September Issue 2015
The numbers are still hard to comprehend. Temperatures reaching 50 degrees Celsius. Humidity approaching 95 per cent. An official death toll over 1200. Four separate power breakdowns that lasted a day each.
Tempting though it may be to chalk up the scale of human tragedy to the vagaries of Mother Nature, a head-in-the-sand approach will lead only to repeat incidents. Global warming is an unyielding foe and one which we — along with the rest of the world — are wholly unprepared to combat. So the battle lines have been drawn. On one side there is a federal government led by the PML-N whose power base rests almost entirely in Punjab. On the other is K-Electric, the privatised utility company which garnered a lot of praise for turning a formerly moribund enterprise profitable, but whose action plan is finally coming under scrutiny.
The main issue at stake is the continued provision of 650MW of power given to K-Electric from the national grid. When the company, then known as KESC, was privatised in 2005, the agreement signed between the buyers and the National Transmission and Distribution Company stated that a supply of 650MW would be diverted to Karachi. This agreement was renewed in 2008. It then expired at the start of 2015. The government, which realises that its ability to solve the power crisis in Punjab may determine its performance in the next elections, was in no mood to further renew the agreement. The matter made its way to the courts, where the Sindh High Court granted a stay order to K-Electric. It is now pending in the Supreme Court although the Council of Common Interests has decided in principle to reduce the amount of electricity sold to K-Electric to 350MW.
The crux of the matter is a question of pricing. The centre has accused K-Electric of essentially robbing the rest of the country by underpaying for the electricity it receives from the national grid. K-Electric has responded by claiming to pay the same price as all the other utility companies. “We buy electricity from NTDC at the same rate as all other electricity distribution companies and we sell electricity to consumers at the rate determined by Nepra,” said a spokesperson for K-Electric.
Other questions stem from this same issue. The government has accused K-Electric of leaving idle power plants that can theoretically produce more than 1,000 MW of power. The K-Electric spokesman retorted that these plants can only run if Sui provides it sufficient gas. These are issues that are affecting the entire country but have added resonance in Karachi since it is the economic engine of Pakistan.
Another nationwide problem which has afflicted K-Electric is that of the circular debt. The amount that K-Electric owes various government entities like NTDC and Sui Southern Gas tops Rs 130 billion and a Senate Standing Committee has threatened to demand payment immediately. At the same time, K-Electric is owed an equal amount by the central and provincial governments alike. K-Electric tried to recover some of the money it is owed by shutting off the electricity supply to the Karachi Water and Sewerage Board — one of the biggest defaulters — but this led only to the government accusing it of indifference during the heatwave, when the demand for clean water was at its highest.
A strategy deployed by K-Electric to turn the company profitable was to carry out loadshedding only in areas where illegal connections were highest and bill collection the lowest. This move was praised for punishing those who take advantage of the utility while sparing people honest enough to pay their share. But the tactic comes with a dark underbelly. Loadshedding ended up being restricted to mainly low-income areas, thereby exacerbating the economic divide in the city. It also meant that those who need electricity the most during the summer — people without a UpS or generator — ended up bearing the brunt of the loadshedding.
The government has accused K-Electric of discriminatory pricing and threatened to take action against it. And Water and Power Secretary Younis Daga says there shouldn’t even be need for much, if any, loadshedding. He said, “Karachi’s peak demand was 3,100MW and K-Electric had a capacity to provide 2,650MW, which it did not.” According to the ministry, at the time of privatisation K-Electric’s generation capacity was over 1,800MW but is now only 1,247MW even though it should have added a further 1,000MW to its capacity. K-Electric says it has had to leave some power plants dormant while it overhauls them to add capacity.
A member of Nepra’s fact-finding mission into K-Electric said that the company had invested in tangible assets to improve its balance sheet numbers but has done nothing to improve the transmission system or reduce power theft. Sindh Information Minister, Sharjeel Memon, has even threatened to arrest the management of K-Electric if needed. At a Senate hearing in August, K-Electric was even accused of “running a state within a state” by Raza Rabbani, with other senators suggesting that the government should perhaps void the privatisation agreement and take control of the management.
K-Electric, though, boasts of how it has reduced line losses from 32 per cent when it was privatised to 23 per cent today. This statistic is not as praiseworthy as it seems. Most of the money invested in improving our crumbling infrastructure, be it in transmission or distribution, has been restricted to higher-income areas, where the company will see greater return on its investment. The government’s most telling complaint against K-Electric has been that it received many incentives when it took over and in subsequent years — totaling Rs 100 billion by government estimates — but plowed very little of that back into overhauling the power infrastructure. The Ministry of Water and Power, in a statement, said that the original privatisation agreement also led to the government writing off Rs 30 billion in liabilities, along with providing electricity from the national grid. An inquiry carried out by Nepra after the heat wave also blamed K-Electric for its negligence in investing for the future. Nepra chairman Tariq Sadozai repeated the same accusation at a Senate hearing.
One reason K-Electric may not see any incentive in improving the city’s decrepit infrastructure is that the current owners likely will not be around much longer. Even though a spokesman offered no comment on the matter, figures within K-Electric have made it clear that the owners will divest their shares by the end of next year. Already they have begun selling shares on the Karachi Stock Market and have offered anonymous quotes to the media claiming the current government campaign against it is meant to bring down the share price so that allies of the ruling party can gain control of K-Electric at a song.
K-Electric responded to the accusations leveled against it by announcing it had signed contracts worth $400 millio to improve the transmission system but such projects take years to complete. With the future of its ownership uncertain, there is doubt that this work will be completed. The K-Electric spokesman also said the company had already invested more than $1 billion in capital expenditures.
As much praise as the company has received for turning K-Electric profitable, it has also been mired in scandal. In June, Nepra not only accused it of overbilling customers, but maintained that this was a deliberate strategy carried out by a former managing directors and all its regional heads. Among the proof offered by Nepra was an email sent by former managing director, Shoaib Siddiqui, ordering the excessive billing. Although Siddiqui resigned from K-Electric after his impropriety was made public, a source says he was then given a job at Byco — a sister company of the Abraaj Group.
Sassui Paljo, a PPP senator, says that the management of K-Electric needs to be taken to task for laying off trained technical workers and replacing them with political appointees. This has been a continuous problem for the company, which has had to accommodate the city’s ruling parties in order to function.
Nepotism, bribery and corruption are a problem not only within K-Electric, but afflict the entire power infrastructure in Karachi. From the lowest level, with linemen demanding bribes to fix electricity lines all the way to the top, where politicians and those they patronise have to be paid off to ensure the functioning of the company, K-Electric faces a unique challenge in Karachi — and one it is now clear it has been unable to tackle.
Meanwhile K-Electric has become a scapegoat for the city’s power woes, with MQM chief, Altaf Hussain, threatening that his workers would storm its offices and provincial information minister, Sharjeel Memon, accusing the company of criminal negligence. While K-Electric has been guilty of putting shareholder value above the electricity needs of the city, the crisis is one that has been caused by many villains and there are still no heroes in sight.
This article was originally published in Newsline’s September 2015 issue.
Nadir Hassan is a Pakistan-based journalist and assistant editor at Newsline.