An Analysis of Karachi Electric Supply Company Limited

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THE KARACHI ELECTRIC SUPPLY COMPANY LIMITED INTRODUCTION History Karachi Electric Supply Company Limited (KESC), (formerly Karachi Electric Supply Corporation) is one of the city's largest employers: around 17,000 people currently work for the company. It is also one of the oldest companies in Karachi and was established in the city even before the creation of Pakistan in 1947. Incorporated in September 13, 1913, under the Indian Companies Act of 1882, the company was nationalized in 1952 but was re-privatized on November 29, 2005. KESC came under new management in September, 2008. In 1996, deterioration in KESC’s financial health began, which promoted suggestions for the utility’s transfer into private hands. During the interim between 1996 and 2005, Army management instated at the state utility with a view towards enhancing the Company’s operational and financial health in May 1999. There are conflicting views towards this shift and management, with allegations of severe misconduct. During 2002 and 2003, incentives were introduced in preparation for KESC’s privatization, which eventually finalized on November 29, 2005 with a 71% transfer of ownership to an association comprising of the Saudi Al-Jomaih Group of Companies and Kuwait’s National Industries Group (NIG), with the government still retaining a 26% stake. Due to various operational setbacks and the unfortunate choice of Siemens as an Operations and Management (O&M) contractor, the privatized association was unable to improve the Company’s financial and operational crisis. In the earlier part of 2008, Saudi Al-Jomaih approached Abraaj Capital, a leading private equity firm based in Dubai, with a proposal for a potential stake in KESC. The deal was eventually finalized in October 2008 at a ticket price of $361 million for a significant equity stake in the Company, which grants Abraaj Capital full management control. Abraaj Capital has brought in a professional management team with over 41 senior managers to immediately address the management crisis at KESC. Nature of Business At present, KESC is the only vertically-integrated power utility in Pakistan and manages the generation, transmission and distribution of electricity. KESC covers a vast area of 6,000 square kilometers and supplies electricity to all the industrial, commercial, agricultural and residential areas that fall under its network Karachi Electric Supply Company Generates and supplies electric power to Karachi, a metropolis, with a population of over 17 million and one the most populous cities in the world. KESC currently provides electricity to over 2.1 million consumers, not only in Karachi but also in the towns of Dhabeji & Gharo in the province of Sindh and Hub, Uthal, Vindhar and Bela in the adjacent province of Baluchistan. Competitors: As Karachi Electric Supply Company is the only company that has comprehensive distribution network for distributing electricity to one of the largest city like Karachi so there are no direct competitors of KESC which may hit the market position of KESC but there are few other companies like WAPDA, Hub Co., KANUPP, Gul Ahmed and Tapal Co. which generate electricity to fulfill the demand of Karachi. These companies can only generate the electricity but have no right to distribute or sell directly to the consumers of Karachi. For that, they have to sell their generation to the KESC. Besides the above fact, KESC is not able to fulfill the demand of Karachi unfortunately and because of the shortage of electricity KESC has to maintain the load through load shedding. Due to the load shedding, some of the industrial, commercial and residential consumers have started using various other resources to suffice their electricity need like heavy gas generators, small generators and UPS. Head of the Company (CEO) Tabish Gauhar is the CEO of KESC, as of November 2009. He has served as an Executive Director at Abraaj Capital since 2006 and is the former Group Chief...
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