Imbalance of power

Report By Ali K Chishti

PricewaterhouseCoopers study released in 2009 surveyed the 2008 GDP of the top cities in the world. It said Karachi's GDP (PPP) was $78 billion, and projected at $193 billion in 2025 with a growth rate of 5.5%.

Although the recent political violence in the metropolitan has severely hurt its economy, the real problem that has destroyed its industry is the energy crisis, says Zia Ahmed, vice president of the Karachi Chamber of Commerce and Industry.

"I don't think there has been an electricity shortage issue in Sindh and particularly Karachi," a legislator from the ruling PPP says. "We have been relatively better off than Punjab because firstly, Sindh produces more gas, and secondly, because Punjab is not a PPP constituency." But while some problems may be attributed to politics, most of them are a result of incompetence.

Karachi suffers from what has been described by its controversial electric company KESC as "scheduled load shedding" in different areas. "We won't allow putting the burden of KESC's line losses and overtariffs on 2.2 million consumers," says Khawaja Izharul Hasan, a provincial legislator from the MQM. The MQM was initially supportive of KESC's controversial privatization, but is now ready to work as "a pressure group" against its mismanagement.


"The KESC not only over charges but blackmails," says Mohsin Zaki, a consumer. "We are being made to pay TV license fees and fuel surcharges," complains Yaseen Bibi from the Paposh locality of Karachi. "We end up paying much more than we consume, which is a violation in itself."

According to Uzair Ahmed, an energy expert based in Karachi and associated with Karachi University, the real problem was that KESC's privatization was dodgy. "Now this corporation is controlled by greed and is not interested in people's welfare," he said. "They don't own this city. They take billions of rupees in subsidy from the government, and then they sell the oil in the black market producing electricity with gas."

The KESC was first privatized on 29 November 2005, when a Saudi consortium Al-Jomaih Group and Kuwait's National Industries Group (NIG) were transferred 71% of shares. Abraaj Capital took over from the Saudis in 2008 at a ticket price of $361 million.

According to the initial plan, the government was supposed to sell 25% shares initially and then increase it to not more than 51%. Valuation of assets was also downplayed and that reduced the share price. The government wrote off Rs 57 billion and converted Rs 83 billion to equity, only to please the buyer, critics say. One of the primary reasons given for the privatization was to abolish subsidies because they were a burden on the taxpayer. But the government continued to award a huge subsidy to the buyer.

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 government intervention was minimal and it was allowed to run KESC quite independently. Until the 1970s, KESC demonstrated efficiency and professionalism. In 1977 it was announced that the company would be handed over to the province. But the martial law regime of General Ziaul Haq acted swiftly to take it back.

In April 1984, the martial law authorities handed over its control to the Ministry of Water and 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 a phase marked with penetration of 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 improve the system as demand increased. WAPDA's control of KESC was later loosened, and the federal government kept deputing bureaucrats and technocrats to the company through the Ministry of Water and Power.

The process of bureaucratization reached its peak after the military takeover of the country in 1999, when KESC was given in the army's control. Pakistan Army has been the biggest defaulter of WAPDA for decades. The era was marked by inefficiency, corruption, misperceived priorities, adhocism, non-transparency, and delays in implementing new projects. A number of technical staff left KESC during that period.

By now, line losses had increased from 17 percent in 1985/1986 to more than 40% in 2001/2002. Until 1995, KESC had been making a profit. By 2002, it was suffering a loss of about Rs 18 billion. "We agree that the financial condition of KESC has reached an unsustainable level," NEPRA said in a report that was published in Dawn on July 9, 2003. "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."

The increasing federal control and bureaucratization of the KESC over 30 years resulted in inefficiency, corruption and mismanagement, experts say. When it was a public limited company, the KESC had demonstrated excellent performance.

Despite the recent political turmoil, the KESC has done well, with "a better distribution mechanism, better customer services and excellent power generation initiatives", according to Aftab Rauf Khan, an energy consultant. "What we need to understand is that it is almost impossible for a corporation to work in such a political economy, where perks for politicians and bureaucrats are required to move files fast."

KCCI President Mian Abrar Ahmad and former presidents Siraj Kassam Teli and Muhammad Zubair Motiwala believe exploring new gas fields could help resolve the energy crisis.

Karachi's nuclear power plant has been in operation since the early 1970s, but it has a shady safety record. The 80-megawatt KANUPP declared a temporary emergency earlier last year after a pipe carrying heavy water to the reactor leaked leading to fears that radiation had spread. Amid calls for transparency, KANUPP plans to add more reactors to upgrade its production capacity, because of Prime Minister Gilani's focus on nuclear energy.

As summers approach and consumption increases, Karachi is bracing for another year of power shortage and load shedding.

Friday Times