Once again electric utility up for sale - I

Karachi Electric Supply Corporation (KESC) (now K-Electric) has an interesting history. In 1913, it was formed as a power generation and distribution company in the private sector to meet the power needs of small port town of Karachi. The year 1947 witnessed a dramatic change in the demography of Karachi. In 1952, the government nationalized KESC in order to facilitate the much-needed investment in its infrastructure. Till early 1980s KESC performed exceptionally well in meeting the growing industrial, commercial and residential demands: eight new generating plants were added, with a total capacity of 513MW. In the mid-1980s, however, it was placed under WAPDA. There after it witnessed a continuous decline in its delivery to consumers.

In 2005, KESC was privatized with the government retaining a stake of approximately 26 percent, while 71 percent was transferred to a foreign consortium led by Al-Jumia Group of Saudi Arabia.

But soon after, a new management led by the Abraaj Group took its charge in 2009 as the principal shareholder and operator.

K-Electric (KE) is once again up for sale. In July this year, KE announced that it had received a fresh public announcement of intention (PAI) from Shanghai Electric Power (SEP) to acquire up to 66.40 percent voting shares in it, subject to receipt of regulatory and other approvals.

The 15-year experience of KE as a private holding power generation and distribution entity is mixed. The change of hands from the public to private sector did replace the crumbling management and financial structure of the company with a professionally governed and somewhat financially stable state of governance. The change ushered in a marked improvement. But the performance of KE fell far short in meeting consumer's expectations of a systematic tariff rationalization and its reduction. On the contrary, the tariffs should an upward trend, year after year. Today, KE is providing its consumer's the most expensive electricity in the region, if not in the world.

However, in the midst of monsoon every year, with multiple cases of electrocution and hours of power cuts the performance of KE is questioned by the government and the consumers alike. The privatisation of KESC is also questioned.

The consumers are apprehensive that take-over by China's company may further hike the tariff as more concessions are likely to be conceded to the new buyer. This may hold true as a market which offers monopoly and ineffective regulators to govern the sector is largely devoid of checks and balances.

As of now, the space for any meaningful change or choice available to consumers and the government itself is limited and both may have to live with this unfortunate reality where a single electricity provider can have its way.

But there's hope on the horizon. In previous decades, many mature and emerging markets migrated well from public-owned power sector to private-owned power sector in an environment which is still strongly characterised by market dynamics of price and quality of service. Although its replication in Pakistan is extremely challenging, it is doable in phases.

(To be continued)

(The writer is former President Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2020