One week of outages made us villains

K-Electric CEO says investment being made to address the issue of load-shedding

KARACHI:

Tayyab Tareen has been part of the Abraaj Capital-led team running K-Electric since the Dubai-based private equity firm took over its management in 2009. But this summer has been his first as CEO. And it has been a trying one to say the least.

The heatwave that was responsible for over 1,200 deaths in June coincided with widespread power outages, putting the company on a collision course with almost everyone - customers, the government regulator and politicians.

“Just because of one week [of outages] we are made the villains?” he said in a recent interview with The Express Tribune.

“The issue was that peak electricity demand persisted for 5-6 days. There was a force majeure. But except for those few days, our performance has been satisfactory this year.”

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While focus was on K-Electric’s performance, media forgot to notice much longer durations of load-shedding in other parts of the country, he complained.

Perhaps the most destabilising accusation was related to the sponsor’s reluctance to invest in the company, which had to get a NOC from its auditors to prove that wrong.

Tareen, who earlier worked as chief financial officer before taking over the top office late last year, says more than $1.1 billion were invested to add extra megawatts of generation capacity and enhance transmission and distribution system.

When K-Electric, formerly Karachi Electric Supply Company, was privatised in 2005, the consortium led by Middle East investors bought majority stake against $261 million paid to the government.

Over the next few years, they pumped in around $100 million in the utility but that was not enough to fix the rickety power supply system and criticism mounted.

Ultimately, Abraaj came into the picture, but the private equity refused to pay sponsors for the shares they were buying.

“We promised them to match dollar-to-dollar and invested $361 million. But all that money went to the company in the shape of assets,” says Tareen.

The company says shareholders have pumped in $561 million of equity from 2009 onwards. Coupled with a debt component of $560 million, a total investment of over $1.1 billion has been used to add 1,010 MW of generation capacity and augment the T&D system.

But K-Electric knows that just adding megawatts to the system was never part of the solution. Compared to 2008-09, there has been only a 5.4% increase in the number of electricity units the company generated.

“In the overall 12-month period we have peaks and troughs. We have to manage demand and supply effectively and efficiently. You have to realise that at the end of the day there are 80 to 90 feeders which have losses of over 70%,” he said.

The company says its achievement in exempting 60% of the city, including all the industrial estates, from any sort of load-shedding should not be underestimated.

“When we took over, only 23% of the city was exempted. Before 2009, load was managed in a haphazard way. Now we use a segmented approach, shedding load for three hours in medium loss areas, for four-and-a-half hours in high-loss areas and for six hours, sometime seven, in areas which have very high losses.”

He rubbished the perception that K-Electric did not invest as much as required in the transmission and distribution infrastructure.

“Around $400 million have been invested in transmission and distribution. From 52 grid stations, we now have 65 grid stations From 800 feeders we have close to 1450. From 14,000 PMTs (pole mounted transformers) we have now around 22,000 PMTs.”

Karachi also witnessed the highest-ever peak power demand of 3,100MW in June against last year’s peak of 2,900MW, which put the system under unusual strain.

Still, the utility company believes that it could have managed the situation through its usual load management if its technical ground teams were allowed to operate freely.

“But there was no breakdown. There were just faults like a loose jumper or a joint of an underground cable needing replacement. Out of the 22,000 PMTs, only 100 were faulty,” Tareen says.

He said the company came on record and apologised to customers for the inconvenience they faced. “We have identified problem areas, mapped it up … we will focus on them. We are replacing PMTs. Faults do happen, we are preparing but it happens, its part and parcel of this business.”

Going forward, K-Electric is undertaking a massive investment of over $2 billion.

Read: I’m responsible for power outages

Financed by debt and operational cash flows, the company will invest $400 million on transmission lines and another $500 million on distribution system.

This plan also involves the construction of a 700MW coal-fired power plant being built in collaboration with China Datang and China Machinery Engineering Cooperation.

Tareen says these projects would also help increase worth of the company despite the increase in debt.

“You need to keep on investing in the business. The better the current and future state of business … the better the valuation.”

Published in The Express Tribune, August 8^th,  2015.

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