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POWER STRUGGLE: Now You See It, Now You Dont
By Shamim-ur-Rahman
The Karachi Electric Supply Companys new management, headed by Abraaj Capital, has promised Karachiites that they will not be subjected to prolonged power cuts.
Many believe it was a deliberate tactic used by the KESCs previous privatised management to extract a waiver on outstanding dues from the government and other suppliers.
Only time will tell how credible this promise is. Recently Shan Ashary of the Al Jomaih group had told Speaker of the Sindh Assembly that the KESC management was not being transferred to Abraaj or any other group. Abraaj was putting in $360 million in equity and they would be equity partners. However, the present owners would have the majority shares and continue to own and operate the utility.
Whatever may be the case, a new team has taken charge of the KESC and only time will tell to what extent it will succeed.
Technical experts and representatives of civil society are of the view that the prevailing power crisis is the result of the previous governments policies and misuse of institutions. It required a policy change so that the institution was made accountable to the public. But the manner in which the change of guard at the KESC was allowed to take place much before the expiry of the three-year mandatory period for not off-loading the shares of the company by Aljomaih, does not reflect any policy change. It is not yet clear to what extent the new bosses have succeeded in extracting concessions and what the fate of liabilities Aljomaih had built up over a period of three years will be. Another pertinent question is: what will be the fate of the mortgaged assets of the KESC?
At a recent meeting of the Institute of Engineers Pakistan (Karachi Centre), Institution of Electrical & Electronic Engineers Pakistan (Karachi Centre) and the Pakistan Engineering Council, chaired by Senator Rukhsana Zubairi, Chairperson of the Pakistan Engineering Council, it was observed that General Musharrafs government did not act in public interest when it failed to enhance the generating capacity and rehabilitation of the transmission and distribution systems of the KESC, during his nine-year rule.
The privatisation of public utilities like water and power is qualitatively different from all other privatisations. It is considered against the spirit and the fundamental rights guaranteed in the 1973 Constitution of Pakistan. Such privatisations undermine democratic provisioning of basic services. While accepting the idea of privatisation of electricity, the previous government did not consider the experiences of such privatisation in Third World countries where it had already failed.
The Privatisation Commission (PC) and the previous government acting on the advice of the Asian Development Bank privatised the KESC without unbundling its generation, transmission and distribution as envisaged in the Power Policy of 1992. Restructuring and creating multiple companies, particularly in distribution, could have created a competitive environment; but selling it as one entity debarred local investors and resulted in creating another monopoly. Experts believe that the privatisation process itself has faltered where the Privatisation Commission blatantly violated its own rules and regulations. It did not work out the Investment requirement of the KESC either individually or in consultation with NEPRA, which was mandatory. No document regarding the agreed investment plan from the bidders has been made public, said Muhammad Nauman of the NED University and the Institute of Electrical Engineers.
The Privatisation Commission did not scrutinise the relevant experience of the Consortium, in managing or operating power utilities, even though the RFP package clearly required submission of technical and financial proposals by bidders.
At the time of privatisation the book value of property worth more than Rs250 billion was reduced to Rs22 billion. The share price was artificially reduced and government loans were either waived or converted into equity. Sources said the Privatisation Commission failed to comply with various sub-provisions (including f, g & k) of Clause 5 of the Privatisation Commission Ordinance 2000. and Clause 4 of (Hiring of Financial Advisors) Regulations. It also did not follow the Due Diligence, enacting the much-needed regulatory and sectoral reforms, valuation of property, pre-bid and post-bid matters envisaged in the privatisation process. Experts are of the view that it was NEPRAs statutory duty to deliberate on KESCs investment and power acquisition programmes. The KESC system was not supposed to be handed over to the new management before scrutiny and approval by the Privatisation Commission and NEPRA. Secondly, the operator (KESC) must have supplied its technical and financial proposals in reasonable detail for the operation, maintenance, planning and development of the generation, transmission and distribution systems as well as technical details and design of the facilities proposed to be acquired, constructed, developed or installed, along with the application for issuance of licence in accordance with the Sub-Clause (5) (g) of Clause 3 of NEPRA Licencing (Applications & modification Procedure) Regulations. The above information should have been made public. NEPRA was either excluded from this process or it did not carry out the process.
NEPRA should have intimated the private management of the KESC at the time of privatisation that if the KESC did not comply with the Rule 9 & 10 of the performance standards (Transmission) Rules, 2005 regarding regular reporting of service characteristics, such as voltage and stability, scheduled and unscheduled outages, principles and priorities of load-shedding etc., within say in first six months, then the licenses would stand suspended and some authority would take over KESC operations.
But NEPRA, despite written requests from the consumers/citizens of Karachi, has been conducting public hearings on crucial matters like award of the special transmission licence and increase in tariff of the KESC at Islamabad and not in Karachi. It has not taken into consideration the Multi-Year Tariff (MYT) policy agreed at the time of privatisation. It does not share proceedings or provide transcript of the hearing despite repeated requests by consumers; a blatant violation of the NEPRA Act.
