Karachi power cuts hit millions

Dave, Karachi has a population of over 16 million, not 13. And the power shuts have been a continuous affair. It is not a temporary thing either as the country faces serious fuel shortages. Karachi has not known power cuts in winter, but this winter has been pretty notorious on that account. Karachi is not known for a pleasant spring season during these months either, so although this is the first week of March, and the rest of the country enjoys very good weather, we are already sweating! Yes, the one thing that we can boast of is the cool breeze in the evenings from the Arabian Sea. Candles and old fashioned lanterns are selling like hot cakes for the poor and power generators and UPS for the well-to-do. I went to my office this morning to find that there is no electricity, and came back home in the evening to a similar situation. This is the third day in a row that there has been a power outage at my place which is located in one of the most affluent areas of this metropolis. The plight of scores of other areas is either the same or worse.

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Pakistan power cuts, another ENRON?

by Parveez Syed © 2008

http://FixyaExperts.wordpress.com, http://FixyaExperts.blogspot.com

Friday 19 September 2008

Pakistan continues to suffer growing power outages due to soaring demand and a lack of investment in generation capacity, crippling businesses and leaving 165m consumers sweltering in 42-degree heat without life sustaining energy for up to 16 hours every day for months and years.

Karachi Electric Supply Co (KESC) owners, for example, have failed to deliver sustainable solutions as they continue to lose over 30% revenue everyday for years. The power cuts continue to spark riots as the country’s newly elected government led by prime minister Syed Yousaf Raza Gillani and president Asif Ali Zardari failed to find solutions even after several covert meetings with experts in the country and abroad.

There is no light at the end of the tunnel for the consumers, energy hungry industries and the economy. That is bad news for the country’s growth, exports, jobless and exchange rates. Moreover, the illegal and provocative US bombing of Pakistan continues to cause growing mass discontent and widespread anger, fuelling the flash point threats facing three regional nuclear powers, including China and India.

Before its 2005 give away “privatisation,” consecutive governments crippled KESC for 27 years (1958-2005) in order to sabotage Karachi economy. The government currently owes $1.6 billion in unpaid electricity bills, including some $554m to KESC.

Saudi-based Jomaih bought 73% controlling stake in KESC for less than $200m in November 2005. In 2006-2007, its share capital was “creatively” determined at $740m on a market capitalisation of only $130m (£65m), over-leveraged $325m debt burdens and mounting annual loss of £90m! KESC continues to suffer acute power shortages because of inadequate generating capacity, and over 30% transmission and distribution losses.

Does that sound familiar, like another ENRON in the making? What were the KESC owners thinking? Just like ENRON, KESC owners have wildly overoptimistic and unrealistic assertions about its corporate values and prospects. Jomaih secretly sold its KESC stake to Dubai-based Abraaj in May 2008. Jomaih was doomed, and Abraaj continues to fail even after KESC increased its tariff by more than 50% since 2005. KESC-Jomaih only added to their customer’s losses and misery, and proved to be nothing more than a bunch of incompetent idiots. The new bunch of clowns (KESC-Abraaj) promised to do more of the same before December 2009.

165m consumers have heard it all before as the incompetent idiots and clowns make and break promises to resume normal service in a few days, weeks, months, years, decades.

As a direct result of endless incompetence, mismanagement and failures, KESC’s own market share is dwindling as it buys more power from unpaid independent power producers (IPP), only to lose over 30% in its own distribution networks. More unpaid IPPs are lined up to sink with KESC, and government owned power stations.

Would KESC owners face financial mismanagement Nuremberg trial, where the main incompetent perpetrators of the crime were utterly oblivious to the misery they created for 16m people living and working in Pakistan’s business capital, Karachi mega city? While the KESC stocks have not gone to zero yet, it is clear the market would soon wake up to the obvious fact its equity holders and lenders are holding worthless pieces of paper. KESC investors and shareholders will be wiped out. A default is not likely – it is inevitable. It would be biggest bubble in KESC, Jomaih and Abraaj history.

Those facts would give most reasonable investors and lenders pause. Are electric investors, lenders, consumers and Pakistan taxpayers ready to absorb the mounting losses and bailout KESC, Abraaj and Jomaih? KESC will not go under without serious disruptions to the Pakistan economy and, unfortunately, a tremendous amount of more endless pains and misery. The country’s federal government has no understanding, at all, of what is happening. There is a long charge sheet against incompetent KESC owners and their mismanagement.

Abraaj was not available to comment on KESC.

AUTHOR: Paralegal eagle, Parveez Syed, is a capital market and turnaround analyst with over forty years of experience in energy, electronics, and media industries.