Pakistan: Power Crisis In Karachi - By Lateef Mughal

January 18, 2012

An article by Lateef Mughal published by the Asian Human Rights Commission

‘Pakistan: Power Crisis In Karachi -- An Offshoot Of Privatization’

Lateef Mughal

It is a fact that uninterrupted supply of electricity is the responsibility of a power utility, mostly owned by the governments across the world, but unfortunately in 2005 the previous government of Pervez Musharraf handed over the management of one of the major institutions of the country, Karachi Electric Supply Company, commonly known as KESC, to a Dubai-based group under the garb of privatization and without taking into consideration the repercussions of the deal, saying that the utility company is in bad shape and suffering huge losses.

KESC, which is responsible for providing uninterrupted power supply to the citizens of the city, was granted transmission and distribution license in 1913 and since then it is performing its duties.

It is a practice across the world that the expenses of institutions such as KESC were borne by the government through various sources, including provision of subsidies. These institutions were established with the objective to serve the masses. In almost 95 percent of the cases around the world, the privatization of power distribution companies failed to deliver the purpose and the governments had to take back the management control. The main reason for the failure of the process was that the new managements took measures, including retrenchment of the staff and raise in power tariffs at short intervals, to earn huge profits. This resulted in strong resentment among the masses and they took to streets against this anti-people sentiment and succeeded in their endeavour.

The reason for taking back the control was that the new owners want huge profits and to achieve their goal they started retrenchment of the staff and raised power tariffs after every few months, putting additional burden on the citizens.

Likewise, KESC is passing through the same situation after government of General Pervez Musharraf privatized it in 2005, saying that through the sale of KESC shares the country will receive foreign direct investment, the government will be able to end subsidies and the performance of the organization will improve. At the time of privatization, the government also promised that no employee will be retrenched and that the National Electric Power Regulatory Authority (NEPRA) had freeze the power tariff for seven years and till then no raise would be made in the tariff.

The new owners also claimed that they will enhance electricity generation, which will help reduce power outages. It was also decided at the time that no KESC employee will be retrenched and that the foreign buyer will be liable to Pakistani laws.

The buyer had also pledged to invest $500 million in the power utility for bringing improvement in the condition of the organization. Interestingly, before its sale, KESC has a liability of around Rs92 billion of local and foreign banks, but the government spent Rs14.5 billion to improve its working and also took the responsibility to pay the liability and makes the organization liability-free.

On the other hand, the privatization process of KESC was also not transparent as on February 4, 2005 a Saudi Base Company Kanuz Al Watan offered the highest bid and was announced successful bidder, but later on the company refused to buy KESC without giving any reason and suffered a loss of Rs10 billion paid as guarantee money.

After refusal from Kanuz Al Watan, the government started negotiations with the second highest bidder, a broker company Hassan Associates, rather than conducting re-bidding for the same, because it has decided to sell the utility, as the then privatization minister Hafeez Sheikh had said that the company will be privatized what come may.

Hassan Associates was asked to form a consortium, which included Premier Mercantile and AKD. After negotiations, KESC was sold to the consortium at a throw away price of Rs15.86 billion, whereas at that time the assets of KESC was worth Rs300 billion.

On the one hand, KESC was sold to a broker who has no experience of running a power utility, rather it was involved in the construction business, and on the other, the power utility was sold for half the amount it worth at that time. Not only this, but the government also paid Rs14.5 billion under the FIP plan, whereas Rs4 billion were already there in the account. Other than this, the power consumers, including residential, commercial, and industrial units, owed around Rs25 billion to the utility.

In this way, KESC was sold for around Rs16 billion and the government paid around Rs43 billion. Since its privatization, the respective governments have so far paid another Rs33 billion to KESC in subsidies and in the Budget 2011/12, the government has allocated another Rs47 billion for the power utility.

After all this as expected Hassan Associates formed a consortium in which a Saudi-based company Al-Jummaiah has the major share. Siemens Pakistan was appointed technical assistant. Both Al-Jummaiah and Siemens have no experience of running a power utility as the Saudi-based company was associated with the automobile sector, while Siemens Pakistan was manufacturing switch boards, PMTs and various other electric appliances, which were already in use at the KESC as the company was the registered contractor of the power utility. Taking advantage of the situation, Siemens after becoming the technical assistant supplied all of its substandard equipment to KESC and get the contracts for setting up various grid stations under the FIP plan worth around Rs15 billion.

