As of late, there has been much talk in the media about the failures of KESC, including the unsuccessful attempt at privatisation of the same. Most of us, however, are losing sight of the actual picture and fail to understand that KESC’s problems are not isolated from the rest of us; but a conundrum for the entire nation.
The severity of KESC’s plight cannot be overemphasised and continuation of KESC’s failures cannot be afforded. Unless immediate measures are taken to address each systemic issue faced by KESC, the viability of the utility to exist as a going concern is seriously threatened.KESC is the sole supplier of electricity to Karachi, which is without a doubt, the financial capital, and industrial powerhouse of Pakistan. With 95% of foreign trade passing through its borders and 90% of Pakistan’s public and private banks as well as major multinational organisations headquartered in Karachi, the nation simply cannot afford the power crisis that Karachi is so deeply lodged in.
KESC is indeed a damaged, broken asset. However, the responsibility for its financial and operational success does not rest exclusively with its owners. Assurance of basic utilities such as water and power is the responsibility of the Government and, by extension, all stakeholders and opinion leaders that influence the politics of our nation. KESC’s decline cannot be segmented into a limited timeframe as they are the result of decades of under-investment and apathy.
The long legacy of losses and accountability thereof was merely transferred from one party to another at the time of privatisation, without even a cursory understanding of key fundamental issues. The root cause of these failures requires resolution of a variety of question marks which cannot be solved merely by capital injections and necessitate considerable time and patience to fix. KESC suffers from a severe financial crunch, with cash losses of approximately 600 million rupees per month.
THE RESPONSIBILITY FOR THESE LOSSES MUST BE SHARED AMONGST FOUR KEY STAKEHOLDERS: Government of Pakistan (GOP); existing shareholders; citizens of Karachi; and, KESC employees.
CHAPTERS IN KESC’S FAILED HISTORY ARE SIMILARLY EASY TO FOLLOW: inefficiencies arising from state-ownership of KESC; severe mismanagement of the utility at the hands of various owners; dilapidated, crumbling infrastructure; ad-hoc regulatory policies; and lastly a well-intended but painfully slow liberalisation process.
ESTABLISHED IN 1913 AS A PRIVATE ENTITY: KESC was subsequently taken over by the GoP in 1952. With the state acquiring dual status of both an operator and a regulator, mass disequilibrium resulted in KESC. Like forlorn children striving for attention, this public sector enterprise became perpetually dependent upon government support and a drain on the country’s fiscal health.
POST PRIVATIZATION: KESC is the recipient and continues to suffer not only from its ill inherent to many Pakistani public sector enterprises but also from decades of acute leadership failure and widespread misuse on all levels.
During the 1990s KESC miserably failed to meet any of the Asian Development Bank’s (ADB) covenants, while transmission and distribution (T&D) losses grew from approximately 24% to an alarming 40% over the course of the decade. 1996 was the year where the steep deterioration in KESC’s financial condition began.
The financial crisis at KESC in 2000 was so severe that losses of nearly 13 billion rupees represented 70% of the government’s annual expenditure on social services, nearly double the national expenditure on education and approximately three times the expenditure on public health at the time.
The power crisis then had not exacerbated to the point that it has now; it indicates a failure on the part of the government to secure a primal constitutional right for its citizens. KESC is plagued with a plethora of operational difficulties which arise principally from chronic under-investment in facilities and processes and system planning, which has led to forced outages, de-rating of capacities, low plant efficiencies, high technical losses and extreme unreliability of the overall network.
The above mentioned operational issues extend across all components of KESC’s supply chain, including generation, transmission and distribution. On the generation side, facilities are crumbling from lack of standard protocols, limited maintenance and absence of investment which has significantly reduced KESC’s operational capacity.
GENERATION PLANTS ARE OLD AND DILAPIDATED: the average age of existing units is 27 years and 13 out of the total 19 units have already exceeded their intended life cycle. Not a single MW has been added to KESC’s generational capacity since 1997 and no new plants have been installed since 1977. Load-shedding is the most obvious result of KESC’s failure to supplement its generation capacity.
KESC is not self sufficient vis-a-vis its generation capacity and has become increasingly more dependent upon external power supply from WAPDA and Independent Power Producers (IPPs) which has further made Karachi’s power supply extremely fragile. Failure to procure sufficient power, due to network failures on the part of IPPs and impromptu power supply from WAPDA will inevitably lead to loadshedding.
