August Issue 2009

Heavy downpours hit Karachi on July 18, and crippled life in the city. All thoroughfares, small streets and low-lying areas were flooded within a short time, due to unusually heavy rain — according to Met Office figures, 205mm in one day. At least 17 people lost their lives and dozens more sustained injuries in various parts of the city, as houses and other properties were destroyed. Adding to the emergencies, the whole city was plunged into darkness, as the entire power distribution system of the Karachi Electric Supply Company (KESC) collapsed due to the flooding and tripping of various grid stations, downed electrical poles and damaged transformers.

The power outage lasted for days in many parts of the city, despite the fact that most other emergencies were resolved much earlier. In many districts, the power outage was a hurdle in pumping out rainwater, which, in turn, affected other services. The ordeal lasted for four to five days in many parts of the city, as KESC management failed to restore electricity in those areas on one pretext or the other. In some parts, the problem was due to technical faults, whereas in other localities, people burnt KESC offices or tortured staff of the utility, resulting in even more power cuts and delayed service.

KESC authorities themselves admitted that, after three days of monsoon rain, about 20% of Karachi was still without power because of damaged pole-mounted transformers, cable faults, inundated substations, and other problems with the KESC’s vulnerable and weak transmission and distribution systems.

From poor regions like Baldia Town, Mehmoodabad, Akhtar Colony, Safoora, Landhi, Korangi, Malir and Quaidabad, to posh areas like Garden, North Nazimabad, Paposh Nagar and Defence, people suffered across the board. “We felt helpless, as KESC complaint centres were not attending to our complaints,” said Mohammad Anwar, a resident of Phase-V, Defence Housing Authority (DHA). He complained that all food items in his refrigerator were spoiled due to the four-day power outage.

The continuous power outage created unrest among the city’s denizens, already frustrated due to prolonged loadshedding on normal days. Enraged protesters blocked the main roads of the city, attacked the offices of the KESC and set tyres on fire to vent their anger. According to KESC, at least 21 of its offices in various parts of the city were attacked by angry mobs after the rain-related power outage. In some areas, the protesters pelted stones at moving vehicles and blocked the roads. The road blockades resulted in intense traffic jams in already congested regions of the city.

Some localities saw KESC management call in the Rangers and police to guard its installations, while elsewhere, the protesters actively confronted the police, who resorted to aerial firing and tear-gas shelling to disperse crowds. In such a chaotic situation, the KESC complaint centres were not functioning; even the 118 complaint call centre was not responding to the telephone calls of customers. Eventually, the frustrated citizens turned to their last, most forceful option: violence. This was hardly the first time that power-related riots had erupted in Karachi; they have become a common occurrence in the city.

Feeling the pressure, Prime Minister Gilani and President Zardari took serious notice of the situation, and the National Electric Power Regulatory Authority (NEPRA) issued a show-cause notice to the KESC with reference to its failure to supply power to the city and surrounding areas and upgrade its system. Raja Pervez Ashraf, the federal minister for water and power, has repeatedly claimed in his media sessions that the government will claim management control of the KESC, if the new administration fails to improve the company’s efficiency.
It is difficult for the government to pacify the consumers, as the prevailing sentiment is that the private-sector management of the enterprise has now proved itself incapable of handling the power situation in the city.

Just a month back, in June, all of Karachi was plunged into darkness when transmission lines carrying the power supply from WAPDA to the KESC tripped, disrupting the flow of more than 500 megawatts into the KESC system. Due to this major setback, the entire generation, transmission and distribution network of the KESC came to a grinding halt. Even installations and offices of essential services were not spared.

Some detractors suggest that KESC management has always tried to garner as much from WAPDA as possible, because WAPDA produces electricity more cheaply than both KESC units and those of many independent power producers (IPPs). Interestingly, while the enterprise was in the public sector, WAPDA did not provide KESC with cheaper electricity. “The military management of KESC had demanded that the government give the company status of a DISCO (Distribution Company), but this request was only granted after the present management took over,” reveals G.R. Bhatti, a former general manager of projects, KESC and current CEO of KFB Enterprises. Before gaining that status, KESC had to pay NEPRA over Rs 60 billion; after the implementation of the NEPRA decision, however, this amount was cut to Rs 30 billion.

