Privatisation of KESC

The Federal Minister for Privatization, speaking at a dinner hosted in his honour at a local hotel by the Karachi Chamber of Commerce and Industry (KCCI), reportedly asked the members of KCCI to form a consortium or a business group and come up with a bid for the privatisation of the Karachi Electric Supply Corporation (KESC), which would be undertaken before June 2004.
He said KESC has a monopoly market of some 12 million people and already four expressions of interest (EoIs) have been received.
EXISTING PRIVATISATION SCHEME: The government on 7th October 2003 had invited EOIs from qualified utility operators and strategic and financial investors interested in acquiring up to 73 % of equity in KESC, with management control.
Salient points of the scheme as announced are: (i) unique opportunity to acquire controlling interest in the integrated power utility for generation, transmission and distribution of electricity to Karachi, the largest industrial and commercial city in Pakistan, (ii) commitment to continue support by GOP during turn around period, (iii) possible co-investment by ADB which may also be willing to take an equity interest of 7.67 % from available 73 % at privatisation, (iv) in addition to Karachi, KESC supplies power to the industrial areas of Thatta (in Sindh) and Lasbella (in Balochistan), (v) in total the KESC franchise area covers approx. 6,000 sq. km with a population in excess of 12 million; and (vi) the government has undertaken to continue with the approved current investment programme (until June 2006) to upgrade transmission and distribution system and to underwrite the formula based tariff regime as determined by NEPRA, in September 2002.
The present scheme of privatisation involves selling it as an integrated electricity utility. All generation, transmission and distribution assets are being offered together as a block to the private investors.
The monopolist position of the integrated utility would stay; merely its ownership will transfer through privatisation from public sector to the private sector.
If this is the case, the scheme might not deliver full potential benefits of privatisation to the country, the consumers, local businesses and the investors. Competition is essential for ensuring relatively lower tariff and better services to the consumers; this might not be possible immediately but the privatisation process should aim at that.
Moreover, privatisation is largely for controlling Distribution losses, as Transmission losses are relatively small.
The point is why privatise the Generation and Transmission as well when the problem is mainly with Distribution. Why not start with the spin-off of the Distributing from the main body? Let the private sector assume Distribution function and earn profits through better control of distribution losses.
NEW APPROACH TO PRIVATISATION OF KESC: Starting the privatisation process with spin-off of the Distribution function to a number of private sector companies may facilitate participation by local investors; introduce more competition with possibly better sale price to the government and regular supply of electricity to the people at competitive cost.
At present the KESC has 50 or so grid stations. Depending on number of consumers and geographical spread, each Power Distribution Company (PDC) may initially be allowed electricity distribution in the area now covered by seven to ten grid stations.
For the time being, the KESC will sell power in bulk to each PDC and meters at each grid station will record energy sold. Under this arrangement, there will be arms length relationship with the KESC and/or pother power generation companies and therefore the allegation of pilferage energy at bulk level will be sorted out.
This will be the beginning of the competitive pricing at bulk and retail level.
As long as KESC retains its generation and transmission assets, it would have fewer problems in obtaining power supply from Wapda's generation companies as well as from the Hub Power Company.
In the next phase the government might sell KESC's generation assets to two or three private sector companies. In the end the KESC will be left with bulk Transmission Grid in its license area.
This might in due course be merged with National Grid owned and operated by NTDC, a company that has emerged from restructuring of the Power Wing of Wapda.
Karachi, the port city and financial centre of the country, has a number of large industrial estates in its fold.
KESC provides electric power to the city and all the industries located in and around the city. Karachi and KESC, both are of critical importance for the country's economy. One may not flourish for long without prosperity of the other.
Therefore, the government and the industrialists/businessmen are all urged to give special consideration for resolving privatisation and rehabilitation issues of KESC, which is much more than a public sector utility.
In the circumstances, it is up to the resourceful members of the Karachi Chamber to join hands and take the leadership role for public good of ensuring regular power supply to the consumers at reasonable rates.
They are also urged to realise that within the cosmopolitan area there is urgent need to take similar positive initiatives for resolving problems of water, sanitation, sewerage, health and education confronting the Karachiites.