should declare the Karachi Electric’s license void. That’s it. Do not change it. Do not amend it. Do not allow other entrants to compete alongside it. Just nullify the current agreement with the KE. The next step should be to constitute a committee comprising technical experts to probe what went wrong and how. Find out who is involved in mismanagement and corruption and bring them to justice. It’s not vendetta. The government can simultaneously go forward to improve the KE and take stock of that what went wrong in the past by auditing at least 15 years of its accounts. In fact, the government should also audit the privatisation process and hold all the facilitators responsible for the murky deal accountable.
The Pakistan Tehreek-e-Insaaf (PTI) government, too, is trying to conceal the records and wrongdoings of the KE.
The rulers want the issue resolved by incurring all the cost of line damages and other issues to the national exchequer and allowing the KE management to go scot-free. Yes, we know how Arif Naqvi, the head of Abraaj Group, supported the PTI’s election campaign. If people find out how he fleeced the national exchequer after the KE takeover, the PTI government will also be brought in for trial — at least in the media.
The KE gets more gas than originally agreed upon, but its management still holds gas supply shortages responsible for the frequent power outages and punishing the citizens of Karachi.
The situation is getting worse as there is no accountability. The ruling party is doing its best to bear the liabilities of the KE and help the current management escape an independent audit. Whenever there is a crisis situation, the KE always gets its way and the national exchequer bears the liability at the behest of the ruling party. And then, eventually the people pay the price in the name of fuel adjustment charges and other such levies.
In the last public hearing of NEPRA, no PTI leader was present to advocate the case of Karachi.
We demand the restructuring of the KE and a fresh agreement to bring it back under state control. New power entrants should be allowed to play their part and make honest profits, but not fleece the citizens.
The government should keep 51 percent shares of the KE to maintain its control and out of this 51 percent, 25 percent must be transferred to the city government’s holdings to boost its earnings. From the remaining 26 percent, the provincial and the federal governments can work out their terms. Now for the remaining 49 percent, allow everyone in the private sector to bid after diligence due. Just make sure that there’s no monopoly. By doing this, the government can encourage the private sector, quash monopoly, and still keep control of the KE. Lastly, for the threats the KE made recently that it would move the international courts if NEPRA changed terms to amend its exclusivity, let me tell you that the KE does not have a case to plead.
Hafiz Naeem-ur-Rehman
End KE’s Monopoly
The agreement that enshrines its exclusivity also envisages due distribution of energy to all consumers and that not on exorbitant rates, but at an affordable price. The KE breached the agreement.
With the KE’s privatisation in 2005, it was envisaged that a new era of power supply would dawn in Karachi. The Karachi Electric Supply Corporation was transformed into K-Electric, but apparently that was the only significant change after privatisation, as neither power transmission and distribution improved nor generation. Now we have reached a point where the KE is clearly unable to meet the growing demand for power in the city. Domestic, commercial and industrial consumers all are suffering alike. The power outages is hurting businesses and taking toll on the household incomes and quality of life. It is a shame that the KE did not deliver as per agreement with the government. The government has every right to initiate corrective measures, keeping in mind that the KE management does not have the grounds to invoke those agreement clauses that could go in its favour.
Even 15 years after privatisation, the KE’s production is still a long way from hitting its full potential. It is not even enough to cater to today’s active consumers, leave alone being capable of meeting the needs of a growing population. Load shedding is the inevitable result. It is futile to hope that from here on the KE will improve its performance, deliver on its promises and compensate the people of Karachi, who suffer its poor performance.
The way forward is either to scrap the agreement and let the state regain control of the KE, as it is already extending heavy subsidies to it; or at least to abolish its exclusive right to distribute electricity to Karachi, allowing new entrants into the market.
The government must allow new entrants to ensure fair competition. It can distribute districts among various companies. Only then will the government and the people come to know whether it is really impossible to manage Karachi’s energy demands or has the issue been created by monopoly, political opportunism and corruption.
But the KE will never let this happen. It does not want to be exposed by competition. It will threaten and try to blackmail Pakistan’s regulatory body of legal consequences for the breach of agreement, while itself blatantly transgressing from what was agreed upon. Its case is weak and will not stand a chance in international courts. The agreement that enshrines its exclusivity also envisages due distribution of energy to all consumers and that not on exorbitant rates, but at an affordable price. The KE breached the agreement. It cannot call out NEPRA for amending the clauses or even for cancelling the agreement.
The government must allow new entrants to ensure fair competition. It can distribute districts among various companies. Only then will the government and the people come to know whether it is really impossible to manage Karachi’s energy demands or has the issue been created by monopoly, political opportunism and corruption.
