Karachi Electric Supply Corporation

Privatization of Karachi Electric Supply Corporation through the sale of up to 74 percent of shares to a strategic buyer

History:

         The Karachi Electric Supply Corporation Limited was incorporated on 13th September 1913 under the Indian Companies Act, 1882 as amended to date under the Companies Ordinance 1984. The Corporation is listed on Karachi, Lahore and Islamabad Stock Exchanges. The Government of Pakistan took control of the Corporation by acquiring majority share holdings in 1952. The Ministry of Water and Power looks after the affairs of the Corporation at the Federal level.

Assets and Operations:

             The age and condition of the asset base varies considerably. The commissioning dates of generation plants range from the 1960s to the late 1990s. The transmission system has a similar age profile. Although KESC has been progressively replacing the older transmission infrastructure, much of the distribution system is old and requires investment. K E S C's own generation is relatively inexpensive.

 However, partly because of high levels of Transmission & Distribution (T&D) losses, the company is dependent on importing more costly power from Independent Power Producers and the National Grid. The 2001 annual report of KESC estimates T&D losses to be in the order of 36.8%, although the precise level of losses is uncertain and may be higher.

INSTALLED CAPACITY (MW)

Oil/Gas

1,576

Gas Turbine

180

Total Generation Capacity

1,756

Karachi Nuclear Power Plant

(Supplying to KESC)

137

Private Sector Power Plants

(Supplying to KESC)

254

PASMIC

(Supplying to KESC)

168

DEMAND STATISTICS

System maximum demand (MW)

1,860

KESC under Army Management:

           Improvement of the availability and quality of power supply in Karachi is a priority for the GOP. To facilitate this, management control of the company was handed to the army in 1999. The army management has made progress in a number of areas, such as reductions in commercial losses and decreases in accounts receivable. Work is continuing in these areas, along with organizational restructuring aimed at increasing the quality of customer service and the profitability of the company.

Financial Data:

           At present the company is incurring losses that have increased as the business expands, primarily because of high levels of T&D losses and the relatively higher cost of purchased power. However, there is significant scope to improve the financial performance of KESC. This will require debt restructuring, capital investment, and improvement in its technical and non-technical energy losses. The historical results from the last four years are set out in the table below:

Restructuring:

        To improve the financial health of the KESC and increase its attractiveness to potential investors, the government is planning to swap the debt provided or guaranteed by the Government into equity. An amount of Rs 17.8 billion has already been approved with much larger approvals likely soon.

Regulation: Regulation of KESC will be carried out by NEPRA (see box below).

Current Status:

        The Privatization Commission, together with the Asian Development Bank, has appointed PricewaterhouseCoopers to act as the Financial Advisor on this transaction. Details of the sale structure and process are currently being finalized. Under the existing plan, KESC is to be privatised by September 2002.