August Issue 2009

Naveed Ismail’s bio describes him as a turnaround specialist. He’s fixed power plants across the world: Kazakhstan, Georgia, Great Britain, Argentina and Chile. Overhauling the KESC will undoubtedly be one of his more difficult projects. But he seems up for the task. He’s brought in a high-priced management team from abroad to help him along the way (though he claims compensation, even for himself, is in line with going rates in the local market).

Sitting in his plum office, rounds of tea are interspersed with weather updates — it is just a week after heavy rains, and Mother Nature threatens more storms — that he says come every 15 minutes. He prints out pages from a presentation he just gave the National Assembly’s standing committee on privatisation. It’s filled with grand plans and inititatives: new power plants, better maintenance, transmission upgrades, corporate reorganisation and data on operational gains. The politicians were “mesmerised” by the presentation, read one news report. That frustrates Ismail. He thinks the press is unfair. Generally, he’s unhappy with the public’s expectations too: “People are not willing to give us time.”

Interestingly, after two meetings with him, Newsline walked away with details of glowing, KESC-generated progress reports and great plans for the future.  Doing that will only increase the public’s expectations.  As such, Karachi can now hold him personally responsible for any failures.

Q: Loadshedding has caused a lot of misery to the people of Karachi. What is the KESC doing about new power generation?

A: We have already added 180MW of new generation capacity. By the end of October, we are targeting 450MW of new generation. This was my one-year target. We also just signed an additonal deal for a new gas-fired 560MW plant for 2010 and 2011, and then another 200MW. So in three years, we will literally double KESC’s generation. And these new plants will be twice as efficient: they’ll produce the same amount of electricity as an old plant using half the gas.

Long-term, we have new coal plants coming up: one 300 MW and four separate 500 MW plants within five years.

Q: Some people feel it is not infrastructure on the generation side that needs the most urgent attention, but improvements to infrastructure on the transmission and distribution side, as breakdowns interrupt service regularly. What improvements have you made in the distribution system?

A: Investment is needed in all three areas: generation, transmission and distribution. On generation, when we took over the KESC’s 19 units, 13 of them had already outlived their design life. The average age of all 19 units was 28 years. Not much maintenance was done anywhere. Annual overhauls weren’t done. So the capacity was derated: a 210MW plant was only producing 160 or 170 MW, and not very efficiently. So what was happening last year was that an old unit would run for two days and then break down for three. During the winter we tried to get them fixed in such a way that their reliability improved, so in summer, when you need them most, they run more reliably. We couldn’t do overhauls on all of them, but we were able to work on the worst one.

Q: Are you working on improvements in all three areas concurrently?

A: Yes. In terms of transmission, we inherited 54 grid stations. In one year, I have already commissioned five more. In January, I will commission another three. That is a very high percentage increase: 15% in one year.
With new grid stations in, we can install more feeders, more lines. All the overloaded equipment will start running normally. Over 90% of Karachi is running overloaded. When you are running overloaded, there are more breakdowns because you are running beyond the capacity: any weak cable, transformer or breaker is susceptible to a breakdown. With these additions, I will be able to add more, lower voltage 11kV feeders (the backbone for distribution). In 10 months, I have added 10% more 11kV feeders. In three years, I am targeting 35% new 11kV feeders.

Since September of last year, trippings have gone down from 154 all the way to 23. I want to initiate preventative maintenance too. But there are 25,000 kilometres of lines, and I can’t do all the work in one year. Because every time I do preventative maintenance, I have to take the line down. So I have to do them one at a time and put protection relays, devices, instruments to safeguard the system and run it more smoothly. That is where my investment is going. But that is not visible. However, over a period of time, it will bring reliability and improve the quality of service.

Q: The recent rains in Karachi have reinforced the notion that the KESC’s infrastructure is inadequate. Rain causes substations to flood and shut down. Major outages continued for two days in many areas, and five days in others. But there must be some way to protect them, right?

A: There is. But I inherited this system. Karachi is not built for rain, everything gets flooded. Water entered most of the substations and buildings. You can’t build them three to four feet off the ground; you have to build them at ground level. When the water level rises, the water doesn’t go anywhere. This time 11 of our grid stations were flooded. Two hundred and fifty of my substations got flooded. Hundreds of my transformers were burnt or damaged. Most of Karachi’s lines are underground. When water gets into the cable jointings underground, the next time we go to energise them, if the cable is wet or submerged, it bursts. So we had over 600 cable bursts.

In the first 12 hours after the rain, 50% of Karachi had electricity. After 24 hours, roughly 75% had electricity. But that last 25% literally took us street by street to fix those cables, to replace those transformers, to pump out water from those substations and repair damage. We lost a huge amount of money.

Q: Can you make improvements to protect these stations from future rains?

A: Yes. It needs investment. It needs a lot of planning. With those 11 grid stations that got flooded, the key thing is to find a way — I cannot raise them now, the foundations are there, the huge transformers cannot be moved — to protect them. Water is going to enter the channels that the cables run through underground. We will have to see if we can protect the cables with a protective bun so water does not come in. Inside, we have pumps to help cope. But with very heavy rains, we will always have a problem.

Q: Electricity theft is a big part of KESC’s losses. What are you doing about it?

