By Syed Shahid Husain
Much has been written on the KESC. But all in vain. The uninformed people running it had boasted in 1999 that given two years' time they would turn it around. The people who promised that are still crowing their achievements both at Wapda and KESC for everyone to see and the people who , in their naiveti believed them are in Jeddah.
All else having failed, privatization offered the only escape from the mismanagement trap the uniformed people have woven around us. One has to privatize to cut the losses and save the consumers from the torture of prolonged shutdowns.
Privatization is intended primarily for two reasons. One, to induct competent management and two, inject fresh investment. Annual Report (2001) of the Privatization Commission (PC) had envisaged sale of 51-74 per cent shares of the KESC by third quarter of 2002. The Asian Development Bank has been relying on our worthless commitments to privatize in its keen desire to burden us with more loans. Incidentally, the goal posts have been shifted again and again.
Failure to privatize the KESC has been a stinging stigma on the capabilities of Privatization Commission. The environment and particularly the investment climate are blamed for lack of progress, which is a chicken and egg situation. If one waited long enough, the utility will simply have disappeared under the rubble of mismanagement.
When we fail to do some thing, we get a vision. Ordinarily, a people without vision to underline their handicap we come up with visions. Wapda has come up with Vision 2025; Ministry of Commerce with Vision 2015 for doubling or tripling our exports and the Privatization Commission, not to be left behind has a simple "Our Vision". To quote the PC: "KESC is likely to be the first privatization in the power sector." It goes on to say that the Government is committed to privatizing all its distribution companies and all its thermal generation plants. That is a lot of bluster."
It was in 1998 that as Secretary, Water and Power this scribe attended the first of a series of meetings of the Privatization Commission, where its Financial Advisor made fancy presentations to about 60 participants for hours. Lunch was served. I asked a simple and apparently an uneducated question. When would the privatization take place? No one had an answer. I advised the PC to save thousands of dollars per month it was paying the Financial Advisor since privatization appeared nowhere in sight. The then Chairman PC blew his top at the unsolicited suggestion, and obviously did not heed the advice.
This was followed by a meeting with the Prime Minister. The same Financial Advisor made a second rate presentation. He must still be in business. It was decided on the suggestion of the present Chairman WAPDA doubling as the Chairman, KESC that the privatization should be postponed for two years so that he could turn the KESC around. One has to ask any one in Karachi to confirm the turn around brought about through his exertions. In one of his visits to the Dawn office he admitted line losses to have been of the order 60 per cent. Somebody is out of ones mind.
It was the year 1994-95 when the utility went into a downward spin, reflecting a phenomenal failure of management. Line losses more than doubled from 17 to 40 per cent in less than 20 years. This table is a microcosm of our management failure and would show that during the military control of the KESC T&D losses have jumped from 38.64 to 40.10 per cent. The KESC claimed "peculiar socio-economic and political environment leading to a law and order situation where even with the present (army -assisted) management it was not possible to reduce pilferage/losses'. This inane admission of helplessness is belated and pathetic and calls for an immediate replacement of the entire top management by professionals for lack of competence and integrity. Not only that; the management must also be punished for its failure.
Then there is the question of ever-rising tariff. The last tariff petition was filed by KESC with Nepra for an average increase of 47.5 per cent. But it soon saw the absurdity of it and filed a revised petition for 16 per cent increase. The KESC also requested for a 10-year's tariff, purportedly to help privatise but actually as a device to derail the process, if it ever were on rail, and to escape the rigours of periodic review of its performance by NEPRA, which has emerged as an independent regulatory authority of sorts, because before deciding on the petition its provides an opportunity to the stakeholders to present their viewpoint. KESC eventually got an average tariff rise of 6.5 per cent and quarterly automatic adjustment tariff for fuel prices up to 3 per cent.
Discriminatory tariff for Karachi consumers is another sore point. It was pointed out that the KESC was charging not only higher tariff than WAPDA but was also charging higher system development charges and security deposit. In spite of gas having replaced expensive fuel, the consumers continue to pay the surcharge etc. Its operation and maintenance expenses were also very high. It had failed to control expenditure on salaries of employees, quite a few of them from the military. Overtime payment also went uncontrolled.
Stakeholders highlighted the following reasons for its failure when contesting KESC's claims before Nepra:
i) KESC's high level of transmission and distribution (T&D) Losses;
ii) non-recovery of receivables;
iii) high operation and maintenance costs and iv) The fear that the tariff increase was being demanded only for facilitating the KESC's privatization and encouraging investors.
Industry has been hit hard by its inefficiency and most have shifted to self-generation. With WTO regime staring in the face, two years, for now, we have virtually killed the industry.
The operational efficiency of KESC has not shown any improvement in spite of full support of the government in men and material. Power plants operate at a lower level of efficiency at an average level of 32 per cent. This level of efficiency is about 6.6 per cent lower than that of IPPs.
One of the recommendations made by the interveners was that the poor performance and consistent failure of the KESC underlined the need for Nepra to invoke Rule-8 and to appoint an administrator by suspending its licence for consistent failure.
The government has handsomely rewarded the KESC for the failure of its management. The government has converted Rs83 billion worth of loans to equity. It supplemented that largesse with an outright subsidy of Rs8 billion. The situation has aggravated to a non-sustainable level, therefore the government sees privatization as the only way out and a multi-year tariff is considered as a prerequisite. The PC has planned that the prospective investor will purchase 51 to 74 per cent of KESC to be able to take over management and control for the utility. Its share has a negative worth, and one will have to be paid to induce him/her to accept a KESC share. It will be very difficult to find an investor for the utility.
