CASE STUDY ON THE PRIVATIZATION OF KESC.
The company arranged the Pakistan
Electric Power (Pepco) and the conceptual structure of a comprehensive approach
have been updated with the next wing of WAPDA power monolithic vertical in
twelve different independent entities in accordance with the Companies Act
1984. These are: three single generation, transmission and distribution
entities also add eight companies. The objective of this revolution is to set
up the corporate culture and business through: the adoptions of high-quality
business practices, and enhances output and competence as well as the direction
and culture of customer service, and improve the quality of service performance
goals setting, and cut costs, robbery and misuse And will be based on the broad
use of information technology, and information management systems, and careful
screening and judgment making.
It was found that a small number of
functions at present carried out by WAPDA will maintain to stay with WAPDA /
Republican Party in the larger curiosity of the country. The factors responsible
for the shift in policy: the ability to generate can not be larger to meet
demand, and growth and cause inefficiency WAPDA, 'the suppression of demand
"and the high tariff policy, and robbery spread. All of these factor, over
the years, a negative impact on the case of WAPDA of Finance. as part of this
program and the functions of WAPDA under the suite of water and energy to be
the wing separation. it was thought before that for power generation, and will
be corporatized Hydel as well as heat. However, later it was decided that the
generation of hydel must remain part of the wing or water WAPDA remaining.
Introduction:
“Karachi
Electric Supply Corporation” (KESC) has integrated on 13th September 1913 according
the Indian Companies Act, 1882.and also The Companies regulation of 1984. “KESC
is planned on Karachi, Lahore and Islamabad Stock Exchanges”. Affairs appeared before the Ministry
of Water and Electricity, which occupies the first place in the generation, transmission
and distribution of electric power to consumers, industrial, commercial,
agricultural, residential, and in accordance with the Electricity Act .1910, as
amended. And is spread over the entire area of Karachi and the certified boundaries and up to Dhabeji Gharo in Sindh and more than one axis,
and Utah, and Bella Vindhar in Balochistan. Closed part of the total surplus of
6000 square kilometers.
The Karachi Electric Supply Corporation
Limited (KESC).That equipment power to the city of Karachi, In Pakistan’s
“Karachi’ has the major industrial and commercial center. The Asian Development
Bank (ADB) is providing financing to support KESC’s 3-year (July 2006 To June
2009), $935.0 million capital investment program, which includes: 795 mega watt
(MW) electricity generation capacity expansion with new gas-fired combined
cycle power generation unit at the Korangi Thermal power Station (KTPS) (220
MW) and the Bin Qasim Thermal Power Station (BQTPS) (575 MW). The KESC Post-Privatization
Rehabilitation, Upgrade and Expansion Project (the Project) has two principal
subprojects. The KTPS subproject is a 220 MW expansion of Capacity, while the
Bin Qasim thermal power supply (BQTPS) subproject is a 575 MW expansion. KTPS
and BQTPS provide Power to the city of Karachi Initially; the Project was
designed as an 880 MW expansion of KTPS alone. A social and Environmental
impact assessment (SEIA) was undertaken to comply with International Finance
Corporation (IFC) guidelines and national legislation for category projects.
The design subsequently was changed, reducing the KTPS expansion to 220 MW and
adding the 575 MW Bin Qasim expansions. The Project is classified as
environment category B, which requires an initial Environmental Examination.
This summary IEE is based upon the original SEIA, which was updated to reflect
the change in project design. So now the question is mine that why KESC
privatize? because the company's performance is good but there are some
views that are based on the principles or the interests of the following: broad
agreement on the value of public involvement in the economy began to split in
the 1960s, and the increasing number of the world in the economy, public policy
and public management of the legal market delivery of existing services, and
privatization basis (contract), a means of reducing costs to increase
efficiency and improve citizen voice 'bout a draw, 1956; Niskanen 1971, Hood,
1991, "and this approach is very alike to the tactic now being used in the
privatization of commercial banks (CBS). These include the strategic
transformation of the effective management oversight of the private sector, and
increase the likelihood of major changes in the company and improve
profitability, and therefore the price of the share offer later to the general
public.
Back ground to the problem:
Now the problem is that why KESC not
providing more result in spite of the privatizing? If we look at past projects
of other sectors after the privatization they are performing very well. Derailed
in Pakistan in crisis and a major power but the point is that Pakistan is also
a country trick. “Estimates of unauthorized and experts in the field of energy
indicate that the need for Pakistan's total energy will increase by about 48
per cent to 80 million tons of "equivalent" of oil equivalent in 2010
from about 54 "equivalent" in the current initiatives but great in
the collection of this gap is still far from becoming a reality”, "said
former oil minister" for the simple reason that he had also served in the
current government. It is expected a significant shortfall in the supply of
natural gas, according to a spokesman require the expense of energy, the demand
for natural gas, and after about 50 per cent of the share in energy consumption
in the country, would increase by 44 per cent to 39 from 27 EQ EQ now.
Contributed in part due to lack of gas, and is expected to be the lack of
energy a little over 5250 MW by the year 2010, "he said," “Moreover,
the demand for oil would also add that more than 23 per cent to about 21
million tonnes in in 2010 the demand for the existing 16.8 million tons”. This
would leave the lack of a total of nine million tons of imports of oil and
diesel fuel and furnace, including the shortage of gas and can be predicted to
be much higher, the country needs to improve its dependence on imported oil,
thereby increasing the pressure on the situation of foreign exchange, The last
and the oil import bill of the year to about $ 6.5 billion, compared with about
$ 3.5 billion in 2004-05, mostly because of international oil prices advanced -
a burden is expected to be greater in the future due to the growing crisis in
the Middle East.
