Betting on the settlement of circular debt that will relieve the entire energy chain, shareholders in Karachi Electric Supply Corporation are feeling perkier than ever before. The firms stock has been rallying of late, mostly on the pretext of expected reforms by the incoming government in both generation and distribution sector.
However, the likely reforms are just one part of the activity seen in the companys share price. It appears that investors are also pricing-in what has attracted a lot of criticism in the past: the privatization of KESC.
A birds eye view of the tumultuous post-privatisation journey of the power company has a lot more to offer to the policymakers, than is being voiced around. One of the key takeaways is how the company has moved out of the red zone; with a monthly loss of over a billion rupees less than a decade ago that was being subsidised by the government, KESC has finally entered into profits.
Secondly, regardless of the media portrayal of little to no injection in the company, total capital injection in power generation and distribution has been over one billion dollars in debt and equity till date. This also clarifies the misconception that KESC has not added any generation capacity since privatisation.
The improvement in generation capacity of KESC has been around 49 percent to date where over 1,000 mega watts has been added to the system since 2011, and the most recent 650 mega watts through the second Bin Qasim Power Station.
"One percent fall in transmission & distribution losses equals savings of more than one billion rupees", a former KESC official told BR Research. T & D losses, which are a key concern for the power sector, have been on a gradual declining trajectory in KESC; after 17 years T&D losses stood 27.8 percent during 9MFY13 from the 40 percent losses in the past.
However, where the company stands today is not just because of privatisation but an overhaul brought through the change in management, the case in point being structural reforms - another lesson for those at the helm. The real fruits of unbundling were seen after the management control was handed over to Abraaj Capital, a leading private equity Dubai-based firm.
One of the most powerful messages that the performance of KESC puts across is some tough decisions it took at the right time that led to a complete transformation of financial mismanagement and leakages. One of them was the issue of overstaffing where 4000-5000 extra non-core workers appointed at 3-4 percent higher salary were laid off.
From the time of no exemption policy for loadshedding in Karachi, to highly competitive supply based on efficiency of areas, KESC offers an effective way to incentivise bill payments and curtail electricity theft. Mere privatisation is no magic wand; structural reform is the key.
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