Actual cash outflows have mostly exceeded the estimates because of higher actual losses. The inability of KESC management to achieve the stipulated target of losses generates the compulsion to resort to tariff increases or increased borrowing. Limited capacity to borrow money at reasonable interest rates and the counter productive effects on revenue of a raise in tariff compel the government to lighten its burden by paying subsidy.
Nepra has long last reached the most obvious conclusions that the experiments with public sector management through non- traditional methods including the induction of army personnel in uniform as top managers has not shown any significant improvement (more whatsoever) in reduction of technical losses and pilferage. This is a harsh and belated indictment.
Audit by an independent agency is strongly indicated to ascertain facts. KESC suffers from its management. Replacing one top manager with another of equal incompetence will not do. A real professional is required to turn it around. All the failures of the utility are directly ascribable to management failure. Top jobs cannot be earmarked for on the job training of novices. Official T&D losses ranging between 40-42 per cent are only symptomatic of the malaise. Of course, they are unacceptable, and forebode certain collapse of the utility.
Inconvenient truth bears repeating that it is the management that failed even before it got started, because it lacked the skills, competence, training and integrity to measure up to the job. Give the KESC as many raises as they want and yet the utility is bound to sink under their stewardship into a deeper cesspool. It is time that the custodians of the country's fate decided if they would continue to sacrifice national interest over shortsighted corporate considerations?
Official position is vastly different. Following table lists the losses over 17 years. |
Year |
Auxiliary consumption |
Transmission and distribution losse |
| 1985-1986 | 6.66% | 17.01% |
| 1986-1987 | 6.57% | 18.85% |
| 1987-1988 | 6.15% | 18.84% |
| 1988-1989 | 6.09% | 19.77% |
| 1989-1990 | 6.64% | 20.84% |
| 1990-1991 | 7.00% | 23.58% |
| 1991-1992 | 6.94% | 26.00% |
| 1992-1993 | 6.67% | 27.09% |
| 1993-1994 | 6.75% | 27.12% |
| 1994-1995 | 6.69% | 31.83% |
| 1995-1996 | 6.72% | 31.20% |
| 1996-1997 | 6.56% | 35.53% |
| 1997-1998 | 6.75% | 34.62% |
| 1998-1999 | 7.10% | 38.64% |
| 1999-2000 | 6.61% | 40.23% |
| 2000-2001 | 6.68% | 36.81% |
| 2001-2002 | 6.50% | 40.10% |
(D-Eco&Rew-1, 14/07/03)
Speakers at a meeting on Wednesday, terming the proposed privatization of the Karachi Electricity Supply Corporation (KESC) against national interests, demanded that the process be called off immediately.
They were speaking at the All-Parties Conference organized by the KESC Bachao Shehri Action Committee at the PMA House. Representatives of various political parties, including PPP, MMA, PPP Shaheed Bhutto, JUI (Samiullah), Labour Party Pakistan, National Workers Party, etc participated.
They pointed out that the KESC enjoyed a monopoly status in the city and it should have been a profit making organization, but it was facing huge losses which highlighted the mismanagement and rampant corruption in the organization.
They suggested that rather than privatizing the organization, professional management be brought in and the army personnel, presently holding top management posts, be sent back to their parent organization. They also demanded that the workers be involved in the planning process in the organization.
The speakers also suggested that along with the protest movement, demonstrations etc, legal means including the filing of constitutional petition in the superior courts be also considered.
It was suggested that the KESC workers should also form alliances with workers of other organizations, like WAPDA, Karachi Shipyard and Engineering Works, etc that were also facing privatization threat so that they could launch a joint mass mobilization campaign.
They added that the government was privatizing the KESC under the directives from the international financial organizations, and they feared that the public utility would be handed over to some multinational company. They said that the KESC was a sensitive organization and with the foreigners at the helm of affairs, national security would become vulnerable.
They said that to overcome the losses, the private owners would resort to revision (enhancing) of power tariffs and everybody including domestic consumers, shopkeepers, industrialists, regardless of the fact that the person was poor or rich, would be affected.
They said that the industry, particularly the export oriented industry, would be severely affected as, having expensive inputs, they would not be able to compete with the products from other countries in the international market.
Fewer exports on the one hand would affect the exporters and workers in their organizations, while on the other it would translate into less foreign exchange for the country.
They said that the private owners would also resort to mass scale sackings which would further aggravate the already bad unemployment situation in the country. They said that so far the government has privatized over 140 organizations and over 100 of these have been closed down by their private owners soon after the privatization.
They also said that the to favour the future buyer the KESC assets - land,, real estate, etc - were being valued at their book value, which was not more than even 10 per cent of their market value.
They said that if the masses did not join hands and resisted against the proposed privatization valuable national assets would be handed over to some multinational company at rock bottom price.
They said that a few years back the losses of the KESC totalled around Rs 20 billion and at present it stood at around Rs 8 billion and according to the KESC management, the organization would become profitable, in the next couple of years, so there was no justification in selling off an organization that was about to start making profit.
They also suggested that power generation capacity be enhanced by installing new generators so the KESC did not have to buy expensive electricity from the private power plants.
