You are on page 1of 17

VISION OF THE COMPANY

The vision of KESC is to meet the energy demand of its customers through green sources

of power such as solar energy and wind energy for the comfort and progress of the

society.

MISSION OF THE COMPANY

The mission of KESC is to meet customer’s expectations with electrical power that is

reliable, stable, and from an environmental friendly source of generation, to improve the

safety and quality of the work place for employees and to develop growth opportunities

for the company, its employees and its customers.

FINANCIAL ANALYSIS

Liquidity Ratios The company is facing a liquidity crunch since 1992-93. Since the

liquidity ratio is less than one. A slight improvement was noted in 1999, primarily due to

issue of additional shares. The earlier deteriorating trend is persisting.

Activity Ratios Average Collection period is very high, though it has registered a

positive improvement over the years. But it is way behind the standard of donor agencies.

Fixed asset to current asset turn over has shown an improvement over the past few years

but it is still quite low, mainly due to the huge quantum (37%) of Transmission and

Distribution losses.

Leverage Ratios The percentage of the total funds that are provided by the creditors

compared to the total assets is totally increasing. The debt to total asset ratio however did

show a slight improvement in 1998.

Due to continuous accumulation of losses, the equity has turned negative inspite of the

issue of additional shares in 1998.

1
Growth Ratios Book value per share was very much positive, that is Rs.39.90 per share

in 1996, which has now eroded dramatically over a short period to -44.58 per share in the

year 2000.

Earnings per share are negative for the last seven years and have fluctuated in the range

of -3.9 in 1996 and –26.76 in the year 2000.

Profitability Ratios Due to operating losses, the company TIE ratio has remained

negative during the last five years which was as low as –0.2635 in 1996 and declined to –

2.3599 in the year 2000.

Profit margin on sales is negative since 1993 and is declining year after year.

Return on asset was –1.05% in 1996, which decreased further over the years to –19.5% in

the year 2000.

Return on Equity was –7.74% in 1996, which further decreased –371.88% in 1997. Since

1998 onward, the return on equity figures is positive that is 136.19% in 1998, 86.96% in

1999 and 60.02% in the year 2000. This clearly reflects the financial soundness of the

firm, which is clearly negative. In fact, the positive figures are due to the negative values

of both the net income and the equity.

EXTERNAL AUDIT

Economic Forces On account of inflationary pressures, the company is suffering from

additional financial burden of fuel, machinery and equipment cost. Due to bad

macroeconomic condition, the ability to pay energy bills by the low-income consumers

has eroded. Electricity being an essential service has inelastic demand as such, many low-

income groups revert to theft of electricity which is inflicting heavy losses on KESC.

2
Social, Cultural, Demographic and Environmental The theft culture is not restricted

only to the poor masses but is also prevalent in the posh localities of the city. Though the

consumers belonging to this class are not willing to pay due to their influential position in

the society. Due to the rapid population growth, new residential and commercial areas are

being inhabited resulting in increased demand for electricity.

Political, Government and Legal Forces The company has monopoly for generation,

transmission and distribution of electricity in the licensed area of service. It cannot

raise its tariff to reflect the cost of input without the approval of NEPRA and the

federal government. The government due to potential unrest and under the

influence of various trade associations does not allow realistic tariff increases.

Under the government of Pakistan’s energy policy of 1994 power generation plants

cannot be set up in the public sector. To meet its demand KESC has to purchase the

required power from the IPPs at comparatively higher rates. On 20 th October, 2001,

NEPRA allowed 2.3% increase in tariff, which is likely to increase the revenues of

KESC by Rs.75 million per month. Under the new energy policy, expected to be

announced by the year 2001, prospective IPPs would be invited for open bidding

for setting power generation plants. The stipulations of the policy would force the

bidders to install more efficient and longer life plants having low cost per kilowatt

per hour produced. Thus decrease in the price of purchased power is expected.

