As the turnaround journey continued, and still does, one of the biggest challenges was recovery.
Making them pay
One doesn’t mess with the boys at Al-Karam Square in Liaquatabad, a Karachiite knows this well. Hundreds of apartments are cramped in a cluster of buildings. If a fight breaks out, there is a ready force of 20-plus men to defend their turf.
Like other areas, KESC also tried to make an entrance to disconnect defaulters’ connections. In response, the staff was beaten and told to leave. Another attempt was made and an angry mob burnt a nearby KESC office, not once but twice.
Even involvement of Muttahida Qaumi Movement (MQM) legislators was unable to calm residents. But the utility persisted, meeting resident committees and trying to convince them. It ultimately succeeded.
“The carrot and stick policy works,” said Gauhar. “Power breakdowns were lengthy and recurring when we took over. Now 55% of the coverage area is exempted from any kind of load-shedding, while 5% places see shutdowns of only up to 3 hours a day.”
Industrial consumers, who pay a higher tariff, have completely been excluded from any kind of load-shedding as well. “Our recovery actually started from the elite areas in DHA where the loss was 24%.”
The KESC has distributed its network, running from Gharo in rural Sindh to Vinder in Balochistan, into ‘good and bad areas’. Depending on the bills’ recovery, it was decided which areas should suffer power breakdowns.
The management also went after rotten eggs within the organisation, firing 1,400 workers found to collude with customers in electricity theft.
The transmission and distribution losses have come down to 27.8% from 35.9% in 2008-09.
Out of the box
Meanwhile, there are areas in Karachi like Baldia, Orangi, Gadap, Liaquatabad, Nazimabad and Korangi where KESC recovers only 40% of the billed amount. After all attempts to minimise losses failed, the company looked at the example of India where it is not unusual for private utilities to seek political help for bill recovery.
KESC replicated and outsourced two of the 11 high-loss areas to local politicians, who are responsible for the maintenance of power lines, check theft and recover bills.
In response to its advertisement, KESC received 44 applications from ‘influential people’ who thought they could help. As a test case, Gadap and a part of Organi Town has been handed over.
Gadap Town, where KESC employees would not dare enter places like Al-Asif Square, Gulzar-e-Hijri and Sohrab Goth, is being managed by a local Pakistan People’s Party (PPP) leader Hammad Khan Sherwani under a 80-20 revenue share arrangement. He has done the unthinkable.
“He is close to our breakeven point, which means almost 65% of the billed amount is being recovered,” added Gauhar. “We don’t even want 100% recovery from these low-income areas. A breakeven would do.”
This system has also raised some eyebrows as it could be viewed as a ‘badmash’ collecting bills.
“This is exactly what was discussed with international lenders who are also our equity partners. Sherwani works with our people and we are monitoring him. We will never risk our reputation. So everything he does is within the boundaries of the law.”
It also goes to KESC’s credit that the government now wants to implement these methods elsewhere to curb power theft. Peshawar Electric Supply Company has already issued a tender for the purpose.
Aiming for the exit
Being a private equity firm, Abraaj invested in KESC on behalf of its own international investors. Its model is simple: they see an opportunity to make money in underperforming organisations, invest, take the required return and sell it in 5-6 years.
“We will exit by 2016. Abraaj has invested $361 million in equity. That is not hidden from anyone. So we have to recover that along with a reasonable return,” he said.
After years of suffering losses, KESC has had two profitable ones as it posted earnings of $30 million and $69 million in fiscal 2011-12 and 2012-13 respectively.
“We have fixed the foundations. The KESC won’t go down unless someone comes and does something really stupid,” Gauhar said. “The biggest challenge is to make sure this turnaround is sustainable. The government must help us create an environment to find a suitable investor when the time comes.”
What made him judge others?
Being the youngest CEO in KESC’s history, Gauhar knew there would be difficulties. There was so much criticism that he needed to tell himself and those around him to keep fighting. It was like a war with everyone.
“No one in the country appreciated us. Harvard invited me in April to recognise the work we have done. They used the word turnaround. London Business School and Wharton are carrying our case studies. But we got nothing here.”
Along with his team, he presented the government with a roadmap to fix the energy crisis. No one paid heed to it.
“I have been attacked,” Gauhar said. “I have been labelled anti-labour, capitalist and someone who cuts the electricity supply of poor areas to favour elite neighbourhoods. It was a continuous hammering.”
Instead of being encouraged, politicians alleged KESC was minting money. It has been accused of taking more-than-sanctioned cheaper electricity from the national grid to avoid running its own oil-fired power plants. State-owned utilities have unleashed media campaigns over non-payments and power outages, whereas KESC itself awaits payment of billions of rupees from the government.
Then there were reporters. “They came with requests for new connections, forgoing bills and even jobs for their friends. And when we refused to comply, a barrage of misleading reports would appear against us.”
Gauhar says lack of appreciation has discouraged bright people from taking up jobs in the public sector, creating a void that is now being filled by a politician.
“The irony of Karachi is that it has no ownership. If KESC took ownership of electricity, don’t you think it deserves some applause?”
This was the final piece of a two-part series.
Read part one: KESC turnaround: A success story we all missed — I
Published in The Express Tribune, January 5th, 2014.