A: We did a survey of Karachi and identified 70 major high-theft areas — we surveyed and mapped them out. Now we are working on how to bring them on to our billing panels with meters and service. These are big areas with thousands of kunda connections. Actually, we remove thousands of kunda connections daily. But removing kundas is not the solution. If I remove kundas, 70% of them are back within 24 hours; 90% within 48 hours. The purpose is to install a meter. And then make sure they pay.

Q: But aren’t there areas that are not even hooked up to the distribution system (Shah Latif Town, Orangi) and out of desperation people are stealing?

A: We are working with the government and with some aid agencies to take our system there. In each area, we may have to come up with a unique solution. Some places may need individual metering, others bulk metering.

Q: Doesn’t it make sense to correct technical losses before electricity theft?

A: No. They should be tackled at the same time. We have technical and non-technical loss reductions, short-term and long-term initiatives. We have disconnection drives for people who actually have meters. We have caught some very prominent personalities. We have caught multinationals and very well known institutions. On a monthly basis, we are doing 55,000-60,000 disconnections — on people who have connections and can afford to pay, but are not paying.

But the issue is not disconnection, because we want them to stay on our billing and keep paying us. So we focus on the reconnection ratio. We have increased the reconnection ratio by 70%.

Q: Some neighbourhoods are said to be worse than others in terms of kunda connections. They have political connections, such as MQM neighbourhoods and PPP neighbourhoods, and hence are untouchable.

A: We have gone to all neighbourhoods for disconnection drives. Each region has its own targets, so our staff must focus on all of them. The no-go areas are the areas in which a law-and-order situation exists. People may start firing at our workers — so we take police mobiles with us. We always work with the local town nazim or local political parties, and we get support. Everyone realises that if KESC gets fixed — Karachi provides 65-70% of the tax revenue and 26-27% of the GDP — then it can be a catalyst for the country’s growth.

Q: There has been much talk about the KESC’s poor fiscal health. Bad debts and non-paying customers are greatly affecting the company’s cash flow. Do you have a plan to tackle defaulting customers so that KESC can pay off its own debts?

A: Yes. But we have an issue with circular debt. The overdue receivables of KESC from government-related entities, GST refunds or tariff-related subsidies is Rs 32.7 billion. The current dues of KESC are Rs 26 billion. Some of these are owed to government companies. So I have asked the government, can we just net these off? That will give me some breathing room.

Yes, we owe some more money to IPPs and others besides that, but if I get that Rs 32 billion, I can pay off my IPPs also. This is where the key issue lies.

Q: How much do you owe to the IPPs?

A: It’s maybe Rs 4-4.5 billion in total. But over Rs 32 billion is stuck with the public sector, with strategic customers like the KWSB (Rs 7.6 billion) creating a serious financial constraint for KESC.

Q: So what are your operating losses?

A: On average we lose Rs 35-40 million rupees a day. That is Rs 1-1.2 billion per month. We are bringing that down. We are reducing non-essential costs, improving collections, reducing T&D losses, improving our generation capacity so that our fuel burn is reduced.

Q: By when do you expect to erase these operating losses and the backload of accumulated debt?

A: I like to think of KESC as a huge diesel locomotive. To put it on the right track, you will have to stop it first. To stop a locomotive at a station, you start applying the brakes at least 2-3 km in advance. Right now we have not only stopped the locomotive but put KESC on the right track. And all the indications, trends and numbers show that a lot of improvements are coming.

Q: Do you think you will see operating profits in the next two, three or five years?

A: Definitely before five years.

Q: The minister of water and power has said that if the KESC does not get a handle on the crisis, it will instruct NEPRA to take over management. What are your views on that?

A: I was a bit amused by that statement. Karachi right now is going through a much better summer than the rest of the country. We are showing a lot of improvement in the system. There was a reason why the KESC was privatised. The government gave up, saying, “We cannot run it.” Now, taking it back to that stage … legally it is not possible. There is an act of parliament and a law protecting privatisation. I’m sure the minister didn’t mean it — it was more of a political statement.

Q: So KESC would put up a fight if the government tried to take over?

A: I’m sure it will be the shareholders’ decision, not the management’s.

Q: Do you think that for power generation the majority of the energy source mix should be coal?

A: Yes. Long-term, the majority should be coal. I think baseload, should all be coal, and on our peak loads, we should use gas. Oil should be completely out of our fuel mix. It is the most expensive and the worst fuel to use to produce electricity.

Q: Are you on track to have your goal of total 450MW available in less than two months?

A: Absolutely. We have already added 180MW. And already in July, 60MW has been commissioned. And so by October I will have 450 MW.

Q: Abraaj has pledged $361 million for the KESC turnaround plan over the next five years. But you have a lot of projects. How are you going to meet all those spending plans?

A: The $361 million is from 71.5% of the shares. The government, who owns 25.6%, has committed its share, which is about $130-140 million. That gives me $500 million of equity. On that I can raise about $700-800 million in debt. This gives me about $1.2-1.3 billion in the next three years. That amount of investment has never gone into KESC before.

Q: Will we have no planned blackouts in December because of reduced winter demand?

A: This year again, one of the things I have to do is annual outages and overhauls. Bin Qasim is 200MW and will have to go down for annual outage. I have to do that if I want to get another five or 10 years of life out of them. And I have to make them more reliable. Winter is the time when we can afford to take them offline. We have to go through a few years of this improvement before people start seeing real results.

Q: Do you feel the public criticism of the KESC, and of you, has been fair?

A: We are a service provider. Yes, sometimes we are struggling, sometimes we are not doing our job right. But I have the facts, the data, and things have improved.