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PERFORMANCE INDICATORS AND ANALYSIS:
y Karachi Electric Supply Corporation Limited

KESC is an integrated electric utility supplying power under a monopoly license to a Service area of some 6,000 square kilometers in and around Karachi, Pakistan¶s largest city and industrial and commercial center. With a population of about 16 million the city accounts for about 15% of Pakistan¶s gross domestic product. KESC was incorporated as a private limited company in 1913 and subsequently listed on the Karachi Stock Exchange. In 1952, the Government of Pakistan nationalized KESC by acquiring a majority shareholding. Over several decades, KESC has faced many operational and financial challenges primarily due to inefficient public sector management (including by the military) and lack of investment, and has been the subject of numerous restructuring efforts, while remaining in public hands. In 2003, the Government decided to privatize KESC through a transparent, competitive bidding process, which was supported by the Asian Development Bank (ADB) through the Energy Sector Restructuring Program.1 The privatization process was successfully concluded in December 2005 when the Government transferred 73% of KESC¶s shares to a consortium of investors led by KES Power Limited (KES Power), 60% owned by Al-Jomaih Holding (Al Jomaih), a Saudi industrial group, and 40% by National Industries Holding, a subsidiary of one of the largest Kuwaiti industrial and financial conglomerates (together, the sponsors). The new management immediately initiated efforts to improve the most critical of KESC¶s operations. These included immediate removal of bottlenecks, resulting in approximately 30 megawatts (MW) of additional generation capacity harnessed through efficiency gains from existing generation assets. At the same time, management formulated a long-term strategy to turn KESC into an efficient, reliable, customer-responsive, and profitable entity. Nevertheless, as a result of the earlier years of neglect and lack of investment in generation and the transmission & distribution (T&D) network, KESC could not keep pace with growth in demand (since 2000, electricity units billed have increased 45%, while virtually no investment has been made in the T&D network). Therefore, during the peak period of summer 2006, when Karachi experienced particularly extreme climatic conditions, KESC faced a high capacity shortage and was unable to provide reliable electric supply to the city. For hours (and even days, especially during rains), customers suffered blackouts, sharp voltage fluctuations, and billing problems. In many cases the load-shedding schedule notified to customers was not followed. As a result, KESC faced severe media criticism and high customer dissatisfaction, eventually resulting in civil disturbance and demands that the Government reconsider the privatization. However, the Government has stood by its commitments, recognizing the difficulty of turning around a utility of the size and condition of KESC within such a short time since privatization. By late 2006, KESC¶s new turnaround strategy was finalized, and is now being implemented. It is supported by a program of investments (the investment plan) of some PRs52 billion ($809 million) for FY2007±FY2009, which includes the following main components: (i) (ii) (iii) Generation capacity additions of 780MW 2 in two new combined-cycle power plants on existing sites (PRs34 billion/$525 million), rehabilitation and improvement of the T&D network (PRs17 billion/$268 million), rehabilitation of existing generation facilities (PRs600 million/$10 million), and

99% of Industrial Customers were provided uninterrupted power supply. Demand-Supply Gap Transmission & Distribution bottlenecks Fuel Constraints Cash flow constraints a. as new power units have come on line. but there¶s often a difference between Installed Capacity and Available Capacity in any given hour due to a variety of reasons beyond its control. 3rd party power suppliers such KANNUP and DHA COGEN are often unavailable from time to time. c. Demand-Supply Gap (MW) has reduced considerably over the past 2 years. technical faults. in excess of 1000 MW of new capacity over 3 years . largest such project in Pakistan) i. and another 560 MW under construction (3x GE/France gas turbines already at site. furnace oil supply disruption. Likewise. 2.(iv) upgrading of commercial systems (PRs400 million/$6 million). nonetheless. etc.500 MW (5% increase from last summer)  New Connections of 276 MW added since March 2009  Not-so-significant impact of recent energy conservation initiatives  450 MW added to the system since new management took over in Sept 2008. and 97% of Residential & Commercial Customers were load shed as per above Policy ± August 2010 statistics  Average summer 2010 peak load of 2. such as low gas volume and pressure.e. scheduled preventive maintenance. d. b. which has helped KESC maintain a Scheduled LS Policy across the system. KEY PROBLEMS & THEIR STRATEGIC SOLUTIONS: y y Load-Shedding Electricity Tariff Load Shedding: (Issues & Remedies) There are four primary causes of Load shedding a.