When the KESC was privatised under Al-Joumiah Management, equipment and cash worth Rs13.2 billion were handed over to it to complete transmission network and grid stations.
Most of the contracts were awarded to Siemens without transparency and at higher rates. Many of these could not be completed as per initial schedule without any justification.
In 2006 the KESC tried to import used generating plant of low efficiency and high probability of repeated breakdowns as witnessed by frequent breakdowns of the old generating units.
Another plant was announced to be commissioned in September 2007 at the KTPS, but is still undergoing commissioning.
This year an agreement was signed for gas turbine units at Bin Qasim Station through the loan taken at high interest rates and service charges. There has been no open bidding and the award of contract was not transparent.
Due to mismanagement and lack of investment from the privatised owners many power plants, grids and land of the KESC have been mortgaged.
The old power plants are not maintained properly because the management does not meet funding requirements. The old plants have become unreliable and outages are on the increase.
Generating units were deliberately shut down for longer periods to save fuel charges at the expense of enormous production loss of industrial units. Line losses are still high and load-shedding has increased to unprecedented levels. Non-transparency was evident in every matter. Problems of utility increased manifold as the KESC could not pay PSO and Wapda their dues.
Everything was at a standstill since June 2008. No purchases, no appointments. Work on many projects attaining 95 per cent completion was suspended. The new management, Abraaj Capital, has promised to turn around things in time to come and has pleaded that it should get some time for it.
Nothing has been made public, but it is believed that all matters between the Al-Joumiah group and the incumbent Abraaj group have been settled. The new management is in discussion with the government with regard to a major investment. The parties were seeking permission from the government for transfer of management to a new group through dilution of shares. Special permission was necessary as the Share Purchase Agreement of November 14, 2005 prohibited the Al-Joumiah group from selling shares for three years. It is understood that the change of guard at the KESC was announced after acceding to its demand.
Against this backdrop there was a growing demand to force the Privatisation Commission, NEPRA and the KESC management to share all the information about the deal with the public and get informed consent from the Citizens of Karachi. The most important question is: why havent the Aljomiah group and others been penalised for deliberately subjecting the city to prolonged outages that not only added to the citizens woes but also undermined industrial production and caused loss of billions of rupees? If they are not penalised, the government will be guilty of abetting in crime against national interest.
By Shamim-ur-Rahman
The Karachi Electric Supply Companys new management, headed by Abraaj Capital, has promised Karachiites that they will not be subjected to prolonged power cuts.
Many believe it was a deliberate tactic used by the KESCs previous privatised management to extract a waiver on outstanding dues from the government and other suppliers.
Only time will tell how credible this promise is. Recently Shan Ashary of the Al Jomaih group had told Speaker of the Sindh Assembly that the KESC management was not being transferred to Abraaj or any other group. Abraaj was putting in $360 million in equity and they would be equity partners. However, the present owners would have the majority shares and continue to own and operate the utility.
Whatever may be the case, a new team has taken charge of the KESC and only time will tell to what extent it will succeed.
Technical experts and representatives of civil society are of the view that the prevailing power crisis is the result of the previous governments policies and misuse of institutions. It required a policy change so that the institution was made accountable to the public. But the manner in which the change of guard at the KESC was allowed to take place much before the expiry of the three-year mandatory period for not off-loading the shares of the company by Aljomaih, does not reflect any policy change. It is not yet clear to what extent the new bosses have succeeded in extracting concessions and what the fate of liabilities Aljomaih had built up over a period of three years will be. Another pertinent question is: what will be the fate of the mortgaged assets of the KESC?
At a recent meeting of the Institute of Engineers Pakistan (Karachi Centre), Institution of Electrical & Electronic Engineers Pakistan (Karachi Centre) and the Pakistan Engineering Council, chaired by Senator Rukhsana Zubairi, Chairperson of the Pakistan Engineering Council, it was observed that General Musharrafs government did not act in public interest when it failed to enhance the generating capacity and rehabilitation of the transmission and distribution systems of the KESC, during his nine-year rule.
The privatisation of public utilities like water and power is qualitatively different from all other privatisations. It is considered against the spirit and the fundamental rights guaranteed in the 1973 Constitution of Pakistan. Such privatisations undermine democratic provisioning of basic services. While accepting the idea of privatisation of electricity, the previous government did not consider the experiences of such privatisation in Third World countries where it had already failed.
