Industrialists, KESC shareholders opposed to utility's plan to outsource business centres

Karachi Electric Supply Company's (KESC) plan to outsource 11 of its business centres located in different parts of the city is 'illegal and in violation' of rules set by National Electric Power Regulatory Authority (Nepra), industrialists and KESC's shareholders said.
Recently, KESC invited expressions of interest from interested parties to run these business centres. Through a detailed letter sent to Nepra, a group of people, including industrialists and shareholders of the company, have objected the company's move, saying that private groups/firms would hurt interests of millions of consumers through various tactics. This case, along with other issues related to KESC, was likely to be discussed in a public hearing scheduled to be held here on Monday and Tuesday.
The group of people including, Arif Bilwani, Dr Qazi Ahmed Kamal, Chaudhry Mazhar Ali and others, through the letter have presented the KESC's perspective in series and put their objections and arguments latter accordingly. According to the letter, which claimed presenting exact laws/sections and CSM references elaborating the perspective of Nepra Act through the Electricity Act 1910 regarding the recent planning of KESCL for franchising certain activities of its status as a licensee engaged in the distribution of electricity in the city of Karachi. KESCL's plan details includes the following details:
a) Invite expressions of interest (EoIs) to form strategic partnerships with interested parties across 11 of its business centres.
b) These alliances would be through distribution franchise agreements (DFAs) for 11 of KESC's business centres,
c) The KESC has a total of 28 business centres, of which 17 have Aggregate Technical and Commercial (AT&C) losses of around 20 percent with a loadshedding range of 0-3 hours. In the remaining 11 business centers, the AT&C losses are around 60 percent and hence being subjected to 4.5-7.5 hours of loadshedding.
d) For improving quality of power supply and reducing loadshedding in these 11 business centers, the AT&C losses need to be drastically reduced.
e) The business centres being considered for DFA are: Baldia, Lyari, Orangi-I, Orangi-II, Liaquatabad, Nazimabad, Surjani, Gadap, Malir, Landhi and Korangi.
f) This strategic partnership will support KESC in transforming these areas into sustainable business centres, which will benefit all registered customers of KESC.
g) The Distribution Franchise Partner would be primarily responsible for commercial and routine operational activities in the franchised area such as, meter reading, billing, bill distribution, revenue collection, resolving consumer complaints and Low Tension (0.4kV) network maintenance.
h) The most attractive feature of this proposition is that the Franchisee will have access, at no cost, to all-existing systems and resources of KESC, based on certain terms and conditions of the contract.
i) Franchisee will have the use of KESC employees that will be seconded for the period of the contract at no cost to the franchisee. These employees will remain on KESC's payroll per KESC's terms of employment. The employees that the Franchisee does not wish to retain would be transferred within KESC. The cost of any additional new non-KESC person would be borne by the Franchisee.
j) This strategic partnership will support KESC in transforming these areas into sustainable business centres which will benefit all registered customers of KESC. KESC would have its own mechanism and monitoring system in place to track and control the performance of these franchisees across all key performance indicators including, but not restricted to, customer service and satisfaction, better turnaround times in managing customer complaints and reduction in load shedding through improvement in financial indicators.
k) The loss reduction/performance improvement sharing model would be structured on the principle that KESC needs to reduce its cash losses and reach a breakeven state (to cover the cost of fuel and power purchase) at the earliest.
i) The Franchisee will share in the improvements and, post breakeven state, retain the majority of the net cash improvement. The tariff mechanism and structure will be the same as it is for all customers in the city, and as determined by Nepra and notified by the government from time to time.
m) The DFA would be established for an initial period of 10 years. KESC believes that this arrangement would be a major step toward sustainable development that would have a profound positive impact on key social and economic development indicators.
n) To improve the quality of power supply and to reduce the load shed duration in these 11 business centres, the AT&C losses need to be drastically reduced so that KESC can purchase the additional fuel needed to reduce the loadshedding duration. This is a win-win proposition for the registered customers, Distribution Franchisee, and KESC that would enhance KESC's ability to serve its customers better and offer reasonable rewards to its partners for the improvements that they would bring about.
Arguments
a) KESCL is not authorised to engage in such activity over its exclusive area
1) As per Electricity Act 1910
We refer to section 9 (2) "the licensee shall not at any time assign his licence or transfer his undertaking or any part thereof by sale, mortgage, lease, exchange or otherwise without the previous consent in writing of the provincial government"
The above mentioned law makes it clear that i) KESCL can not be legally allowed to engaging such a franchising arrangement except with the written approval of the provincial government
ii) the exact word franchise is not given but the word "otherwise" in continuation of the words sale, mortgage, lease, exchange clearly includes the franchise concept in this prohibition although not written in name separately. iii) The word "any part thereof" means that KESCL can not totally or partially give up its core responsibilities called "undertakings".
9(3) states that 'any agreement relating to any transaction of the nature described in sub section 9(2) unless made with subject or subject to, such consent as aforesaid, shall be void." This means that even if the KESCL defies the act and makes agreements with the franchisees the agreements will be considered void in the eyes of the law if they are not with written consent of the provincial government.