As for as my knowledge concerns that there are various issues of KESC
which has still not been solved such as political interference, wrong hiring,
theft of electricity, new areas of connections without proper procedures,
corruption etc or any other factors which may create hindrances for the KESC. But Past historical data (other sectors)
shows that privatization showing
very effective outcomes. KESC performance can also play very important role for
the country if there utilizations in proper way. They also increase the GDP for
the country because electricity now plays very important role in mobilization
of the country. If there is no load shedding in our country then our industries
work well and also firms cannot work efficiently and effectively. Now the
current situation of the country is going to worse due to load shedding. No one
investor wants to invest in our country and also our local investors going
other neighbor countries. Our exports going to decline so there are so many
other factors which are the threats for the economy. So I want to find that
what overall performance of KESC Is. Is KESC controlled the above factors which
I have mentioned. My focus is on financial sector only and after privatization
its improvements.
As the word privatization reveals the reform of local government
sectors, it also explains that purity or impurity of performance of the
government sectors that makes them worthy whether to be privatized or not.
According to (Akhtar, 2010-11) in a speech, “Address whether privatization is
targeted in Pakistan, it is said that the privatization trend to the idea that
units of the private sector is more efficient than public sector units.
"This is not true width of the panel." He also concluded that the
transfer of ownership from public to private sector is not necessary not a
sufficient condition to increase the operating efficiency of industrial
companies exactly. "However, on the other hand," is unacceptable and
often claimed that because of political interference and an increase in the
number of employees, is the low efficiency of public sector units”. It is also said that the frequent philosophy of
privatization is the fiscal impact which condemned to be held due to national debt.
Certain impacts were also visualized by economists as well as statisticians.
According
to a report of (ADB, December 2008) “He addressed that Factors appear to be derailed in the
process of privatization and multi-dimensional. "Privatization program to
deal with them successfully," one class "(18), and some of the"
tier two "privatization (19), which was built in the transactions of the
banking sector. But it can be when it came to sectors of the difficult
additional features such as communications, infrastructure, energy, and issues
related to service delivery in the future can not be effectively addressed
through the process of sale had been planned and continued to measure the
success of privatization to be withdrawn successful investments of the entity
and do not have another and continued privatization of service delivery. The authoritarian structures of KESC were also
purified after privatization but financially do increase its level of liabilities.
According to (Malik, 2003-2004) in her research
paper about the Effective regulatory structure in the power section of Pakistan
, the liabilities on federal budget of KESC’s subsidiary against of additional
surcharge against GST 1.5 in (2003-2004) which dramatically increases to
2.66.Even after privatization the performance of KESC remains unchanged as the
new management does not fulfill the natives requirements. According to
financial daily, both federal government and provincial governments owe Rs81
billion to KESC. Whereas federal government owes Rs 34 billion, Sindh
government Rs15 billion and consumers owe Rs32 billion to KESC. Eventually the
impact of privatization the impacts on capital market (especially stock market).
By (K.Boutchkova, 2000) privatization shows
unordinary changes in the capital market as the number of shareholders
increases which ultimately increases the value of investment in stock market.
It also increases the share trade volume to new heights and provides
significantly positive access to profits.
According to (Villaonga, 1999-2000) “it should distinguish between public and private sectors on the
issue of ownership of these factors also that the weight of their baggage of
privatization on efficiency ", pointing out that the negative impact of
these factors is the transition, and finally be compensated the positive
effects of change in private ownership.”
(Zingales, 1998) “He added in their
research that, there is
a direct link between capital market development and economic growth”.
"Emergency worrying demographic in the pay-as-you-go pension systems in
many European and Asian countries may also lead to the realization that capital
markets, the source and broad and deep is the prerequisite for the development
of pension system funded”. Therefore, Governments adopted the share issue
privatization programs as a way to jump-start growth in these markets. He is
more valuable to show the real effects that can be caused by privatization.
According
to (JR, 1998) suggested that in
devising a program of privatization, the government should do a transformation
in economic, cultural and physiological. He also proves that “the
implementation of privatization does not fit to all and the shifting of assets
from public sector to private sector shows the speed of succession or failure
of the privatization of sectors in any country”. Since, the private sector glass
was once again invigorated with the largest-eternally private sector loan to
Pakistan for the post-privatization rehabilitation, improvement, and augmentation
of the KESC but still does not provide any respectful impact in the economic as
well as financial profits.
(perotti, 1995) It “Explains that in
the beginning of privatization, a committed government prefers to sell
fractions of its property at a discounted rate in order to transfer its level
of risk.” Despite of all these views certain guidelines were provided by united
nation for privatization of sectors which includes;
·
Comprehensive
privatization
·
Partial
privatization
·
Full
privatization
·
Part
privatization
According to the schemes these privatizations are
implemented in accordance to nations and nature of privatization. Considerably,
Privatization held in order to make government sectors more efficient and
prosperous.
However (Verdier, 1994) suggested that in emerging economies, “successful
privatization occurs once number of companies owned by the private sector has achieved a certain
level, the economy converges to the level of full privatization of the balance”. As privatization occurs when the government
wants to transfer risk of loss to another one.
Dependent: profitability
Independent: Generation,
power supply, load shedding, formation of PPIB, fuel shortage, non-core
Employees strike.
·
In
my research factors are more but I have short of time and financial resources.
·
KESC
is only one power supplier in Pakistan who has privatized, therefore no
comparison available.
·
This
research is financial research therefore I will focus only on financial aspects
·
KESC
internal is not accessible
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