The then government had promised that after privatization KESC will not be provided subsidy, and the new owners will invest in the company and that power generation would be enhanced, but after passage of almost six years, none of the claims were fulfilled, whereas the electricity consumption of the city is continuously rising at an average of 10 percent per annum. From November 29, 2005 to March 2008, Al-Jumaiah management failed to improve the situation of KESC. During this period, several experiments were carried out, but to no avail.

After its failure, Al-Jumaiah decided to quit the project and in March 2008 the company management returned to Saudi Arabia. In the same month, the government again gave the management control of the power utility to another Dubai-based company, Abraaj, whose owners belonged to Pakistan.

Abraaj was registered in Caymon, Latin America, which is popular for hosting mafias. It is an island known for money laundering and black money holders who take refuge here.

Once again, Abraaj made several promises such as investment of $500 million in KESC system to improve its condition and increase in power generation by 1,000 megawatts in a year’s time, but it could not do so. Rather it intentionally reduced 1,924 megawatts installed capacity and around 1,500 megawatts effective capacity in order to mint money through less use of furnace oil. The situation is the same even today as KESC is only generating 400 to 600 megawatts and WAPDA is providing 7,500 megawatts. Other than this, around 70-80 megawatts is being taken from KANUPP, 100 megawatts from two independent power producers of 250MW capacity.

The fact is that KESC management has created artificial power crisis, which ultimately made the life of the people miserable. It is also putting the blame of this crisis on the KESC workers union, which is very unfair on the part of the management.

There is no power shortage in the city as KESC is producing the desired consumption, but unfortunately the KESC management is bent upon paralyzing the city by carrying out 16 to 18 hours power outages. The load shedding resulted in closure of several industrial estates, especially small-scale industrial units and around 0.7 million to 0.8 million people have lost their jobs.

The exporters failed to fulfil their commitments due to the power crisis, which give advantage to other countries such as India, Bangladesh, Malaysia, etc, and they have captured the Pakistani clients in the international markets. Owing to mis-commitment the country is suffering a loss of around $1.5 billion annually.

Likewise, the oil import bill surges by around $800 million to $1,000 million, because of the use of furnace oil in generators across the country, which is not only increasing atmospheric nuisance, but also giving rise to noise pollution.

The country has suffered a loss of around $16 billion, or two percent of the GDP since the privatization of KESC.

Abraaj Group, on the one hand, never invested in the power utility, and on the other, took a loan of over Rs100 billion from international banks and IFI by keeping the valuable land of the power utility, having Bin Qasim Power Plant and several other, grid stations on mortgage.

KESC also owed over Rs100 billion to several other local institutions and organizations, such as Water and Power Development Authority, Pakistan State Oil, Sui Southern Gas Company, independent power producers and KANUPP.

In this way, KESC has been indebted with Rs200 billion, while its T&D losses also witnessed an upsurge during this period.

The insincerity of KESC management can be gauged from the fact that, on the one hand, it had shut down several power plants, which run on furnace oil, to save money and after every few months got permission from the National Electric Power Regulatory Authority to raise power tariff, and on the other, it sent a letter to NEPRA in 2009, seeking permission to retrench 7,000 employees of the power utility, which they claimed were additional.

NEPRA gave the decision against their request and said that there is no surplus staff in KESC and the management cannot retrench a single person for the next seven years. It also gave permission to KESC management to raise power tariff by 13 paisas per unit and pay the salaries of the staff from that earning. Now, the citizens of the city are paying an additional 13 paisas per unit, meaning the amount needed for the salaries of the staff, but the management is bent upon forced retrenchment of 4,500 employees.

The KESC management is also making propaganda against the people by terming them power thiefs and earning huge amounts by sending inflated bills to the citizens of the city. When people approach the office of the power utility they were informed that their bills are correct and they should pay the bill to avoid power disconnection and arrest.

At the time of its privatization, the then privatization minister Hafeez Shaikh had said that NEPRA had freeze the tariff for seven years, and that the new management will not be permitted to raise the power rates, but on the contrary, power tariff has been raised by over 100 percent during the last five-and-a-half years.

The KESC system needs huge investment as it is over-loaded and outdated. A large number of substations switch boards PMTs, feeders, cables and wires need to be replaced on an immediate basis, but unfortunately the old copper cables laid during the British rule were replaced by aluminium wires, which cannot bear the present electricity load, resulting total collapse of the system in the next few years.