Technological Forces Sui Southern Gas Company is commissioning a gas field and

other infrastructure facilities by June 2002 for delivering bulk gas to Karachi for

industrial and residential consumers. Government of Pakistan has directed Sui Southern

3
Gas Company to supply additional 90 Million Metric Cubic Feet per Day to KESC to

enable it for 100% gas based fuel burning.

Competitive Forces Self-generation by medium sized manufacturing firm and large

commercial organizations and institutes are posing a competition, which cannot be

ignored. About 50 MW power is currently being produced to be consumed by the

aforesaid entities. Due to frequent breakdowns, load shedding and poor service response,

the trend of self-generation is increasing. Defence Housing Authority is seriously

considering the feasibility of setting up a desalination plant in Karachi, primarily for the

water supply to the residents of Defence Housing Authority. The proposal project also

envisages installation and commissioning of two 100 MW power plants whose steam

would be used for desalination. Defence Housing Authority is also planning to sell

electricity to the residents, commercial and industry in its area through the existing KESC

network and facilities.

4
INTERNAL AUDIT (VALUE CHAIN)

Primary Activities

Inbound Logistics Fuel oil as natural gas, major input in power generation, are received

at oil and gas terminals located at Bin Qasim Thermal Power Station, Korangi

Thermal Power Station, Korangi Thermal Gas Turbine and Site Gas turbine

generating station. Every generating station has fuel storage capacity for 72 hours

continuous operation at full load. The oil pipeline is owned by PSO as such KESC

cannot exercise the option of buying fuel oil from other sources. Natural gas

received from SSGC is not stored rather it goes directly into operation. Spare parts,

conductors, switchgears, transformers, energy meters, transformers oils, cables,

stationery, etc. are received and stored in the central store located in SITE area.

KESC has reduced inventory carrying cost by not maintaining stock of items

related to new service connections. Instead the consumers procure and provide the

same as and when required. However, KESC has accumulated huge stock of

obsolete stores of over 300 millions burdening the storage areas and more

importantly on the resource of the company. The material inspection, material

handling and inventory control are very inefficient and can be improved through

proper planning and forecasting of material requirements and training of the

personnel which will result cost reduction and increasing productivity. Due to poor

information system, material is frequently procured to meet the requirement when

it is already available in the store. Information system can be improved by using

computer system for the inventory management.

5
Operations The generating units of BQPS are the most efficient among all other units of

KESC. Unit#3 of BQPS is under shutdown since January 2001 due to fault in the

generator winding and fore want of major overhauling. Unit 1 and 2 are operating

at near full capacity whereas Unit#4 and 5 are operating at de-rated capacity; due

boiler tube leakage under the condition of high steam pressures. The Gas Turbine

units of KTGT and SSGT are inherently inefficient and are operated only in peak

demand hours due to almost 50% higher cost of generation as compared to BQPS

steam turbines. Power is generated at KESC’s four generating stations namely

BQPS, KPTS, KTGT and SGT. BQPS and KTPS plants are based on steam turbine

technology and KTGT and SGT are based on gas turbine technology. The installed

capacities are:

BQPS 6 units at 210 MW

KTPS 2 units at 125 MW and 1 unit of 66MW

KTGT 4 units at 20 MW

SGT 5 units at 20 MW

The units of KTPS, KTGT and SGT are more than 25 years old and hence have derated

due to aging and poor maintenance. KTPS is generating only at 57% of its installed

capacity i.e., producing 180 MW instead of 316 MW. In spite of the above factors, the

average generation cost per units of KESC is the lowest i.e., Rs.3.00 per unit as compared

to the imported power from WAPDA (@Rs 3.25 per unit) and IPP’s (@ Rs 4.50 per

unit). The cost per unit generated can be reduced further by 100% conversion of BQPS

6
units to natural gas and proper and timely (every 5 years) maintenance of the generating

units.

