Karachi Electric Supply Company (KESC)

What We Inherited
Capital injection alone does not solve the problem; requires detailed turnaround strategy to be implemented by a strong management team
Financial
Cash Loss: US$ 14 - 15 million per month Inability to purchase sufficient FO leading to a reduction in electricity production Outstanding sovereign issues resulting in adverse material impact on financial and operational viability including accumulated losses of c. US$ 700 million, contingent liability of c. US$ 600 million (Nov 2008) and circular debt of US$ 250 million Over US$ 1 billion in cash requirement over next 3 years Adverse fuel mix System reliability of 55% ; Availability of 89% Capacity de-rated by 400MW resulting in lost revenue of c. US$ 400 million High transmission & distribution (T&D) losses of over 40% Unreliable network Inadequate and reactive maintenance

Operational
Old and dilapidated plants

Stakeholders Alignment
Key stakeholder relationships disrupted Severe reputational damage Extremely negative public image Loss of confidence by consumers

Management & Strategy Execution

Management & Leadership Failure - Demoralized workforce - Misaligned management objectives - Lack of coordination in project management leading to ineffective capex - Current organization structure not suited to effectively manage over 18,000 employees - Absence of accountability and zero supervision

What Have We Accomplished

Generation & Transmission: 450 MW Gross Generation Capacity added (US$ 300 mn) - 220 MW CCPP, 180 MW GEJB and 50 MW Aggreko Won 2 Asian Power Awards in 2009 (GE Jenbacher) Fleet efficiency improved from 29.8% in September 08 to 33% currently 8 new grid stations constructed - SCADA system fully operational across network Distribution: Reduction in T&D losses by 3.8% on a rolling average basis 6 Integrated Business Centers, one window operation for customers, launched Rs. 2.5 billion Model Town Project substantially completed 200 new feeders and 700 new PMTs installed and energized 118 Call Centre capability significantly enhanced (from 70 to over 350 call agents) Scheduled load-shedding regime implemented 24/7 exemption to all 6 industrial zones + strategic customers (KWSB, etc) Investment / Other: US$ 255 million equity injection by KES Power to date Major fuel and power supply agreements in place: PPA; FSA HR 3,400 non-mgmt to mgmt promotions; 7,000 contracts renewed COD signed with elected CBA after a decade Winners of the Environment Excellence Award 2010

What Are We Doing

Generation & Transmission: Construction of new 560 MW CCPP at BQPS; Cost (US$ 400 mn). 62.2% complete; COD: SC (+348 MW gross) July-Sep 2011, CC 2012 (+180 MW gross) Projects underway to asses feasibility of Alternative Fuels (c. 1,000+ MW): LNG: MOU already signed with Engro Vopak Coal: MOUs signed with various contractors in China and Canada Biogas: 2 MOUs already signed for joint project development 2 grid stations currently under construction; feasibility underway for 3 more An extensive Transmission Network Capacity Debottlenecking Project (US$ 90 mn) is in development Distribution: Eventual goal to have 27 Integrated Business Centers spread across Karachi Various technical solutions being explored: Aerial Bundle Cable project and Automatic Meter Readers for industrial consumers Pre-paid metering for residential / commercial consumers Increasing HT/LT ratio Integrated Voice Response being implemented for the call centers Investment/Other: US$ 255 million additional equity injection by KES Power Negotiating with SSGC to sign a GSA

What Do We Need ?
KESCs Commitment
KESC will eliminate* load Reduce Load shedding by 2011 and will invest shedding and to maintain zero shedding level bridge capacity gap KESC will bridge capacity gap of ~ 900 MW by 2015

Stakeholders Commitment
Revise and restructure tariff to allow for returns necessary to inject further investment Removal of clawback Increase of base tariff of PKR 0.574/ kWh and adjustment for collections Increase in allowed loss rate Guarantee 480 MMCFD of gas per day to ensure full capacity utilization at low cost to the GOP and customers

Tariff Revision

Lower tariff / subsidy

KESC will offset expected increase in tariff by: Increasing utilization of gas and moving to coal Lower cost via world class performance

Fuel

Minimize NTDC power purchase

KESC will eliminate the need to draw any electricity from NTDC and become a net exporter of power of ~7,600 GWh in 2015

Enforcement Support

Support KESC in reducing theft via: Amendments to 1910 Electricity Act Stronger enforcement Institutionalize offset mechanism for intra-government payables and receivables Do not withdraw entire consumer subsidy at once to avoid severe customer reaction

Service quality compliance

KESC will improve quality of service provided to end customers by improving reliability and customer processes

Consumer Subsidy

Note: * Eliminate load-shedding apart from some minimal capacity constrained load shedding in 2 peak load months