The present management has no technical know-how and it is sad to see that a purely technical entity is being run by a non-technical management.

The regular employees were also promised not to be retrenched from their jobs, but on the contrary, Abraaj Group from time-to-time continue to retrenched employees on one or the other reasons. Firstly, the group offered senior officers working on a regular basis to discontinue the same and re-appointed on contractual jobs. Some of the officers accepted the offer, but most of them rejected it. After rejection from the employees, the KESC management created a surplus pool and transferred over 300 employees into it. The employees protested against this decision, but the management never paid attention to their grievances. It also prepared new service rules in March 2010 and under its cover, forcefully sent 294 officers home, without giving any reason. Later, these officers went to court, where the case is still pending.

After the officers, the management started the same exercise with the employees and introduced Voluntary Separation Scheme on December 31, 2010 and asked the employees to avail it by January 14, 2011. On the one hand, the management said that it is not mandatory, but on the other, it started forcing the employees to avail it or face dire consequences. The scheme was targeted as the management issued letters to 4,500 lower-cadre staff by name, including drivers, security guards, bill distributors, clerical staff and naib qasid. The KESC employees did not come under pressure and 92 percent of them
refused to fill the VSS form, resulting in a harsh decision from the management on January 19, fired 4,500 employees, who were issued letters with the stroke of a pen.

It is to be mentioned here that 4,500 retrenched employees also included 225 widows, deaf, dumb, disable people and minorities. After four days of continuous sit-in, the federal and provincial governments take notice of the uncalled for decision of the KESC management. The government pressurized the KESC management and succeeded in reinstatement of these employees to their respective
jobs.

After finalization of the negotiations between the governments’ representatives and KESC management, Provincial Power Minister Shazia Marri, while talking to the sit-in protestors announced their reinstatement after which the sit-in protest ended. On January 24, all the reinstated employees returned to their offices. Later, the union leaders thanked the President, Sindh chief minister, governor and federal ministers, Syed Khursheed Shah, Raza Rabbani and Raja Pervaiz Ashraf for their support.

But only three days later, KESC Chierf Executive Officer (CEO) Tabish Gauhar addressed a press conference and said that the decision of reinstatement was taken due to the pressure from the government, but he stands by our decision and now these employees would be retrenched in a phased manner.

Not only this, but the KESC management filed terrorism, burglary, harassment, bid to kill involvement in torching of vehicles and other property like cases against 19 union leaders. Later, all the union leaders get bail before arrest from the court.

On January 26, the chief executive again announced retrenchment of the employees and started the drive from the non-technical staff by terming them non-core employees and stop paying overtime to them. Drivers were asked to hand over the keys of their vehicles. Bill distributors were stopped from performing their duties and likewise the clerical staff was also asked to stop working.

4,500 employees were once again retrenched and the KESC management replaced them by hiring laborers from Labor & Manpower Companies and started paying them salaries without assigning any duties. On the other hand, the KESC management is also paying a huge amount to these labor and manpower companies, which have ultimately enhanced the expenses of the power utility, despite tall claims by the management that it has no money to run power plants and the utility faces financial crunch.

The KESC management is also paying huge amounts to its directors, which are over 100. The salaries of these directors are in the range of Rs1million to Rs6.5 million. This had already been published in the newspapers, which seconded our claim that there is discrimination among the employees of the power utility. Fuelling fire to the situation, the Supreme Court of Pakistan on June 2 gave a decision regarding IRA 2008, according to which the law will not be in effect from April 2010, resulting in abolishment of NIRC. At present, there is no labor law in the country. Taking undue advantage of the SC verdict, KESC started dismissing those employees who have taken stay orders from the NIRC.

The KESC management issued a circular, saying that under the directives of the Supreme Court regarding suspension of IRA 2008, no CBA union will exist from now onwards. This issue has been challenged in the court and the decision is pending.

Despite this anti-worker behavior, the representatives of the retrenched employees tried their level best to hold negotiations with the management so that the issue could be resolved, but to no avail.

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The views shared in this article do not necessarily reflect those of the AHRC, and the AHRC takes no responsibility for them.

About the Author: Lateef Mughal, General Secretary, Peoples Workers Union (KESC) and he can be reached at mughal.lateef@gmail.com

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About AHRC: The Asian Human Rights Commission is a regional non-governmental organisation that monitors human rights in Asia, documents violations and advocates for justice and institutional reform to ensure the protection and promotion of these rights. The Hong Kong-based group was founded in 1984.

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