Hafiz Mohammad Taqi, Mohammad Rafiq (PPP MPA), Akhlaq Khan, Shua-un-Nabi, Nisar Shah, Afeef Alvi, Mohammad Ali, Usman Baloch, Khalid Mehboob, Ghulam Sabir, Mufti Usman Yar, S. Hameed Ahmad, Taj Khaskheli, Saleem Bozdar, Shaikh Majeed, Janat Hussain, Zubair Rehman, Riaz Ahmad, Amir S. Awan, Saeed A. Khan, and others also spoke.
(Daily Dawn, 30 December 2004)
Muhammad Nauman
INTRODUCTION:
Frequent power breakdowns for hours, unannounced load shedding, persistence of low voltages & voltage fluctuations and as a consequence, reduction in supply of water has resulted in worst power crises in the history of Karachi, triggering violent protests. The post-privatisation management of KESC has totally failed to address the crisis. Instead of improving its network and system, the KESC management had put all blame on WAPDA, IPPs, as if merely increase in import of electric power from them will solve the problem. Later the statement was modified in the press conference and inadequacy of the inherited system of KESC was also criticized.
It is true that only the new management of KESC can not be blamed. The ongoing power crises of Karachi is the result of processes and policies of adhocism, corruption, inefficiency and bureaucratic control of the State to serve certain interest groups rather than public at large.
This paper is an attempt to trace and highlight the irregularities committed and disregard of public interest in the intent and process of privatization of a public utility so that the citizens and activists know how the major decisions are taken and how the donors shape our State policies, destroy economy and increaseillegitimate foreign debt. The judiciary hopefully takes suo moto action if finds it appropriate. The paper will also look into the systematic administrative changes that KESC has undergone in the past to show how an efficient organization under control of Karachi's citizens, was transformed into a bureaucratic structure controlled by Lahore and Islamabad. Finally the paper will suggest the remedial measures to restructure KESC to improve its performance,make it financially viable, and retain equitable provision, all through local control.
FLAWED PRIVATIZATION STRATEGY AND PROCESS:
The privatization of KESC that was evidently non-transparent and violated even the rules of Privatization Commission of Pakistan and NEPRA Act, had been carried out under the dictates of Donor Agencies to implement the neo-liberal policies that the present regime is religiously pursuing. Thanks to the hot summer, this decision has proved to be a disaster for the residents, commercial concerns and the industry of Karachi from the very outset. The Crises likely to intensify with the coming monsoon rains, that may play havoc if immediate measures are not taken.
The fundamental wrongdoing is inherent in the very first Notice for Privatisation of KESC appeared in the national and international dailies, that reads "The Government of Pakistan through the Privatisation Commission intends to sell up to 51% of its equity interest in KESC to a strategic buyer who would also be given management control…"1.
It declares the decision to sell entire KESC to a single buyer. This was probably decided in haste by the government due to its obsession for privatization and advice from our mai bap donor (Loaner) agencies. How critical are the two parts of this decision will be obvious after going through the procedures & guidelines of privatization process and earlier policy decisions of the government for the power sector privatization.
The very first step of the process of privatization is to identify the entity / entities to be privatized after seeking guidance on all related issues such as pricing, restructuring, regulatory frame work and legal considerations2. In order to identify entity in context of power sector and public utility, the Privatization Commission and the Cabinet should have referred to the Constitution of Pakistan and Government of Pakistan's adopted Strategic Plan for privatization of Power Sector of Pakistan of 1992. The Plan proposes to restructure WAPDA/KESC into a disaggregated system, splitting it in to Generation, Transmission and Distribution entities, with as much competition as practical to induce efficiency. Later in 1994, KESC Restructuring & Privatization Study had recommended to split the operations of KESC in to generation, transmission and distribution. Privatisation and Alternative courses of action for restructuring together with financial analysis were recommended3.
Although the term re-structuring (that includes unbundling) is referred and repeated several times in the process/rules of privatization4, but even then unbundling was not considered. Unbundling of WAPDA had already taken place in 1998, how the same could have been ignored by the Privatisation Commission and the Cabinet Committee.
Vertical and horizontal unbundling of KESC should have been done at that stage by restructuring it. The more capital intensive components like Power Generating Stations, Transmission Lines Networks and the Grid Stations of KESC have been operating satisfactorily from the beginning. It is the Grid Stations' 11 kV part and downward distribution networks and its losses, new connections, billing, theft, preventive maintenance and mal-administration that were to be considered for privatization in one form or another.
It was very much desirable to restructure the Utility and assign only the selective unbundled functions to different private companies. By selling it to one buyer, the spirit of open market competition (Laissez Faire economy) that normally results in improved efficiency and lower costs, was killed. One monster (monopoly) was replaced by another one, and that too of a foreign origin, hence of even less accountability. Handing over the control to the private monopoly will eventually lead to poor performance, regulatory capture, underinvestment and damage to the public interest.
The Strategic Plan and TA had provided guideline for the government to sell only 25% shares initially and then increase it to not more than 51%. But yet 73% shares were handed over to private party in one go. Valuation of assets was also down played that reduced the share price, Government wrote off Rs 57 billion and converted 83 billion to equity, only to please the buyer. One reason given for privatization is abolishing of subsidies as burden on taxpayer. Why then did government award such a huge subsidy to the buyer? The experience of Manila is that citizens continue to bail-out the private sector with huge subsidies.
