Daily Times

A World Bank (WB) study has revealed that the privatisation of Karachi Electric Supply Corporation (KESC) has not yielded the results that were the rationale for the strategic sale of the entity.

“Privatisation of Karachi Electric proved to be highly controversial and is still being contested in the courts more than a decade later,” says the WB report. “The persistence of power shortages after over a decade of private ownership continues to affect public sentiment and leads to a culture of noncooperation with the company that makes it harder to improve operational performance. Even though efficiency indicators started to improve after a change of ownership in 2009, they remain below those of many of the public utilities in the country, with revenue collection stuck at 88 percent and transmission and distribution losses at 22 percent.”

The WB report stated that the current experience with privatisation had not yielded the results that were the rationale for the strategic sale of DISCOs. “The objectives were: reduction of the fiscal burden of subsidies given to power sector by the treasury, improvement of the operational efficiencies of the entities, improving financial sustainability, improvement in the service provided to the consumer (general public), reduction in the tariff charged to the consumer linked to a reduction in the costs of the entity.”

“The privatisation has been judged a limited success according to these objectives, for several reasons: KE is still not fully reliant on its own generation and instead relies on 650 MW supplied by the NTDC under the amended implementation agreement drafted during sale to Abraaj Capital in 2009. At the time of shortage this supply should have been available for general use.”

“KE still receives a Tariff Differential Subsidy (TDS), the difference between the NEPRA-determined cost-based tariff and the uniform tariffs notified by the government of Pakistan. In 2015, this amounted to US$ 418 million. The government felt that increased operating efficiency could have reduced costs and hence reduced the subsidy.”

“It is believed that KE has not delivered the expected better quality of service to the public.” Interviewees pointed to the lower-income service areas that still experience severe power outages, ostensibly because they are also the areas with high pilferage, according to WB report findings.

A theme of the interviews was that KE’s 2005 privatisation did not proceed according to regular rules and procedures.

“On the other hand, industrial customers’ perspective on the privatization is more favorable-they speak of improved experience post privatization, while maintaining a complaint regarding high tariffs.

Before 2005, there were considerable power outages that had forced most textile factories to convert to captive generation based on natural gas or diesel oil. Prior to privatization, load-shedding decisions were based on political motivation, where constituency politics played a pivotal role and vote-casting residential customers were given priority service over industrial consumers. Post-privatization the system of allocating power cuts to areas of high pilferage and low recoveries is seen to be effective. Industrial consumers that have the highest bill recoveries and high revenues have experienced a considerable reduction in load-shedding.

However, it is precisely this strategy of targeted load-shedding that is being brought up in the hearing against KE in a petition filed by the KE unions in the Sindh High Court.”