KESC got undue benefit of over Rs140 billion, Senate panel told

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ISLAMABAD: A Senate sub-committee was informed on Tuesday that agreements with the Karachi Electric Supply Company were amended in violation of rules and as a result the company got undue benefit of over Rs140 billion.A meeting of the sub-committee on water and power, presided over by Shahi Syed of the ANP, was told by officials of the ministries of privatisation, water and power and inter-provincial coordination and cabinet division and the National Electric Power Regulatory Authority (Nepra) that the KESC was violating even the amended agreements by not utilising its full generation capacity and not paying dues to fuel suppliers.

Representing the ministry of water and power and National Transmission and Dispatch Company, Zargham Eshaq Khan said the amendments in the privatisation agreement of 2005 were made without approval of the federal cabinet or the Council of Common Interests (CCI). He said the KESC had a capacity to generate 3,007MW of electricity, including 626MW from two independent power producers, but its maximum generation ranged between 1,200MW and1,400MW, with Karachi’s demand being 2,100MW.

Nepra’s vice chairman Khawaja Mohammad Naeem said the power purchase agreement required the KESC to utilise its capacity and then import 650MW from the national grid, but it was doing the other way round. “This is a criminal negligence both on part of the KESC and the water and power ministry,” he said.

Mr Naeem said non-utilisation of capacity by the KESC was also a violation of its generation licence for which the regulator had issued a notice and imposed a fine of Rs300,000 in 2009 – maximum penalty allowed under the law at that time.

He said the fines had now been increased for violation of generation licence and the KESC had again been served with a show-cause notice and if its response was not satisfactory it could now be fined up to Rs100 million.Representing the Privatisation Commission, Shahid Raja said the four types of agreements with the KESC were amended in 2008-09 – power purchase agreement, share purchase agreement (privatisation deal) and power sale agreement – and in all of them the privatisation commission was bypassed even though it was a major stakeholder because of the sale of the utility. He said the amendments provided Rs 44bn benefit to the new management of KESC.

The ministry of water and power agreed when Shahi Syed pointed out that by abolishing a four per cent cap on automatic fuel adjustment and in its place introducing the marginal cost formula and by changing KESC’s status to that of a distribution company of Wapda, the Abraaj Group got an undue benefit of Rs110bn.

The additional secretary of Cabinet division said all agreements or amendments had been cleared by the Economic Coordination Committee (ECC) of the cabinet, but they were not presented before the federal cabinet for ratification as required under the rules of business.

He said that even the summary for transfer of 73 per cent shareholding of the company from original buyer Al-Jomaiah Group to Abraaj Group was neither approved by the ECC nor ratified by the cabinet.

He said that the ministry of water and power, being the referring ministry, should have sought comments from the privatisation commission and sent to the cabinet division for putting it up before the relevant forum for approval. He said the cabinet division testified this after going through the record of the ECC and the cabinet.

He also said that the matter of changing of status of the KESC and transfer of shareholding should have been brought before the CCI being the relevant forum as required under the rules of business.

A representative of the inter-provincial coordination ministry said amendments in the agreements, particularly import of 650MW from the national grid should have been made with the approval of the CCI because it involved provincial interests. He argued that a serious constitutional violation had been committed by bypassing the CCI. He said the non-implementation of CCI’s unanimous decision to withdraw 350MW from the KESC was also a constitutional violation. The CCI’s decisions could not be challenged before a high court and the ministry of water and power should take a firm stand on the issue, he added.

Power ministry’s Zargham Eshaq Khan said the KESC was being provided electricity worth Rs4-5bn from the national grid, but this was not being paid for and adjusted against power subsidy. He said the KESC owed Rs47bn to the Sui Southern Gas Company.

The meeting noted that the KESC’s representative was not appearing before the sub-committee despite repeated invitations and said it could lead to an ex parte finalisation of recommendations.