Not only does load-shedding lead to massive industrial losses to the tune of nearly 400 billion rupees in 2007, frequent overloading and outages cause irreparable equipment damage as well. While, severe capacity stagnation has impeded KESC’s generation capabilities, the absence of planned maintenance has caused de–rating of existing capacity across all units as well.
Similar problems have hampered the efficacy of KESC’s T&D network. Lack of cohesive strategy and planning to revamp the existing T&D network have forced KESC to operate in a defensive and ultraconservative manner. The current grid monitoring system is manually operated and cannot detect or prevent power outages. Moreover, the transmission network does not have the capabilities for contingency planning, and therefore there is no backup in case of emergencies.
Privatisation is the first step in the transition to a free market system. Private entities help instill financial stability to state assets through their emphasis on profit creation, increased productivity, operational efficiency and good governance laws. Successful privatisations, however, do not involve a mere transfer of ownership from the state to a third party. But this is exactly what happened in the privatisation process of KESC, and in the aftermath, KESC was abandoned like an orphan child left to fend for itself.
Due to KESC’s position as the sole supplier of electricity to Karachi, the company must provide uninterrupted electricity to certain non-paying strategic customers and government related entities. Government’s failure to provide post privatisation support has been a key reason for the crisis KESC is currently engulfed in.
If the new owners had conducted adequate due diligence at the time of privatisation, these structural defects would have been detected much earlier, the government could have been lobbied to provide a fair regulatory structure and tariff pricing would be a non-issue.
Aforementioned issues have arisen primarily as a result of leadership failure at senior levels which has trickled down and built inefficiencies in KESC’s processes and organisational structure. The new owners took no new initiatives to take employees into confidence.
The end result of the lack of dialogue has been severe disgruntlement within the organisation, with agitated labour unions holding campaigns against privatisation and employee sabotage activities. In addition, technical shortcomings of the new owners have not been supplemented with hiring of competent engineers, which has impacted operations drastically.
KESC suffers from a cash loss of about 600 million rupees per month. While, a large part of these losses arise from systematic inefficiencies, a substantial part of this burden must be borne by the general public. Karachi’s upright citizens have contributed extensively to KESC’s failure and are a primary cause of the city’s unrelenting power crisis through their unashamed and active participation in electricity theft.
Aside from industrial, residential and commercial theft, the level of power being stolen at the highest levels of the bureaucracy, sovereign entities and other non–strategic customers through the non-payment of bills is extraordinarily high as well.
Non-payment at the highest echelons of civic society, industry and bureaucracy results in greater revenue losses at these customers also tend to have high consumption patterns. As non-paying customers increase their consumption, they make electricity scarcer for the legitimate customer. In the process, due to overloading by over consumption, loadshedding becomes a necessity. Overarching the financial difficulties of KESC is arguably one of the most challenging problems of human capital.
FUNDAMENTAL ISSUES RELATING TO HUMAN RESOURCES ARE: demoralized workforce, inadequate organisation structure and severe management crises. At present, however, KESC employees are de-motivated and lack any semblance of ownership. Outdated, poor compensation and benefit structures have caused tremendous problems with human resource retention.
There is no avenue for career planning and inadequate training and development budgets have disallowed establishment of defined skill sets. Several employees have resorted to theft, with linemen actively involved in meter doctoring. Outside factors have further impelled employee morale to an all time low.
Frustrated mobs, enduring extensive load-shedding have had violent reactions towards KESC employees and property. Complete absence of accountability, zero supervision and lack of a performance driven culture with periodic appraisals has left no incentive for workers to improve capabilities. KESC has lost the trust and confidence of all its stakeholders which has fenced the company from all sides in an extremely hostile environment.
KESC’s future is intrinsically tied to the courage and hope of not only millions of Karachi’s citizens, but on a more holistic level the optimism of an entire country. The sooner each individual stakeholder realises the depth of his vested interest in KESC’s success, the sooner we can move away from a vicious cycle of blame and towards making tangible differences. The benefactors of KESC’s success and persons best equipped to save the day will inevitably be those whose fates are inextricably attached to the destiny of this nation.(firstname.lastname@example.org)
Source: Business Recorder, 14th September, 2008