The Privatisation Commission (PC) and the previous government acting on the advice of the Asian Development Bank privatised the KESC without unbundling its generation, transmission and distribution as envisaged in the Power Policy of 1992. Restructuring and creating multiple companies, particularly in distribution, could have created a competitive environment; but selling it as one entity debarred local investors and resulted in creating another monopoly. Experts believe that the privatisation process itself has faltered where the Privatisation Commission blatantly violated its own rules and regulations. It did not work out the Investment requirement of the KESC either individually or in consultation with NEPRA, which was mandatory. No document regarding the agreed investment plan from the bidders has been made public, said Muhammad Nauman of the NED University and the Institute of Electrical Engineers.
The Privatisation Commission did not scrutinise the relevant experience of the Consortium, in managing or operating power utilities, even though the RFP package clearly required submission of technical and financial proposals by bidders.
At the time of privatisation the book value of property worth more than Rs250 billion was reduced to Rs22 billion. The share price was artificially reduced and government loans were either waived or converted into equity. Sources said the Privatisation Commission failed to comply with various sub-provisions (including f, g & k) of Clause 5 of the Privatisation Commission Ordinance 2000. and Clause 4 of (Hiring of Financial Advisors) Regulations. It also did not follow the Due Diligence, enacting the much-needed regulatory and sectoral reforms, valuation of property, pre-bid and post-bid matters envisaged in the privatisation process. Experts are of the view that it was NEPRAs statutory duty to deliberate on KESCs investment and power acquisition programmes. The KESC system was not supposed to be handed over to the new management before scrutiny and approval by the Privatisation Commission and NEPRA. Secondly, the operator (KESC) must have supplied its technical and financial proposals in reasonable detail for the operation, maintenance, planning and development of the generation, transmission and distribution systems as well as technical details and design of the facilities proposed to be acquired, constructed, developed or installed, along with the application for issuance of licence in accordance with the Sub-Clause (5) (g) of Clause 3 of NEPRA Licencing (Applications & modification Procedure) Regulations. The above information should have been made public. NEPRA was either excluded from this process or it did not carry out the process.
NEPRA should have intimated the private management of the KESC at the time of privatisation that if the KESC did not comply with the Rule 9 & 10 of the performance standards (Transmission) Rules, 2005 regarding regular reporting of service characteristics, such as voltage and stability, scheduled and unscheduled outages, principles and priorities of load-shedding etc., within say in first six months, then the licenses would stand suspended and some authority would take over KESC operations.
But NEPRA, despite written requests from the consumers/citizens of Karachi, has been conducting public hearings on crucial matters like award of the special transmission licence and increase in tariff of the KESC at Islamabad and not in Karachi. It has not taken into consideration the Multi-Year Tariff (MYT) policy agreed at the time of privatisation. It does not share proceedings or provide transcript of the hearing despite repeated requests by consumers; a blatant violation of the NEPRA Act.
When the KESC was privatised under Al-Joumiah Management, equipment and cash worth Rs13.2 billion were handed over to it to complete transmission network and grid stations.
Most of the contracts were awarded to Siemens without transparency and at higher rates. Many of these could not be completed as per initial schedule without any justification.
In 2006 the KESC tried to import used generating plant of low efficiency and high probability of repeated breakdowns as witnessed by frequent breakdowns of the old generating units.
Another plant was announced to be commissioned in September 2007 at the KTPS, but is still undergoing commissioning.
This year an agreement was signed for gas turbine units at Bin Qasim Station through the loan taken at high interest rates and service charges. There has been no open bidding and the award of contract was not transparent.
Due to mismanagement and lack of investment from the privatised owners many power plants, grids and land of the KESC have been mortgaged.
The old power plants are not maintained properly because the management does not meet funding requirements. The old plants have become unreliable and outages are on the increase.
Generating units were deliberately shut down for longer periods to save fuel charges at the expense of enormous production loss of industrial units. Line losses are still high and load-shedding has increased to unprecedented levels. Non-transparency was evident in every matter. Problems of utility increased manifold as the KESC could not pay PSO and Wapda their dues.
Everything was at a standstill since June 2008. No purchases, no appointments. Work on many projects attaining 95 per cent completion was suspended. The new management, Abraaj Capital, has promised to turn around things in time to come and has pleaded that it should get some time for it.
Nothing has been made public, but it is believed that all matters between the Al-Joumiah group and the incumbent Abraaj group have been settled. The new management is in discussion with the government with regard to a major investment. The parties were seeking permission from the government for transfer of management to a new group through dilution of shares. Special permission was necessary as the Share Purchase Agreement of November 14, 2005 prohibited the Al-Joumiah group from selling shares for three years. It is understood that the change of guard at the KESC was announced after acceding to its demand.
Against this backdrop there was a growing demand to force the Privatisation Commission, NEPRA and the KESC management to share all the information about the deal with the public and get informed consent from the Citizens of Karachi. The most important question is: why havent the Aljomiah group and others been penalised for deliberately subjecting the city to prolonged outages that not only added to the citizens woes but also undermined industrial production and caused loss of billions of rupees? If they are not penalised, the government will be guilty of abetting in crime against national interest.