Even the pre-qualification of the bidders was not carried out as per rule 3 (b) of privatization5 that requires to evaluate whether the prospective bidders are technically and financially in a position to own, manage and operate the assets being privatized. None of the member of the consortium that took over KESC has any experience of managing, operating or maintaining any power utility. On the contrary M/s Siemens being the manufacturer of electric power equipment, would use this opportunity to become monopolistic supplier of all its equipment to KESC at higher costs. Transfer pricing for concealed profits is not confined to multinational pharmaceuticals. If Siemens sells generation equipment, there is a clear conflict of interest since bad service by KESC leads to higher sales of private generation equipment.
The successful bidder failed to deposit the bid money in time. The bid should have been cancelled as per rules of privatization commission and fresh bids should have been invited. The Agreement was announced months after going through closed door negotiations. To date we do not know the details of actual terms & conditions of the agreement.
There is no evidence that the Privatisation Commission also involved NEPRA to examine and approve the investment and power acquisition program and enforce its standards. It was mandatory for the Commission as per dictates of the NEPRA ACT6 that nominates NEPRA to play its statutory role in this regard and oversee the restructuring process and regulate monopolistic services. NEPRA also prescribes the performance standards that include scheduled and unscheduled outages as well as principles and priorities of load shedding. It approves investment and power acquisition programs and requires detailed profile of experience of the applicant in the power sector. But NEPRA has been kept out of this process which is a gross violation of law.
PUBLIC INTEREST HAS NOT BEEN SAFEGUARDED:
Decision to sell a Public Utility has very different consequences from privatization of other industries. Since it affects the access to basic services by the public at large, therefore it requires a special set of principles, regulations and rules to be framed for privatization commission if at all part of basic services are to be assigned to private sector. Neither the government nor the Privatisation Commission considered this seriously. The matter regarding privatisation of KESC should have been publicly consulted and informed consent should have been obtained. But it was not even put in the Parliament to seek advice, let alone sought the consent of the Sindh Assembly. It was also mandatory for the government to get its approval from the CCI, which was never done.
Under the provision of Karachi Electric License of 1913, KESC is bound to provide power supply facility to all consumers of its areas, irrespective of income group and locality. Being public utility under State control, certain priorities could be assigned keeping in mind the public interest. After privatization, given the corruption and inefficiency on part of government functionaries and the loose, maneuverable regulatory body, KESC will act only on profit motivation while approving new connections. Poor localities, old town and rural areas under its jurisdiction, would be neglected. It would not define or maintain performance standards.
The experience of Privatisation of electricity in third world countries has demonstrated that the private monopoly Operators always try to raise tariff, expand network on commercial priorities rather than human needs, investments are delayed, desired reduction in power losses is not achieved. The government subsidies will continue to flow in on pretext of higher fuel prices and meeting any emergency in public interest. In short the stated goals of privatization will never be achieved and this will continue in utter violation of Articles 9, 29 and 38 of the Constitution of Pakistan and degradation of quality of life specially for the general public of Karachi.
DICTATES OF DONOR AGENCIES:
Besides policies of the federal government and WAPDA, it is the Asian Development Bank that has been a major player in halting the further growth of Generating capacity and neglecting rehabilitation and enhancement of the Transmission & Distribution system. The Asian Development Bank, The World Bank, US AID and IMF have effectively forced Pakistan to privatize generation and to opt for privatization of KESC and WAPDA. Governments of Pakistan, strictly adhering to neo-liberal policies, stopped investing in the power generation and extended free hand to donors to push their agenda.
So far KESC has received loans for five projects. The ADB began its assistance to KESC in 1972. From 1972 to 1983 the Bank loans were mainly meant for the Power Plants. From 1984 to 1994 only one loan KESC 5 was approved for improving Transmission & Distribution system. But it could not be materialized because on pretext of non-compliance in maintaining accounts receivable below 3 months of sales. The Bank imposed embargo on award of contracts due to which some procurement could begin in 1993. Later, KESC 6 loan was approved for the period 1995 to 1998, to rehabilitate & Augment Transmission & Distribution System as well as to facilitate restructuring and privatization of KESC.
The ADB together with USAID and the World Bank had been pursuing with the government the restructuring and privatization of both WAPDA and KESC. To promote privatization of Power Sector in line with neo liberal agenda of the G-8, the Banks adopted the policy to put it as conditionality on approving Sectoral Loans7. In this regard Technical Assistances (TAs) were provided to both KESC & WAPDA to conduct studies through Bank's consultants. Donors' agenda is self evident, they represent the interest and policies of G-8 countries and the big transnational corporations who are the share holders/investors of IFIs and earn huge profits by the loans and such privatizations that involve foreign monopolies for take over. But it is our governments that instead of investing in the power sector, prefer to make Presidential and Prime Minister Palaces, buy Mercedes Cars & luxury planes worth billions and spend more on non-productive sectors. Had the present military regime invested in increasing power generation capacity of Pakistan after take over, the country in general and Karachi in particular, could have avoided the Power Crises.
