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Naveed Ismail – reinventing KESC

  • Posted On: 10th June 2013
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The Karachi Electric Supply Company Limited was incorporated in September 1919 under the Indian Companies Act 1882 and amended to date vide the Companies Ordinance 1984. The company is engaged in generation, transmission and distribution of electric energy to industrial, commercial, agricultural and residential customers in its licensed areas. The total area covered is around 6000 square kilometers.

In September 1993, GOP decided to privatise KESC as an integrated unit. The Privatisation of KESC was initiated in May 2001. It was decided to privatize KESC as the company was incurring losses of up to US $ 200 million a year due to lack of investment in network. Similarly, generation capacity declined from installed capacity of 1765 MW to 1285 MW due to lack of periodic maintenance.

In 2002 total generation capacity of KESC from all sources was 1550 MW and demand was 2197 MW. Annual financial losses for the firm were PKR 16.4 billion and PKR 17.9 billion in year 2001 and 2002. To keep KESC operational, GOP picked up its debt of PKR 83 billion by doing a debt equity swap in year 2002 which relieved KESC of annual debt service burden of PKR 8 billion.

Accumulated losses were reduced by PKR 57 billion through capital reduc�tion approved by Sindh high court which resulted in reduction of share value of KESC from Rs 10 to Rs 3.5.

Expressions of Interest (EOls) were invited for 51 % to 73% interest in KESC along with the management control. Only two parties (Le. AES and ABB Pakistan) submitted EOls. Only one firm i.e. AES submitted the Statement of Qualification (SOQ). AES, however, withdrew its interest in the transaction in September 2002.

The GOP approved and initiated a Financial Improvement Plan (FIP) of KESC for a capital expenditure of Rs.13.698 billion on KESC generation, transmis�sion and distribution system rehabilitation I improvement on September 27, 2003. The privatization transaction was re-launched in September 2003 and fresh EOl’s were invited. The Government prior to the closing of the transac�tion (Le. November 30, 2005) had disbursed Rs.3.591 billion out of the total Rs.13.698 billion FIP program.

KESCs bidding was held on February 4, 2005. The consortium of Hasan Associates acquired the equity stake and management control. The transac�tion was closed on November 30, 2005 with the transfer of 73% shares at Rs.l.65. Siemens Engineering Pakistan were brought in as the O&M contrac�tors.

Currently, KES Power holds 71.5 % of the divested shares. Hassan Associates hold 1 % and Premier Mercantile company hold 0.5%. An eminent Middle� Eastern investment company Abraaj Capital is in the process of acquiring 50 % of the shareholding of KES Power. Abraaj has extensive experience of investments in the power and infrastructure sectors and plans to invest up to US$ 361 million in KESC.

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