Outbound Logistics The power from KESC generating station is transmitted to the load

centers of the city through its network of 75 extra high tension transmission lines

and 49 grid stations. KESC transmission losses of 2.5% match the international

standard. The power from grid stations is distributed to industrial and residential

consumers through the distribution network comprising of 15,511 kilometers of

distribution mains and 6,633 distribution transformers. Distribution losses are

37.7% (average for the year ) which are way above the internationally accepted

standard of 18% for the sub-continent. The distribution losses comprise of technical

and non-technical losses. The excess technical is attributed to overloaded and old

feeders and low tension mains whereas the non-technical losses re caused by the

theft of electricity by consumers. The technical losses can be reduced by

construction of new grids close to load centers and by addition new feeders and

low-tension mains. The non-technical losses can be reduced by conducting

extensive operation for the removal of illegal connections and by installing energy

meters in anti-theft boxes outside the premises of the consumers.

Marketing and Sales KESC enjoys monopolistic status in its licensed jurisdiction and its

marketing and sales efforts are not directed towards increasing sales or market share.

Whatever marketing efforts though very little, being exerted is for the purpose of

discouraging theft and creating awareness among the consumers about avoiding

unnecessary consumption of electricity during the peak hours in order to overcome

supply shortages. The current average collection period of electricity dues of KESC is

7
149.9 days against the standard of 60 days. For reducing the average collection period a

number measures can be taken, such as controlling staff against raising average and false

bills. Increasing the number of meter readers, timely issue of energy bills, prompt

redressed of complaints of disrupted bills and prompt disconnection of defaulters.

Services Though the response to breakdown complaint has improved significantly during

the past 2 to 3 years, the overall customer service of KESC is still very poor. The existing

and prospective customers have to face a lot of difficulties in getting themselves heard at

the KESC offices due to the complacency and lack of knowledge on part of the staff, low

level of motivation, lack of training and development and lack of empowerment.

Secondary Activities

Accounting In accounting department is divided into six sections namely: banking

section, payroll and establishment section, asset section, allocation section, pricing

section and credit billing section. Accounts department deals with the employee payrolls,

loan and debt servicing, energy billing, assets records, allocation of costs and keeping

records of transactions. Stores, payrolls and ledger accounts are fully computerized and

the computerization of the remaining sections of the accounting department is in

progress. The work environment is poor and the procedures and systems such as payment

to suppliers, loans to employees are lengthy and cumbersome.

8
Finance Finance department prepares capital construction budgets and revenue budgets

of the organization, negotiates with GOP, banks and other donor agencies for the

arrangement of needed funds for projects and operations and deals with NEPRA,

GOP and GOS regarding the tariffs. It is involved in pursuing GOP for

enhancement in gas quota by projecting reduced opportunity cost. The finance is

successful in arranging the needed funds uptil now but its emphases is on meeting

the short term obligations rather than acquiring and using funds for long term

productive funds.

Personnel The department is involved in maintaining the records of more than 13000

employees of the company. The role of the department is not very supportive in human

resource training and development, rather it is bogged down in the matters of disciplinary

actions against employees. It has no plans for job rotation and enrichment of technical

and non-technical employees. Transfers/postings are made on extraneous grounds. Due to

the ban on hiring since 1993 and the brain drain, KESC is facing shortage of competent

permanent staff and the situation is aggravating as more and more competent employees

are either retiring and/or leaving the company for better prospects. Overall employee

morals and motivation is very low and is continuously deteriorating because of

militralistic style of the new management, apprehension of loosing jobs due to layoffs

and lower real wages (pay scales are not revised since 1994).

9
Stores The department is involved in the purchase and storage of furnace-oil gas,

transformers, switchgears, cables, conductors, energy meters, office stationery, etc.

Purchases of upto Rs 50,000 can be made on cash whereas over and above this

amount needs to be done through calling tenders. Inventory management is very

poor due to which inventory worth more than Rs. 300 million has gone obsolete.

Culture and Leadership Culture of complacency, lack of initiative, lack of

communication, lack of empowerment, lack of knowledge of rules and procedures

fear of reprisals from superiors is prevailing in the company. The middle/lower

management and the employees either differ decisions or leave the decision making

for their superiors.

