Government continues to level allegations against KESC

Officials claim utility’s agreement to buy 650MW from national grid is illegal.

ISLAMABAD:

The long-expected confrontation between the Karachi Electric Supply Company (KESC) and the federal government, now led by the Pakistan Muslim League Nawaz (PML-N), has begun. In testimony before the Senate water and power committee on Tuesday, federal officials claimed that amendments made to the KESC privatisation agreement were illegal.

The allegations were made by Najeebullah, joint secretary at the cabinet division, who claimed that the privatisation contract between the KESC’s private sector management – Saudi Arabia’s Al-Jomaih Group and the Dubai-based private equity firm Abraaj Capital – was revised without the approval of the Privatisation Commission and the Cabinet Division. Committee chairman Senator Shahi Syed, himself from Karachi, presided over the hearing.

At the heart of the disagreement is a contract that allows KESC to purchase up to 650 megawatts from the state-owned National Transmission and Dispatch Company (NTDC) until 2015. Federal officials admit that the agreement was cleared by the Economic Coordination Committee (ECC) of the cabinet, which typically has authority over such matters. Najeebullah, however, claims that the revisions to the privatisation agreement were never presented before the full cabinet and were never approved.



“The cabinet division had no knowledge of how and when the proposal was moved to the ECC,” he said.

KESC’s management deny that they have done anything illegal. “It is baseless to say that there was no proper privatisation agreement between the KESC sponsors and the government,” said KESC spokesperson Ahmed Faraz. “No foreign investor will put in the amount of money we have without a formal agreement.”

Since privatisation, Abraaj has pumped over $500 million into KESC to improve its infrastructure, target theft, and incentivise customers to pay their bills on time. It has virtually eliminated power cuts in areas of Karachi with the lowest incidence of theft, which constitute 46% of the area of the city and include all of its major industrial zones. In 2012, after decades of haemorrhaging money, the KESC finally made its first profit and is likely to do so again in the financial year ending June 30, 2013.

The federal government, however, appears to have a problem with the manner in which the KESC has achieved these results. They say that the KESC keeps its own oil-fired power plants shut and instead buys subsidised electricity from the state-owned NTDC, allowing it to sell electricity for a profit.



KESC’s management do not deny this allegation, but state that they do so primarily as a response to the government’s own inability to keep its end of the agreement to supply natural gas to KESC’s gas-fired power plants. “We were promised 130 million cubic feet per day of gas for our Bin Qasim power plant, but it was never supplied to us,” said Faraz.

The Nawaz administration has been trying to resolve the nationwide energy crisis and has particularly been trying to improve the situation in Punjab, one of the worst-hit provinces. Part of the new administration’s strategy involves diverting that 650 megawatts away from KESC and towards Punjab.

Tuesday’s hearing is not the first time the federal government has complained against the deal struck with KESC. Similar complaints were made in May, soon after the election.

The federal government appears to keep on adding to its allegations against Abraaj, now claiming that it agreed to wipe away Rs40 billion worth of KESC’s liabilities as part of an allegedly illegal amendment to the deal. In virtually all privatisation transactions since 1991, the government has agreed to reduce the liabilities of the company it is selling off as an incentive to the buyer.

At Tuesday’s Senate hearing, the National Electric Power Regulatory Authority (Nepra) piled on the allegations. Nepra Vice Chairman Khwaja Naeem claimed that KESC officials had refused to allow them to conduct an audit, and that the regulator planned on fining the utility up to Rs100 million for what it claims were violations of its agreements with the government. He also claimed that KESC had inducted 7,600 people into its workforce, a reversal of previous allegations against the utility, when the previous administration accused KESC of laying off too many people.

Committee Chairman Shahi Syed asked the officials to provide details of the costs of the allegedly illegal agreement that the government has borne, though his tone suggested that he was somewhat sympathetic to the government’s claims.

No KESC official was invited to offer counter-testimony at the hearing, though the next hearing will be held in Karachi to offer the company’s management a chance to speak. The committee also asked the government to provide legal opinions to support their claims about whether the amendments to the agreement were illegal.

Published in The Express Tribune, June 26^th, 2013.

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