Ostensibly, the total generation capacity of the installed units of KESC is 1,735MW, but, due to their age, the units are really only capable of producing 1,342MW. Yet that capacity too is under-utilised, as the company keeps its units closed to save money on fuel. “The company is trying to conserve its cash flow and reduce losses by not carrying out proper maintenance and the upgrading of its system,” asserts Majyd Aziz, a former president of the Karachi Chamber of Commerce and Industry (KCCI) and a former KESC director. KESC management, however, rejects these accusations. They, in fact, claim that maintenance is something they must undertake and have been doing so since they took over in September 2008.

The company has been facing a shortfall of between 280MW — 400MW on average this summer. It is generating only 900MW from its power generation units — 442MW less than it could at full capacity — and is purchasing power from WAPDA, IPPs and Karachi Nuclear Power Plant (KANUPP). The Pakistan Electric Power Company (PEPCO) is, meanwhile, accusing KESC of not paying its WAPDA bill. According to PEPCO, 710MW have, so far, been provided to the KESC, as compared to 570MW last year, but the management has yet to pay its dues. The KESC CEO, Naveed Ismail, cites a circular debt issue, claiming that it can’t pay its bills because the government owes the KESC even more.

In the view of some, the present power crisis is administrative and financial rather than technical. “The private management is not spending any money on the purchase of furnace oil, on the pretext that its price is rising, even when it was reduced from Rs 60,000 to Rs 20,000 per ton,” claims Bhatti.

He states that the KESC’s generating units are not running on full capacity and the maximum power available from IPPs is not being purchased. “The gap between supply and demand is widening on account of conservation of money instead of energy,” he told Newsline.

Due to the current financial crunch, essential materials are not being procured, a decision that leaves all new jobs and projects at a standstill. In addition, as Bhatti elucidates, maintenance is not being carried out and faults have piled up beyond control. Again, Ismail says $100 million has already flowed into the KESC and major projects are underway. (See interview).

In response to persistent service problems, the Karachi City District Council has passed a unanimous resolution urging the government to nationalise the utility. The council, in another resolution, also demanded that an alternative source of power be set up for the city. A delegation from a Korean private power company was invited to give a presentation on a Korean power-generating unit to the council.

There is a general consensus among the politicians and industrialists of Karachi that the private management of the power company has failed to deliver. The current management has only been in place for less than one year, but rumours persist that it is doing too little, despite its claims, since privatisation four years ago. The faulty transmission and distribution lines are said to be the main cause of the prolonged loadshedding and frequent power failures in the city. Heavy distribution losses and the theft of electricity  are, meanwhile, some of the main reasons for the power shortage. According to the KESC’s financial statements, distribution losses between January and March 2009 rose to 38.2%, up from 29.2% in the same period last year.

When KESC was privatised in 2005, the private sector management had pledged to invest US $500 million in the company over a period of three years to increase the business’s generating capacity, but it failed to meet this promise. It may be recalled that the Pervez Musharraf/Shaukat Aziz government had transferred 73% of KESC’s shares, along with management control, to a consortium comprising KES Power Ltd, Hassan Associates (Pvt) Ltd and Premier Mercantile Services (Pvt) Ltd. That management had employed Siemens Pakistan Engineering Ltd as the operations and management (O&M) contractor for the company. But the company failed to run its affairs efficiently and this further aggravated the situation. In 2008, Abraaj Capital promised to invest Rs 361 million into KES Power. With the funds meant to flow to KESC, Abraaj took over management control. Abraaj Capital is a private equity firm operating in the Middle East, North Africa and South Asian (MENASA) region. The new management brought in its own team, reportedly at hefty salary packages, but to no avail. Problems continued to plague KESC — and Karachiites — all summer.

Critics claim that no private management team will be able to run this vital utility as they generally have a profit-maximising business mentality, leaving the consumer as the ultimate sufferer.

Abraaj management claims that KESC will increase its internal generation capacity this year with a 180MW plant. Another 560MW power plant is to be completed in four phases, with the first unit expected to be online by May 2011. The other units will come online later in 2011 and 2012. Besides adding permanent power and rental power to its grid, the KESC has also launched a “Captive Power Policy” to utilise the excess available power capacity of its industrial units. Under this plan, many agreements have been signed with local industries generating excess power.

Despite all the government measures and the tall claims by KESC, the people of Karachi remain pessimistic. Abysmal service this summer has led Karachiites to demand the cancellation of the privatisation agreement. But this poses a major challenge to the federal government. Nationalisation would send a negative signal to the international market and affect the Pakistan Peoples Party’s stated aim to privatise.