The sequence of policy and sensitive decisions, and coordination between the government and the donors in the power sector of Pakistan is worth noting: From the mid 80s the Government despite having good financial resources, does not invest or develop the power sector. In late 80s it signs the Structural Adjustment Plan with the IMF and adopts Neo Liberal Policies. The donors also do not provide loans for power generation and instead provide Technical Assistance, and depute consultants to conduct studies. The advice comes for privatization of power and energy sectors in 1992. The government approves the reports without critically examining them or putting the reports for public debate to formulate national policy. Based on Donors' recommendation, the government adopts Strategic Plan for Privatisation of Power Sector in the same year and amends WAPDA Act 1994 to privatize its generating plants. The Power Policy is also adopted in the 1994 to attract the private sector to invest in the power sector and ensure sufficient generation capacity. The policy allows full flexibility to independent power producers (IPPs). But instead of improving, we have greater shortage of electric power in the country and this is despite paying exorbitantly high rates to IPPs like Kot Addu and Hubco power plants after succumbing to the Bank's pressure.
WHAT WENT WRONG WITH KESC:
Karachi Electric Supply Corporation was established in 1913 as a joint stock company to provide electric power to Karachi and its adjoining areas. In 1951 the Government acquired 51% of the shares. Subsequently the Government's share was increased to 93% of KESC's total equity and management control was handed over to Pakistan Electric Agencies (PEA) Limited whose nominee was posted as Chairman and Managing Director. But the Government intervention was minimal and it was allowed to run KESC quite independently. Up till 1970s it demonstrated efficiency and professionalism. In 1977 decision to handed over KESC to the province was announced but martial law regime of General Zia Ul Haq acted swiftly to take it back to the central government. As if it was not enough, in April 1984, the martial law authorities handed over its control to the Ministry of Water & Power. The WAPDA Chairman was also made the Chairman of KESC Board, the WAPDA member finance became Chairman PEA Board and a Chief Engineer of WAPDA was appointed as Managing Director of KESC. This was the second phase marked by penetration of Wapda's bureaucracy, inefficiency, increased line losses, increased arrears, delays in completion of power generation units 4 and 5 at Bin Qasim and suspension of reinforcement/augmentation of transmission and distribution networks. Adequate funding was never provided to coup up the system with increasing demand. Later, the tight control of WAPDA was also removed and federal government kept deputing bureaucrats as well as technocrats of its choice through the Ministry of Water & Power.
The process of bureaucratization reached its peak in the third phase after military takeover of the country, when KESC was given under army control in 1999. Pakistan Army has been the biggest defaulter of WAPDA for decades. Inefficiency, corruption, wrong priorities, adhocism, non-transparency, non participation of other stake holders and delays in implementing power projects rose to new heights. During the army control, due to unnecessary harassment of its technical staff, KESC has witnessed the volunteer departure of the most competent technical staff besides the increase in Transmission & Distribution system losses from 17% in 1985/1986 to above 40% in 2001/2002. By 2002, KESC was suffering with nearly Rs 18 billion losses8, whereas KESC has been making profits till 1995 since its birth in1913. Even NEPRA in its document (Nepra/trf-14/KESC-2002/4121-23), parts of which were published in DAWN of July 9, 2003 after three years of Army takeover, says "We agree that the financial condition of KESC has reached an unsustainable level. The experiments with public sector management through non-traditional methods including the induction of army personnel in uniform as top managers has not shown any significant improvement in reduction of technical losses and pilferage".
Thus it is evident that the history of KESC for the last 30 years, has been a history of increased federal control and increased bureaucratization, resulting in inefficiency, corruption, mismanagement and heavy financial losses. KESC in its original form, is a public limited company and it has demonstrated its superior performance as electric power operator, when it was allowed to do so during its first phase ending in 1984. It were the external (federal as well as donors) controls that have been responsible for its destruction.
ALTERNATE RESTRUCTURING:
The new management has done nothing to reduce Transmission & Distribution System losses that remain nearly 40%. It has hardly put any money in reinforcement and augmentation of the distribution system, in increasing the capacity of Grid and Sub Stations that was promised in the agreement. Similarly, there are no signs of construction of new power plant for Karachi as promised. The management has also miserably failed to address the issues of reliability of supply, proper adjustments of protective Relays & Protection system or introduce the concept of preventive maintenance. No improvement in management or reduction in corrupt practices in billing, sanctioning of load and permission for new connections is visible.
Disregarding non transparency and possible foul play in privatization, it is true that all the problems public is facing, already existed with lesser intensity. Handing over the management control back to the old guards will not solve the problem. It will have to be radically reorganized and restructured. The alternate Restructuring should acknowledge that markets will not satisfactorily mediate critical social relationships of rights and obligations in essential services. In other words, reforms should not diminish the social responsibility towards citizen rights in exchange for efficiently responding to consumer privileges. The restructuring should encompass unbundling as well as both institutional and organisational restructuring of KESC. Reasonably efficient power supply has to be provided at affordable prices to all citizens. If this means that a minority will have to switch off air conditioners or depend upon self generation, then that must prevail until the rich pay their fair share of taxes. Conversion of the bureaucratic organization to a performance based, effectively regulated, transparently monitored organization should be the objective of restructuring.
To begin with, the Federal Government should revoke the agreement with the new management of KESC and preserves the principle of public ownership of this vital public utility. To facilitate decentralization in unbundling, shares should be transferred to Sindh government, CDGK and towns of Karachi district. The KESC should then be restructured and vertically unbundled in Generation & Transmission, Grid Stations, Primary & Secondary Distribution systems. The ownership and management control of the unbundled entities is to be transferred as under:
· Generation and Transmission to the Government of Sindh,
· Grid stations to the City District Government
· Primary & Secondary Distribution system to the Towns
Accountability demands that the federal government should hold an enquiry through a commission headed by renowned judges of the superior courts, to fix responsibility on those who are responsible for this shabby deal. Disciplinary action against those who are found guilty should be taken.