2) As per Nepra Act: The CSM has underlined all the core activities that a distribution licensee shall have to undertake in light of the ACT & Dist Rules in discharging its obligations towards the existing as well as new consumers. Only the non core activities which have no direct relation with the consumers can be outsourced/franchised for e.g. janitorial services, security services, drivers, timekeepers, Qasids, peons, share registrar services etc, etc
The Nepra act explains the issue in section 7 (1) says, "the authority shall be exclusively responsible for regulating the provision of electric power services"
This includes every type and class of power activity and clearly states that without its consent nothing is possible in any way concerning the power services. This also includes the franchising concept which is also a part of the power services as explained by KESCL itself.
7 (2) b Prescribe procedures and standards for investment programs by generation, transmission and distribution companies"
7(3) a. The authority shall a) determine tariff, rates, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies"
7(3) b) review organisational affairs of generation, transmission and distribution companies to avoid any adverse effect on the operation of electric power services and for continuous and efficient supply of such services
The dominating position of Nepra in the planning and execution of business plans and organisational affairs of its companies is stated clearly here. Nepra will determine the terms and conditions of distribution companies. This means that the KESCL is not at liberty to make its plans and execute them unless approved by Nepra in order to be safe and effective. The word determine means that it shall be the final authority in all such cases and it is not an advisor or a commentator in any of its acts expressed in this regard above with or without approval of KESCL. This is what we demand as well.
20. Distribution licenses: 1) no person shall except under the authority of a licence issued by the authority under this act and subject to the conditions specified in this act and as may be imposed by the authority engage in the distribution of electric power
This means that franchisees can not be involved in this activity or be given the rights of distribution unless approved by the authority and certainly not on the approval of KESCL alone.
21(2) b "the licensee shall have the exclusive right to provide for such a period as may be described in the license distribution services and make sale of electric power to consumers in the territory specified in the license and to frame business schemes in the respect of that territory". This means that KESCL is not at liberty to make franchise agreements since it has the exclusive rights over its territory to provide power to its en users and can not sub let or assign such core activities to anyone else during the tenure of its licensing term.
21 (2) h "develop, maintain and publicly make available with the prior approval of the authority an investment programme for satisfying its services obligations"
The point to note here is that it is written that prior approval is necessary for all investment programs, has the Nepra been approached as yet for getting this approval even after it has been made public?
Thirty three organisational matters" "Subject to the procedures established by the authority under this act, the authority may in the public interest with or without modifications approve the following activities by a licensee for the generation transmission and distribution.
c) The undertaking of re organisation of the licensee's business structure" We see again that unless the authority decides to 'approve' activities for the distribution company even in its business structures the said modifications can not take place. This is exactly what is being proposed by the KESCL, Modification of its business structure through the franchisees.
c)NEPRA distribution rules 1999
2(1)x "distribution business" means the business of distribution of electric power carried on or to be carried on by the licensee pursuant to and accordance with terms of the distribution licence granted to the licensee" This gives us clear question. Is the franchising option given to the KESCL in its distribution license?
7. Exclusivity
2 the licensee shall have during the term of the distribution license the exclusive right in respect of the service territory
a) Distribution of electric power to the consumers, b) Bill the consumers and collect the tariff for electric power distributed within the service territory, c) Engage in other activities incidental to the distribution business with the above it is now clear that all the activities that are being given to franchisees the distribution company alone has the right in performing them and there is no provision in the rules to sub contract them as they are core activities and can not be out sourced as being envisioned by KESCL.
d) Consumer Service Manual:
1.1 the consumer service manual lays down the instructions in pursuance of section 21 of the regulation of generation transmission and distribution of electric power act 1997 read with rule 9 of the NEPRA licensing and distribution) rules 1999 which shall be administered by the distribution licensee to ensure safe effective and reliable supply of electric power.
It is hereby outlined that it is the duty of the distribution company to 'administer' the instructions in the CSM. It does not say that its franchisee should be made to administer them or it can be administered through the franchisee. Since the details listed in section 1.2 that follows this section are all core activities nothing from that section can be done by the franchisee.
We demand that a) the relevant clauses in the CSM, the NEPRA Act and the Distribution rules should be adhered to while making a decision in this regard b) Only NEPRA or the provincial governments can decide such approvals, c) if this is found to be against public interest it should not be allowed which has a high chance of probability, d) the benefits to the system and to the KESCL in monetary terms should be assessed.
Possible drawbacks to the system and end users by the franchisees We have the following reservations:
a) The handing over the area would be like a lease to the new operators where the generation of stuck up revenue may be the top priority b) the KESCL may turn a blind eye to the group there if it produces the desired revenues, c) the legal aspects of the distribution license will be compromised and if challenged in court the grant of the license may be at stake d) the authority of the NEPRA will be seriously questioned if it is done without its consent and the agreements void automatically e) the distribution company may heap the faults or troubles on the doings of the group there and they may reciprocate and the end user will suffer unnecessarily.