‘KESC will not use subsidy to buy furnace oil’

Utility official, union leader believe cash flow will never improve.

KARACHI: A Karachi Electric Supply Company (KESC) engineer has rejected the idea that the daily subsidy of Rs75 million approved by the government will be used for furnace oil procurement.

“The private owners of KESC had, at the time of privatisation, made commitments that they would invest $500 million. But they did not do this despite getting Rs2.5 billion in subsidies every month,” claimed the transmission and distribution system engineer.

The Economic Coordination Committee had earlier approved Rs75 million as subsidy for KESC, the city’s sole power distribution company, to help the utility in purchasing furnace oil at times when there is little or no gas available to run its power generation units.

However, KESC spokesperson Aamir Abbasi asserted that the utility will spend the daily subsidy on buying furnace oil. “With this, the twin-cycled power-generating units will continue electricity production without affecting the consumer as fuel-adjustment rates will not be readjusted,” Abbasi told The Express Tribune.

The cash flow position of the utility was not stable because the skyrocketing price of furnace oil was a huge fiscal burden, he explained. The poor cash flow situation and the suspension of gas supply had left the distributor with no option but to resort to outages.

The other option, he added, was that the utility would somehow ensure the availability of oil and shift the pecuniary burden on consumers by increasing fuel-adjustment rates.

The engineer agreed on this count though, remarking that KESC’s cash flow would never improve and said that the utility has revised its power tariffs more than 10 times, despite an agreement made at the time of privatisation that prevented it from announcing any increase.

“KESC could not even improve escalating line losses, which have reached up to 38 per cent,” said the engineer. “The consumers had to bear that deficit, obviously.”

Talking to The Express Tribune, KESC’s Peoples’ Workers Union general secretary Latif Mughal said that KESC was privatised on the pretext of three points: it will ensure the inflow of foreign direct investment; the financial burden on the national exchequer – the Rs2.5 billion subsidy – will end; and the new private owners will install new power generation plants and increase supply to meet the escalating demand. “Unfortunately, none of those points have been implemented yet and the government is still paying a subsidy,” said Mughal.

He said KESC’s power-generating capacity was around 2,000 megawatts but it had been producing much less. The utility was also buying only half of the electricity supply produced by independent power producers, which is about 50-60MW.

Despite repeated assurances and high-level meetings, rolling blackouts are rampant. Water-pumping stations had been placed under the essential services category and exempted from power outages.

However, during the last 20 days, power outages at Pipri and Gharo pumping stations had caused a shortage of up to 90 million gallons.

Published in The Express Tribune, November 10^th, 2010.