transformers. unbalanced and fragile T&D network (transmission lines. leading to scheduled & unscheduled outages  No Gas Supply Agreement with SSGC yet. hence. An overloaded. fertilizer. Any shortage of fuel (especially volume/pressure of natural gas) means that KESC is often unable to run our generating plants at full capacity. leading to unscheduled outages. CNG. 2.5 billion ³Model Towns´ project substantially completed 200 new Feeders laid 700 new PMTs installed Load Balancing across the T&D network c. ad hoc daily supply against our need to maintain consistent power supply to Karachi  Gas quota & pricing allocation (amongst power. Industrial. and domestic sectors) needs to be reviewed by GOP Unable to run our gas-fired plants at full capacity leading to load shed Every 25MMCFD reduction in gas supply increases consumer end tariff by 50 Paisas per Unit (because replacement furnace oil 2. however. feeders. capacity addition and system improvements are proactively addressing these infrastructure bottlenecks  Historical lack of investment and master planning (haphazard growth)  System catering to unauthorized load (read: theft) as well  Actual load greater than sanctioned load in most instances (³tripping´ and ³voltage fluctuation´) ³Rights of Way´ issues with municipal authorities leading to delay in execution of projects Frequent theft of overhead conductors and bus bars at sub stations (copper) HT distribution network mostly underground        6 new grid stations energized (plus 4 under construction)  25 km new transmission lines laid & 76 km of existing lines rehabilitated  Rs. sub stations. KESC burns two types of fuel: natural gas from SSGC and furnace oil from PSO.5x more expensive than gas)    ‡ LNG & Coal are the two best fuel alternatives available to KESC. etc) means that KESC is sometimes unable to supply power to the end consumers.   Various indigenous/imported coal based projects in feasibility stage (1000 MW) 5-year Power Purchase Agreement signed in Jan µ10 with NTDC (WAPDA) for up to 650MW supply Up to 37MW of incremental supply secured from small captive power producers b. LNG is the only fuel fit for Baseline demand .

LNG is the choice for risk averse while Coal is the only choice applied by world Coal and CWS are only different with respect to space.‡ For fuel replacement part ± ± ± ± ± ± ± Coal is Cheaper than LNG. efficiency and environmental implications d. leading to load shedding for its customers«nonetheless. 81. Public sector consumers have the lowest collection rate of bills 68. LNG has infra-structure constraints Coal requires assets modification and addition. LNG does not change our assets at all.6% Electricity Tariff: . Circular Debt´ is choking KESC¶s liquidity and working capital. System cost saving xxxx million dollars per annum LNG is operationally more convenient than coal / CWS Coal is free market based ± LNG is linked to indices Coal is always the cheapest.3 billion is currently outstanding in GOP and public receivables. KESC strives hard to abide by its payment obligations even though over Rs. adversely affecting its ability to procure fuel and power from external sources on time.

to make the operations more customer-focused while improving collections and administrative losses. (iii) Increasing and improving KESC¶s generation capacity will increase the revenue base. and replacing the T&D network will allow KESC to be able to cater for peak capacity demand in the future. which will lead to lower energy losses and higher billing per units dispatched. KESC needs 300 MMCFD of gas now (+ 130 MMCFD for the upcoming 560MW plant next year). is that the current tariff formula does not compensate it for the actual cost of operating and maintaining the utility. while enhancing KESC¶s management capabilities and increasing customer satisfaction. The engineers working with the company have successfully increased dependable capacity of the units after major overhauls of Bin Qasim and Korangi plants. modernizing. to keep the tariff affordable (and reduce load shed). 3. In the meanwhile. will lead to better revenue protection and cash-flow generation. These strategic initiatives range from obtaining commitments on multi-million dollar investments from new shareholders as well as the negotiation of a 180 MW plant deal with GE Jenbacher in recent weeks. diversify sources of power for KESC. Efforts are also underway to bridge the demand and supply gap in the city by commissioning new projects of 220 MWs. . and enhance the Karachi area¶s overall generation capacity. The KESC has also started commercial operations of a 50 MW rental power project with Aggreko. This has resulted in 80 per cent reduction in plant trips during the last six months. etc to meet long term demand. The reality.As a utility company. it is in KESC¶s own interest to keep the electricity tariff as affordable as possible. as well as inaugurating the 560 MWs Bin Qasim II Project. or equivalent furnace oil @ gas price. and simultaneously. grid stations. Long term solution lies in setting up coal plants (indigenous or imported). however. and reduce technical losses. CONCLUSION: The turnaround strategy is based on three core initiatives: (i) Organizational restructuring and development. nor does it incentivize the shareholders/lenders to inject more capital to finance new power plants. These structural flaws in the tariff formula ought to be addressed now to take care of the future. or consumer tariff subsidy regime to continue. to cater for increasing demand. (ii) Balancing. lower the blended cost of generation.

The autotransformer at KDA grid station has been tested and energised by 250 MVA. ³Given the depth of decay we have inherited. he said. Valika and Haroonabad grid stations have been commissioned. Queens Road. Five additional 132 KV grid stations and 98 feeders are also on schedule for commissioning this year. with yet more hard work and full public support. PRL and Gulshan-e-Maymar. KESC has successfully commissioned three new 132 KV grid stations at Korangi South. strengthen the power grid and ensure uniform power supply to consumers.On the distribution side.5 per cent while four deputy COOs have been appointed to reorganise the entire distribution set-up into four integrated operating divisions. CEO Tabish Gohar told The Nation that KESC was planning to implement a focused plan and make it successful. . However. the gains will become visible to the public and this utility will earn its rightful place as a company at the centre of a vibrant and prosperous Karachi´. The KESC Management has also improved transmission and distribution which the decreased the losses by 6. The utility also aims to revolutionize the power sector in the country with the introduction of automatic metering in 2009. the challenges are substantial. in line with its commitment to modernise transmission network. RECP. Preventive maintenance management programmes and standard operating procedures systems have reduced tripping through a 24/7 network monitoring system. New power transformers at Korangi Town.

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