The City District Government of Karachi through invitation of public tenders, should award the management contract of the primary and secondary distribution system of the 52 (or so) Grid Stations to local private parties with the responsibility to operate and maintain the distribution system, manage billing and provide new connections in their respective service areas. These private operators will also be responsible to invest in rehabilitation and modification of existing distribution system. But expansion in 11kV distribution system would be the responsibility of the respective Towns till such times when the new operators develop the financial and technical capability of the same. This would give opportunity to more than 50 local entrepreneurs / companies to get business and improve economy of the City instead of handing over KESC to foreign monopoly that will take huge profits out of country. Payments to the operators should be linked to their performance such as availability of power, new connections, reduction in Distribution losses and bill collection efficiency etc. Management Contracts in this regard may be drafted carefully and put to public scrutiny before finalization. Creation of a new Local Regulatory Body at City level would be necessary to generate competition, increase efficiency and reduce costs since NEPRA will remain subservient to Islamabad. The regulations should be formulated by the City Council after going through public hearings and building informed consent. The City Council will also act as Oversight body for the regulators.
FINANCING LOSSES:
Financing will definitely be a core issue. The problems have developed because after 70s, no government made investments in generation, or put the desired investment for rehabilitation and augmentation of T & D system. Therefore it is the obligatory for the Government of Pakistan to continue its annual subsidy of the tune of Rs. 12 billion to KESC to minimize its losses, for a maximum period of next three years. It is expected that the level of government subsidy will substantially reduce as the new operators will also be investing in the system and stopping leakages that affect their profits. For public financing of other activities, funds may be raised through tax-exempt municipal bonds issued by the City Government.
ADDITIONAL GENERATION:
Last week the government allowed WAPDA to come up with new generation schemes. Therefore it will be logical that the government also invests in increasing Generation capability of the industrial hub of the country by installing combined cycle generating units at the sites of Korangi Thermal Power Plant, Bin Qasim Plant and West Wharf Power Plant. All three sites already have a developed infra-structure and switch yards connected to transmission networks and conversion to combined cycle will also improve efficiencies of these plants. Capacities of Korangi Township Plant and SITE Station may be enhanced with or without participation of private sector, as a short term measure to provide peak loads.
The Alternate Energy Board has demarcated lands for establishment of Wind Parks near Gharo and has signed at least three LOIs and has leased out some land for the same. To date no scheme is coming up despite the assurance of government to purchase the power generated. Initial investment levels for wind parks will be higher than the conventional ones. Therefore they might demand higher rates for their units sold. Keeping in mind the trend of increase in fuel cost for conventional plants and environmental considerations, the government should consider the subsidy in this regard like European governments. Future is wind energy. Europe is aggressively pursuing wind energy and its share will reach 25% of the entire generation in next 20 years. The investment and subsidies in power sector may look exorbitant and questions of finance is raised, but at the end it is a question of priorities whether we need military hard ware worth over US$ 6.5 billion or power plants and T & D networks to keep our industries running and save our economy and people from slipping into dark ages.
MEASURES TO SUPPRESS PEAK DEMAND:
Immediate and cost effective measures are needed to lower the peak demand of the load till Karachi gets additional power with reliability. It is an irony to have 40% shortfall in generating capacity of the city and yet a very high air-conditioning load is being maintained. If the television advertisements are some indication, the A/C load is increasing at an alarming rate. Measures like revising tariff for commercial and residential consumer's category to make it progressive (higher for those having higher demand) and installation of time of the day meters to charge at higher rates during peak hours could be considered. After defining new tariff rates, penalties may also be imposed on those who are violating these guide lines. All the street lights, Neon signs and bill boards etc may be controlled through solar cells that will keep them off from sun rise till late evening. Solar cell circuits will be very cheap to install. Higher charges for consumption of electricity by such loads may be introduced. After all we should not promote excessive consumption of non-essential consumables at the cost of industrial production, commercial and office activities and residential demand. Penalties may be imposed on shops, restaurants, marriage halls and on all such commercial installations that light any bulb outdoor or in front part of premises, from 6 pm to 9 pm. Town councils may assign special magistrates for this purpose. Energy saving devices and bulbs may be promoted in the residential areas.
Installation of Co-generation in large commercial buildings and industry is to be promoted and necessary incentives should be given because of its efficiency and hence reduced fuel costs.
Needless to say that had there been a popular government responsible and responsive to public needs, peak demand could have been reduced drastically through guidelines and pursuance, no punitive measures were required.
