K-Electric is once again in the process of change of hands. In 2006, it was Al-Jummia Group of Saudi Arabia that acquired K-Electric through a privatisation process conducted during the tenure of the then Prime Minister, Shaukat Aziz. The challenge for Al-Jummia was to turn around the company financially, administratively and technically. The then KESC, since its nationalisation and more since its placement under the management control of Wapda, had been witnessing a rapid decline, although it was once a remarkably efficient utility entity in the private sector. This decline inflicted great hardships on the residents of Karachi.
Al-Jummia Group managed it for couple of years and invested in upgrading the depleted transmission and distribution network of the utility company. They installed a better management, but not strong enough to deal with multiple and complicated issues such as surplus manpower in the face of politically-driven labour unions, Kunda system patronised by mafia and unending dictates from the federal government. Frustrated and not finding K-Electric to be as simple and lucrative as expected, they opted to sell off its majority stake to Dubai-based Abraaj Capital.
Abraaj Capital enjoyed the benefit of support from the PPP government then in power at the federal level and in Sindh. With this political backing, the new managers proceeded with large scale restructuring of the utility. Its steps included reducing the manpower strength from 11,000 to 7,000 employees, an increase in tariffs, subsidies, continuity in availability of 600MW from the Wapda grid and other concessions. Abraaj did better by putting in place a professional management, plugging the financial, administrative and technical gaps in the system and providing its consumers a better power supply and services. It opted for the policy of ensuring zero load shedding for high recovery areas.
K-Electric invested reasonably well in power generation, transmission and distribution and achieved profitability in 2012 after years of running in losses, which is quite an achievement from the loss of Rs 14.6 billion it suffered in 2010. Last year, K-Electric achieved a profit of Rs 28 billion.
Abraaj Capital is known for articulating strategies of acquiring a company at a competitive price, restructuring it and turning it around through professional management and political leverage and then spinning it off to an investor at a margin. Abraaj attempted to unbundle K-Electric into a number of power distribution and generation companies and then spin them off at a much better price advantage. For some plausible reasons they ultimately opted to retain the integrated structure of K- Electric for sell-off.
Shanghai Electric Company from China is reported to be the successor to Abraaj by acquiring the majority stake and the management control of the organisation.
The stock market has reacted differently at each change of K-Electric ownership. On take-over of the utility by Al-Jummia Group its share price jumped from below Rs 2 per share to 6.5 but then gradually declined and in the period from 2009 to 2012 it floated in the range of around Rs 2 to Rs 3. K-Electric profitability in 2012 recorded an increasing trend, touching around Rs 9 by the close of 2016.
K-Electric, in line with the normal practice, adopted the processes of well polishing the company before a sell-off which included improvements in receivables, a reduction in line losses and above all a healthy balance sheet to present a better picture of the company for the future.
There are public concerns that K-Electric management may have served inflated bills to a significant number of its consumers during this period, with a view to making its balance sheet more attractive to the potential buyers.
One must not lose sight of the fact that from January to December 2016 around 22,000 complaints were received by the Ombudsman's office in Karachi of which 80 percent related to K-Electric. Majority of the complainants are from the low-income group.
Then there are complaints regarding the non-implementation of the facility of Time of use/TOU metering/billing to residential, commercial and industrial customers of K-Electric which could enable the customer to avail tariff incentives therein available. In this regard, K-Electric is reported to have made a commitment to Nepra and a notification vide SRO No 571 was issued on 24th June 2016. So far, the commitment made in this regard has not been fully honoured for the customers, specially the industry which is burdened with one of highest electricity costs in the region, to avail the promised incentives.
As the first level of relief, the consumers approach K-Electric which provides them the option of payment in instalments or some reduction in bill. The reason of overbilling cited is mostly "power theft" often without valid proof of the same. The next level of approach is the Ombudsman's office, which hears both the parties but the process of arbitration could take several months. The relief therein provided is by and large ad hoc. The Ombudsman will do great if they select a few typical cases and appoint a team of experts to audit utility's billing procedures and come up with realistic findings. What comes out of it will be good for other similar complainants.
Primarily, it is the role of the regulators to monitor and safeguard the interests of general public, investors and the state. Unfortunately, however, the regulators in Pakistan, by and large, have surrendered their independence as they have opted to be passive and subservient to the dictates and pressures of political leadership. By and large, investors' interests have a clear precedence over those of general public. With the recent placement of Nepra under the Ministry of Water and Power, the regulator has lost whatever little independence it had.
It is the prime responsibility of Nepra to closely monitor the change of management process at K-Electric. Secondly, the Securities and Exchange Commission of Pakistan (SECP) should be monitoring the happenings in the public interest with K-Electric being a public listed company.
With the compromise of the authority of the regulators to monitor and safeguard public interest, the civil society of the country needs to come forward and play a larger role to bridge the gap and protect public interest such as the K-Electric billing issues and many similar issues.
The investors, no doubt, have the full right to gain financial benefits from their investment, plug leakages, penalise power theft and offer good services to good payers as per accepted norms. The process so adopted should be transparent and in public knowledge. Anything based on investors' whims and manipulations to gain benefits by denying the public its legitimate right will not be acceptable.
K-Electric appears to be leaving behind a good legacy of providing the city of Karachi, by and large, a reliable power supply. How affordable it is for the consumers of Karachi is debatable. K-Electric or its successor will be required to review on its own initiative, all the bills perceived to be inflated and provide relief to its consumers. It should also implement TOU metering and billing facility as per its commitment and in its own interest and that of its consumers.
Shanghai Electric Power Company, reported to be the successor to Abraaj Capital, needs to honour the commitments to the consumers and their interests. They must be looked upon with the eye of customers and not captive consumers for their sustained growth in Pakistan. Chinese are reported to be good service provider to customers. Hopefully, the new investor will live up to the perceived image.
(The writer is former President of Overseas Investors Chamber of Commerce and Industry)