SWOT ANALYSIS

Strengths

1. Low per unit generation cost as compared to IPPs purchase price.

2. T&D losses can be reduced through administrative and technological measures.

3. All generating units are designed for 100% natural gas operation.

4. Ample transmission capacity available on transmission lines to provide power to

SITE i.e, industrial consumers. This will reduce the distribution losses.

5. Highly competent and experienced generation engineers are available.

Weakness

1. Old and overloaded distribution system.

2. Insufficient staff and inefficient working in some areas.

3. Company is facing liquidity crunch and has poor financial position.

4. Many levels of management (narrow span of management)

10
5. Decision-making is mostly centralized.

6. Minimal delegation of authority and empowerment of employees.

7. Low employee morale.

8. Company manages business the business on the principle of management by hope

rather than management by information.

9. Modern business administration techniques are not used by the company.

10. No business research is carried out

Opportunities

1. KESC has monopolistic license to generate, transmit and distribute electricity and

collect revenues.

2. Average consumer load demand is increasing by an average of 5% annually.

3. Economic sanctions on the country have been removed.

4. New energy policy is expected to attract low cost IPPs.

5. SSGC is commissioning its new gas-fields and allied infra-structure for bulk gas

transmission to Karachi by June 2002.

6. Availability of anti-theft energy-meters and associated system.

7. Possibility of joint venture with IPPs under new power policy.

8. HUBCO has surplus generation which can provide for KESC generation shortages.

Threats

1. Rising prices of furnace oil.

2. Poor macro-economic conditions.

3. Increase in self-generation by medium sized industrial and commercial consumers.

11
4. DHA is seriously considering for generating, transmitting and distributing electricity

to DHA residential, commercial and industrial consumers by installing its own

desalination/power generation plant.

5. Culture of theft of electricity is more taking roots.

6. Pakistan environmental protection agency is considering more stringent

implementation of environmental regulations.

7. Ban on new power generation projects in public sector.

8. Because of weather the window available for equipment maintenance is small.

12
MAJOR & MINOR PROBLEMS

Major Problem

Poor Management-The KESC has been facing unprecedented financial losses over the

last seven eight years. Once an efficient and huge profit earning organization it

suffered set backs in the recent years due to poor and passive management.

Since 1986 onwards governmental and political intervention increased in the

affairs of the company, particularly in the areas of hiring, posting and transfers.

Consequently, important managerial positions were filled by individuals who

were unable to lead the company in the right direction. The management has

been unable to foresee and adapt its operations to minimize the impact of the

unbearable burden of the soaring prices of furnace oil. The top managers, one

after the other, have remained silent spectators to the plunging levels of

employee discipline as they yielded to excessive political and governmental

interventions entailing overstaffing, low productivity, power thefts and sub-

optimal maintenance. Lack of planning, foresight and poor bargaining power

on the part of management have led to a situation where the gap in generation

and demand has to be filled by the expensive power import from the IPP’s.

Minor Problems

High Fuel Cost-the price of furnace oil is continuously increasing which was Rs.6, 070

per ton on 19th April 1999 and has now soared to Rs.12, 073 per ton as on 16th September

2001.

Overstaffing-due to political intervention and vested interests of the government in the

company.

13
Low productivity-due to lack of training & development and lack of motivation.

Primitive techniques/methods are still being followed in the areas of transmission and

distribution which are resulting in low productivity.

Poor Transmission & Distribution System-old and overloaded transmission and

distribution network is causing revenue losses due to line losses and interruptions.

Lack of Competition-management due to lack of competition is not much concerned

about company’s revival.

Poor Maintenance- In the absence of spare generating capacity, KESC cannot shutdown

its shutdown its units for maintenance in the months from April to October without

resorting to load shedding.

Lack of Planning- The Planning department does not have expertise and tools for load

forecasting such as Computer Aided Planning and Design. KESC was unable to catch the

rapid growth in demand and IPPs were invited to fill the gap between the supply demand.

Poor Bargaining Power-the management being the representative of government is

forced to take decisions, which are not in the company’s best interest and practically it

has no say in the policy making and its implementation.

No Vision & Mission-in the absence of a clear vision and mission, both the managers

and employees lack sense of commitment and ownership.