References:
1. Preliminary Notice: Privatisation of the Karachi Electric Supply Corporation DAWN March 27,1998
2. Privatisation Process, Document of Privatisation Commission at its website
3. TA 1655-PAK, Final Report issued Sept 1992 from Asian Development Bank
4. Privatisation Process, Document of Privatisation Commission at its website
5. Privatisation (Modes and Procedure) Rules, 2001, Privatisation Commission
6. NEPRA ACT of 1997 National Electric Power Regulatory Authority
7. RRP:PAK 25389 KESC SIXTH POWER (SECTOR LOAN) PROJECT
8. 90th Annual Report 2002, KARACHI ELECTRIC SUPPLY CORPORATION (LTD)
Contact Information:
Muhammad Nauman, department of electronic engineering
NED University. Cell: 0345-2228006, Res: 34990566
VIEW: Autopsy of the power crisis —Ralph Shaw
Few would dispute the fact that WAPDA and its successor organisations are run by dunces and third rate planners. In addition to these nincompoops' incompetence, their venality is second to none
Load shedding is not the latest but it is arguably the greatest humiliation inflicted upon the demoralised people of Pakistan. But being just that — a demoralised lot — Pakistanis suffer in silence. A weak civil society and years of autocratic military and non-representative democratic governments have fostered a sense of powerlessness and disenfranchisement in the people. Consequently Pakistanis stoically accept the crippling power blackouts as one more indignity an unjust system of governance has heaped upon them and trudge along. In more advanced societies, where the political systems are more accountable to the governed, responsibility would have quickly been fixed on the bureaucrats, ministers and technocrats involved in the failure and heads would have rolled, but not so in Pakistan. In the US, for example, the 2001-2002 California energy crisis was a major factor in the call for the special gubernatorial election of 2003 and the downfall of Democratic governor Gray Davis who, it is alleged, mishandled the growing energy problem, partly because of his indebtedness to the energy producing companies.
In Pakistan, fixing responsibility for the continuing power debacle is not so straightforward. The present government blames it all on the previous one, while the members of the ousted one attribute the power shortages to the impressive economic growth and the consequent increase in the demand for energy during their incumbency. The prosperity argument is not without merit but it does not absolve the previous government from its share in creating the crisis. Failure to invest in the power infrastructure is a failure nonetheless. Actually it is a failure that borders on criminal behaviour in the popular, if not the legal, reckoning and the miserable masses want to know why their pathetic lives have been further degraded. An investigation must be conducted and the people responsible must be named and blamed and each must be given his comeuppance for his part in this crime.
However, the present government cannot evade responsibility by smugly blaming the previous one. The independent power producers (IPPs) are not operating at full capacity because the federal and some of the provincial governments owe them money through WAPDA and the IPPs claim that they, in turn, owe money to the oil companies. The accumulated circular debt is the major factor contributing to the exponential rise in load shedding. Why this debt cannot be retired enabling the IPPs to operate at full generating capacity needs to be explained to a sceptical public. Some opposition leaders claim that the power crisis is a manufactured one because it enables marketing of the idea of rental power. These speculations can be put to rest only if the people are informed truthfully about the available IPP power potential and whether or not it can be brought into service.
The controversial 1994 power policy that gave IPPs their boost in Pakistan was, allegedly, fraught with corruption in its design and its execution. Of the 21 companies investigated by NAB, six eventually confessed to paying bribes to high level officials even though, during the investigation, they had signed sworn statements to the contrary. The policy was also considered uneconomical and politically risky. It was argued that off-loading power production to private investors was more costly because IPPs were thermal plants. As for the political risks, for all the general public knows, the IPPs could be operating below par for political and not financial reasons. It certainly looked like that in the run up to the 2008 elections when there was a monumental spike in load shedding. However, in spite of the kickbacks involved, the 1994 policy was largely successful in bringing private generating capacity online and overcoming the power shortages. Had it not been replaced by, as some claim, the politically motivated power policy of 1998 and had Pakistan's economy plodded on at the 3-4 percent growth rate typical of the late 1990s, Pakistan would presumably have had enough power until 2010. But there were the post-9/11 years in between with massive inflows of capital, 6-8 percent annual growth rates, and the failed power policy of 2002, which did not bring enough power into the system.
Mismanagement and corruption were at work at comparatively lower levels as well. Few would dispute the fact that WAPDA and its successor organisations are run by dunces and third rate planners. In addition to these nincompoops' incompetence, their venality is second to none. The top appointees are either from the elite class of Pakistan or have obtained the lucrative positions by virtue of being conduits for corruption. Sometimes the two distinctions coincide. Privilege and corruption over merit is a fact of life in virtually all organisations in Pakistan, including WAPDA and the ministries. When senior positions are held by inferior people of mediocre abilities, it lowers the morale and professionalism of the entire organisation. This seems to be the bane of public and private organisations throughout Pakistan. It also is a major contributing factor to the present power woes of the country.
It appears that the government has effectively bought out the cable TV channels on the power issue. The talk shows are not giving enough coverage to the issue. It is an intriguing fact that there are hardly any meaningful programmes and debates on one of the biggest issues of the day. When the media was out to remove Musharraf, channels regularly indulged in the favourite pastime of the era, which was Musharraf-bashing. It was great entertainment for the masses, profitable politics for the opposition, and sound economics for the channels; it even achieved the desired outcome. However, the failure of the electronic media to speak forcefully on the electrical power issue and hold the government accountable for its electrical power misdeeds is indicative of its strings being controlled by the powers-that-be. The truth is that the media has not even informed and educated the people accurately on this issue.
Power shortages in the country need to be resolved fast. Like much else in Pakistan, the power crisis is essentially a crisis engendered by the incompetence, corruption, and politics of the few. Load shedding is the paramount issue affecting most Pakistanis and in spite of their demoralised state, the load shedding induced resentment and frustration that is brewing in the masses could boil over on to the streets on a much larger scale than it has so far.
Ralph Shaw is the pen name of a freelance writer, who lives and works in Pakistan. He can be reached at ralphshaw11@gmail.com
Straight Talk - The RPP Rip Off. (The Nation, Sunday, 7th November, 2010).
