Post-privatisation: Government to review K-Electric’s 2008 agreement

Considers reversing concessions including supply of 650MW at a low rate.

ISLAMABAD:

After the disclosure that K-Electric got undue benefit of over Rs100 billion in the last seven years, the government said on Wednesday it would review the 2008 agreement with the utility apparently in order to reverse the one-sided concessions including provision of 650 megawatts at a subsidised rate.

“Undue favours were given to K-Electric through the 2008 agreement, which will now be reviewed to ensure a level playing field,” said Water and Power Secretary Younis Daga while giving a briefing to the Senate Standing Committee on Finance.

He said K-Electric was not ready to come to the negotiating table and was exploiting the government’s weakness. He accused the company management of being politically biased instead of being a professional enterprise.

The committee directed K-Electric, which was represented by its chief financial officer (CFO), to hold a meeting with the Ministry of Water and Power on August 12 to resolve the matter.

It took up the issue to review whether the 2005 privatisation of the company had improved the situation considering the fact that over 1,200 people died during the recent heatwave in Karachi.

The company was sold at a price of Rs15.8 billion and the government invested Rs13.6 billion in it including Rs10 billion after privatisation.

“The 2005 agreement was amended in 2008, which gave major concessions to K-Electric,” said National Electric Power Regulatory Authority (Nepra) Chairman Tariq Sadozai.

He said the then government wrote off Rs31 billion worth of K-Electric liabilities besides agreeing to sell 650 megawatts to the utility at a marginal cost, which in just one year caused a loss of Rs68 billion to the government.

“In one year, the National Transmission and Dispatch Company provided Rs111 billion worth of electricity to K-Electric, but under the revised agreement it billed only Rs43 billion,” he said.

Sadozai said K-Electric exploited the agreement and for the last three years, it was under-utilising its generation capacity, producing only 50% to 55% while getting almost 650MW at a subsidised rate.

It was a violation of the agreement, as the utility was supposed to first fully utilise its own capacity, he said, adding because of this K-Electric got a benefit of Rs7 billion in a year.

He said keeping in view the aspects of uninterrupted power supply and consumer care, K-Electric was not an efficient utility, although it was making profit due to other reasons.

The investment in the transmission and distribution network also remained below the requirement and K-Electric was now in the process of finalising a plan to invest $400 million, said Sadozai.

According to Daga, Karachi’s peak demand was 3,100MW and K-Electric had a capacity to provide 2,650MW, which it did not.

He said Nepra had given a notice of stopping the supply of 650MW, as there was no legal basis for it. The agreement to provide the electricity expired in January this year and after that the provision of electricity was illegal, said the water and power secretary.

In violation of the privatisation agreement, K-Electric did not add 1,000MW to the system as the net addition stood at only 350MW, said the Nepra chairman. At the time of privatisation, the K-Electric’s generation capacity was over 1,800MW, which has now come down to 1,247MW.

Nepra has already served a show-cause notice for the company’s failure to honour the privatisation agreement. It has been given 15 days to respond to the notice, after which Nepra may impose a fine or appoint an administrator.

K-Electric’s CFO, however, denied all the allegations and claimed that the supply situation had improved in the city. He said the company would defend itself in response to the show-cause notice.

Published in The Express Tribune, July 30^th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.