STRATEGIC ALTERNATIVES

1) The present scenario demands that the management should be critically examined and

the people, no matter to which level they belong should be either retrained in their jobs or

replaced, depending upon their ability to cope with the change. This restructuring should

14
be taken up irrespective of the level at which these people are working within the

organization.

2) The company should be divided in to the three separate companies on which it is

based, that is transmission, distribution and generation. These three companies should be

partly owned by the government also which should look after the affairs of the company

and take part in the decision making as well.

3) The complete privatization is the third option available and although its look lucrative

to privatize the company, previous experience has shown that it has not been successful

in the past and has resulted in the loss of valuable capital and human assets

STRATEGIC CHOICE

The obvious choice lies in the breaking up of the corporation into three separate

companies to be run independently. This, along with a total restructuring of the

company’s management which would be totally responsible for the profits and losses

borne by the company is the only feasible option available at present.

All this is supported by the EFE, IFE and TOWS matrix.

REVISED TABLE OF CONTENTS

• Introduction

• Background

• Generation Department

• Transmission

• Distribution

15
• Human Resource Department

• Store & Purchase

• Financial Analysis

• Power Sector In Pakistan

• Social Responsibility & Business Ethics

• Future Outlook

16
27th October 2001

T H E K A R A C H I E L E C T R I C S U P
O R G A N O G R A M

B r ig . T a r iq M a h m o o d K h a n
M a n a g in g D ir e c t o r

C o l. F a r o o q K h aO n s w a ld R e a r l
I / C I m p . D i s t r i b Cu t o i o r pn o r a t e S e c r e t a r y

C o l. S a r d a r K h a C n o l. M . T a r iq
I / C I m p . G e n e r a O t Ii o C n I n t e l l i g e n c e

C o l. S h a u k a t R a z a
D . M . D .

A b d u l R a u f Y Ao tu a s u u l lf a h K h a nK h a l i d I q b a l C o l. A s a d A l i S S ah e a eh d M a h m oM o . d S h a b b i r S . M . M u f t i R iz w a n W a hC i do l . M u s t a h s a n B il la h
C h . M g r . F i n aC n h c u e i e f A c c o uI / nC t a C n . t E n g . D is t r . D i v . OI I I C B i ll in g I / C C . E n g r . G Ce n . eE r n a g t i ro . n S & P C . E n g r . C i vC i l . E n g r . T r a n Os .I C& AP dr o m j . n . & S e r .

S a r d a r M . K hM a on h a m m e d L S i ah qa ab tb i r A . S o l Ja a n m g i l G u l A n w a r A li R o Mo m. Ji a m il P a n w a r C . A b d u lm R M a as hj . e S e h d a h e e d MH .u Ss s h a a i nf i q
D y . C o n t r . F iDn ay . n C c e o n t r . F i nC a . n E a n c g e . D i s t . C D . i v E - In I I g . D i s t . CD . i v M- I g r . B i l l i n g C . E n g r . B Q P S C o n t r o l le r T r a O n sI Cp o P r te r s o n Dn e P l M ( C o m p . D e p t t . )

W a q a r A . F a r Ar o b q d i u l S a m a d V a c a n t
O f f t g . D y . C . OE nf f g t g r . . OD py .e Cr a . t i Eo D nn y gs . r C. M. E a ni n g t .r . P & R

T a r iq N o o r A b d u l S a m a d
S E ( E l e c t r ic a l ) S E ( I & C )

Z a f a r u l l a Mh o h a m m a dW Sa hs ea eh me e S n S h a a g h h z ea ed r H Mu su s s a t ai n f a B h R a ei h a n N o o r F e r o z I r f a n M a n s o o r O k a il i A b d u l H a m e e d Z o u q i
M E ( E le c ) M E ( E le c ) M E ( E le c ) M E ( E le c ) M E ( E le c ) M E ( I & C ) M E ( I & C ) M E ( I & C ) M E ( I & C ) M E ( I & C ) M E ( I & C )

• blue boxes represent staff positions

17