KESC Privatisation Conference Held 

Karachi May 30, 2002

The Privatisation Commission (PC) hosted a conference today to provide information about the Karachi Electric Supply Corporation’s (KESC) privatisation. Secretary Privatisation Commission, Mr. Ahmad Waqar, briefed a packed hall about the Government’s strong commitment to privatisation, in general, and to the privatisation of KESC, in particular. 

He outlined several measures aimed at improving the enabling environment for privatisations such as macroeconomic stability, an improved regulatory framework, sectoral reforms and the promulgation of the PC Ordinance. In addition, he mentioned several measures demonstrating the government’s commitment to the privatisation of KESC. These included:

•  Approval of a swap Rs 83 billion of GOP provided and guaranteed debt into equity
•  Approval to reduce all of KESC’s accumulated losses as of 31 December 2001, totaling Rs. 57 billion, thereby, allowing enabling earlier dividend payment 
• Guarantees on payment of bills for customers who KESC, for safety or security reasons, is not allow to disconnect for non-payment of bills
• Offering Army support for security and control functions for up to one year post privatisation at the option of the buyer 

Following the Secretary’s briefing, MD KESC, Brig. Tariq Saddozai, presented a corporate overview of KESC and opportunities for investors. Following the financial restructuring and long-term tariff framework, investors could expect an attractive return on their investments stemming from the following:

• Reduction in energy losses by investments in improving the distribution network, metering and introducing technology aimed at preventing theft
• Ability to increase availability of generation capacity by rehabilitating existing facilities
• Being able to serve unmet demand estimated at 400MW from potentially lucrative customers
• Ability to reduce costs by converting remaining generation stations from furnace oil to gas
  

Subsequently, the Financial Advisor, PricewaterhouseCoopers, gave a presentation on the transaction structure, which included, inter alia:

• Sale of 51%-74% of the shares with management control
• Requiring the strategic buyer to commit to financing needed investment in early years
• ADB’s interest in acquiring an equity interest of 7.67%
• IFC’s interest in financing investments in early years
• Tariff submission to NEPRA on 21 May requesting a upfront tariff increase followed by a tariff framework providing multi-year formulae 
• Restructuring of KESC’s balance sheet to reduce debt and debt servicing costs
  

A lengthy question & answer session clarified many issues relating to tariffs, the transaction structure, reduction of losses, employee matters, and long-term contracts for fuel and power.