While the government continues to protest against the TI Corruption
Perception Report 2010, corruption in Pakistan continues to be on the rise.
The recent Hajj fraud, the $260 billion gold mine scandal, which according
to reports, are being sold off for a song to two US Consortiums behind
closed doors, the massive bank loan write offs and the Rental Power Plants,
which have been described as the 'Biggest Crime in the History of Pakistan',
are already surfacing on the horizon.
The CJ has taken Suo Motto action against these cases and has asked the
relevant government authorities and the banks to submit their reports.
Regarding the RPP Rip Off, our Deep Throat has revealed that in the first
quarter of 2008, the government, under the instructions of PM secretariat,
launched a country wise load-shedding program, to show a power deficit and
create a countrywide demand for the purchase of Rental Power Plants.
The objective was to force factories to shut down on a large scale and
create unemployment, which would then lead to protests and riots and this is
exactly what happened.
A bill was hurriedly presented to the cabinet for approval in the 2008
Budget and was immediately passed in parliament, allowing the government to
import 14 Rental Power Plants, through Their 'Favorites' so that they could
earn black money through their importation.
Banks were pressurized, advances were given and LCs opened for the
importation of the RPPs. If it had not been for the ADB report and the
timely objections of certain opposition members, who exposed the truth and
the losses the country would suffer, Pakistan would have been, once again,
up the creek, without a paddle.
I know that it does sound far-fetched and seems to be more of a conspiracy
theory by the 'Enemies Within' and the 'Hidden Hands', to destabilize the
government. But Faisal Saleh Hayat, a seasoned politician and an avowed
critic of the RPPs, who had leveled charges of kickbacks and corruption
against the government, has stated that he would quit politics if he failed
to prove his charges.
Due to the power shortage, there have been riots and tyre burning in the
cities and the industry has also joined the protests and threatened that
they will go on a strike because of load shedding.
The contracts of first two RPPs were awarded to two US firms, GE & PRR,
through local agents, headed by a nephew of PM, which included an additional
10% commission. Mobilization advance of up to 45% (Pak Rs.18 Billion) have
been paid against just insurance guarantees and without any warranty.
Out of the planned 14 RPPs, three have been installed and commissioned, but
only one was capable of generating 96 MW electricity on the test run. The
$135 million, 150 megawatt rental power plant installed in Samundri, has
consumed furnace oil worth Rs225 million, provided by the government, is yet
to pass a mandatory reliability test run to join the national transmission
system.
Because of its old age, the Chinese plant failed its first test conducted in
June by the Asian Development Bank and the cost of the furnace oil was born
by The Northern Power Generation Company, a state entity.
The others are still out-of-order and PEPCO has informed the Supreme Court
that a penalty of Rs.190 million has been imposed by the government on three
rental power projects, for failing to come on line by their deadlines, but
the penalty has yet to be paid by the defaulters.
On 4th October 2010, The Supreme Court summoned Mr. S. Hayat to substantiate
his charges, where he stated that Pakistan's power general capacity was
about 19,478 MW, against the total electricity demand of 18,200 MW. He
accused the government for creating a deliberate deficit of 6,000 MW, by not
supporting IPPs and not providing Furnace Oil to Thermal Power Plants.
In July 2010, ADB conveyed to the government that most of the contracts
signed by the Private Power and Infrastructure Board (PPIB), seemed heavily
tilted towards private investors, without taking care of interests of the
government and consumers. They also did not meet international economic
standards of prudence and fairness.
On 30th September 2010, the ADB report highlighted major inconsistencies and
weaknesses in the contracts, violation of procurement and regulatory
procedures, lack of available capacity utilization and up to 87 per cent
increase in customer tariff in two years. It said that the 14 RPPs would not
eliminate the load shedding and also put a additional financial burden of up
to Rs. 200 billion on the government, which in turn would be recovered from
the consumers.
According to our DT, the fuel consumption of the RPPs is much higher and
with the lower pay back time and the mobilization advances of 18 billion, it
has made these rental power plants more expensive than the normal power
plants.
Due to the intervention by Supreme Court, the government has suspended the
Contracts of six RPPs out of the 14, until further orders.
However, though more expensive, RPPs seem to be the only 'quick fix'
solution, as they can be shipped quickly, installed easily and be
operational within a few months. Countries like China and Turkey have also
used these expensive RPPs as stopgap measures to meet their increase in
demand for power.
In their case, their use can be justified, as these countries have witnessed
a massive increase in industrial growth, but in our case, industrial growth
has been stagnant for many years and the power crisis is purely due to bad
planning, mismanagement and corruption.
In Kenya, which is ranked 154 in the TI Corruption Perception Index, its
Foreign Minister resigned, just because there were allegations of corruption
against him. Whereas in Pakistan, ranked 143, (less corrupt), where there
are numerous cases, with documented evidence of corruption, not a single
minister or senior officer has resigned or even had the courtesy to
apologize to the nation for their sins of omission and commission.
Instead, the government has just rubbished the reports and has accused the
accusers of being politically motivated and agents of foreign governments,
with an agenda to destabilize the government. TI has chastised the
government over its negative statements on the TI Corruption Index Report
and has warned that it is in violation of the UN Convention against
corruption.
So the question is how can we, the citizens, stop this cancer of corruption
before it is too late?
Hamid Maker. (Email: trust@helplinetrust.org
<mailto:trust@helplinetrust.org> ).
