Rising Kesc deficit

The annual deficit sustained by Kesc has touched the figure of Rs 12 billion, which is around 70 percent higher than the loss it had suffered in the last financial year, says a Recorder Report quoting the data presented at a recent Board of Directors meeting. The loss the utility suffered in FY 2006-07 was Rs 12.175 billion, as compared to Rs 7.191 billion in the preceding fiscal year.
The main reason cited for this is the non-availability of government grant to the utility, whereas the government had given Kesc a grant of Rs 7.576 billion in 2006. The data presented at BoD also showed that the annual loss sustained by Kesc before the government grant was Rs 11.957 billion, which was less than the previous year's loss of Rs 14.630 billion. On the positive side, though, there has been an increase in revenue collection as compared to last year when it was Rs 42.117 billion. The revenue collection rose to Rs 44.859 billion in 2006-2007.
A Kesc spokesman has, meanwhile, said that in response to its notice issued on September 25, 2007, the Kesc received two notices from Siemens, threatening to terminate the O&M Agreement if the alleged defaults were not cured within 45 days. According to the spokesman, among the various "breaches" committed by Siemens which have caused a substantial loss to the utility was the recent failure of Siemens to ensure proper functioning of the SAP software programme, which controls the pay-roll of Kesc employees and vendors' payments. "Kesc gave Siemens a timeframe from September 13 to 24 to remedy the fault. Upon Siemens failure to do so by September 24, 2007, Kesc has terminated Siemens involvement in the SAP system and made an alternative arrangement in order to minimise the losses," the spokesman said.
Kesc has been running almost perpetually in loss. According to available data, it suffered a loss of Rs 12.787 billion in 1999-2000, which increased to Rs 16.201 billion in 2000-01. In 2002, the utility suffered a loss of Rs 17.741 billion, and a major portion of this loss was due to the high interest cost incurred on borrowings. The government had reduced Kesc's debts through a debt-equity swap, the beneficial impact of which was evident from the reduced loss for the year 2002-03.
Secondly, power theft has been cited as a major cause of high losses sustained by Kesc. As a result, the utility has been able to survive largely due to the financial support from the government, which has kept it operational. As the power utility continues to sustain operational losses, it has been demanding that it be allowed to raise power tariff so as to invest it in improving the existing infrastructure. All this makes one wonder as to why these issues were not settled prior to putting the Kesc under the hammer.
Kesc was incorporated on September 13, 1913, under the Indian Companies Act of 1882, as amended to date under the Companies Ordinance 1984. It is listed on all the three stock exchanges. The government took over its control by acquiring the majority shareholdings in 1952. It has a customer base of some 1.7 million, predominantly urban consumers. It is said that Kesc's own generation cost is low as compared to the rates at which it is obliged to purchase power for meeting its deficit, from Wapda, Kannup, Pakistan Steel and the IPPs.
As against Kesc's installed capacity of 1,756 megawatts, its dependable capacity is around 1,200 megawatts. In addition, Kesc has a dedicated capacity of 265 megawatts from the private sector IPPs, a small capacity from Kannup and the Pakistan Steel. However, this is not enough to meet the maximum demand on the system, which is estimated at around 1,900 megawatts.
The utility has been experiencing abnormally high transmission and distribution losses over the past six to eight years, although the position has somewhat improved recently. In 1989-90 the losses had stood at 20.84 percent. But as a result of the steep downslide these had mounted to 40.23 percent by the year 1999-2000.
One can well imagine the improvement in Kesc's profitability if the losses are brought down to a reasonable level. The government should evolve a formula whereby work on upgrading and refurbishing of the power transmission lines and other related infrastructure can be started forthwith, but without raising the power tariff which in most categories is already on the higher side. Only by restructuring and improving its entire system can Kesc be made a profit-making entity.