KESC decides to convert two power plants from oil to coal

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THE NATION, ISLAMABAD, 11th SEPTEMBER 2013:-
Grappling with a highly volatile and completely comprised state of affairs it is trapped in, the currency-hungry Karachi Electric Supply Company (KESC) has decided to convert two of its power utility generation units at the Bin Qasim Power Station from oil/gas to coal by leasing them out to the Bright Eagle Enterprises for twenty endlessly unending years.
Interestingly, the previous government had privatised the KESC in 2005 ostensibly to ensure smooth and improved supply of power to Karachites. Primarily, the KESC was sold out to the Al-Jomiah Group but the group could not performe well. Later, on finding failure in providing uninterrupted power supply to the residents of port city (Karachi), the power utility’s shares were sold out to the Abraj Group but it also had failed to end increasing darkness as existing unannounced hours long power outages are enough to mock at the fate of Karachites. And, whereas the decision to privatise the KESC is concerned though it could not bore the required fruit, yet the powerful management in a bid to increase the power production has now decided to lease out power utility’s generation units at the Bin Qasim Power Station only because of cash starvation being faced by the power company (KESC). Even, at present the financial institutions are not willing to sanction more loans to the power utility as the KESC is facing heavy loans and severe financial constraints, which the company’s powerful management has confessed before the government while convincing her to submit nod on the power utility’s plan of leasing out the power plants to increase power generation of the utility by utilising coal source.
Backed by cemented documentary evidence, an authenticated whisper leaked by someone in the lucrative energy sector, loudly speak in the realms of secretive silence that in a bid to convert Karachi Electric Supply Company’s (KESC) generation units (3 & 4) at the Bin Qasim Power Station from oil/gas to coal, the management of KESC has decided to lease out KESC’s existing assets, equipment and (if necessary) land to a new IPP (independent power producers) i.e K Energy, established and owned by a third party investor. The power units 3 & 4 of Bin Qasim Power Plant, having 420mw installed power capacity would be given for 20 long years and preparations necessary in this regard have also been done.
Under the deal, Bright Eagle Enterprises would get two of KESC’s generation units and would make some alteration to convert the power units on coal from oil/gas. And, K Energy, an auxiliary of the Bright Eagle Enterprises, would make necessary arrangements to ensure required money and conversion of the two units on coal. The KESC would buy electricity from the Bright Eagle Enterprises and would sale it out to its consumers.
Official sources in water & power ministry when contacted said that KESC management has so far successfully convinced the incumbent regime to approve the said project of the power utility, which is ostensibly initiated to increase the power generation by utilising cheap fuel source i-e coal instead of expansive oil or gas sources. They also told that the KESC has also submitted a plea in the National Electric Power Regulatory Authority (NEPRA), seeking amendments in power generation licence and issuing new amended power generation licence to the power utility. NEPRA would soon take a decision in this very regard.
Documents further revealed increasing loans and rising financial constraints of the KESC. The power utility had found itself unable to invest on two power units as it had felt and calculated their conversion on coal necessary for increased power generation proposes. The document also said that ‘due to higher leveraging of KESC’s balance sheet owed to such aggressive reforms agenda, it is not possible to embark upon the coal conversion project of such magnitude immediately as the lenders to KESC are looking towards substantial repayment of their existing loans to create such space’.
“On an annual basis, the supply of gas has ranged between 150-160MMCFD over the last 2 years, which is not even enough to operate the higher efficiency plants at full load around the year. This situation has forced KESC to operate BQPS-I units more on oil than gas. Given the overall gas availability forecast for the country, the supply of gas to KESC is not expected to improve going forward for the reasons beyond KESC’s control,” document reads.
The KESC management has advocated that keeping in view the techno-economic comparison of electricity generated by fuel oil and coal, the proposed amendment would facilitate the company in fulfilling its obligations under the Licence and other key project agreements, harmonising with applicable company law. The quality of service will not be in any possibility adversely affected as replacing residual fuel oil (RFO) based boilers with coal fired technology would help KESC in attaining fuel security by diversifying its existing fuel mix, better utilisation of existing fleet and most importantly aid in reducing cost of power generation and increasing the availability of electricity to Karachi.
It is worth mentioning that since taking over the management of KESC, Abraaj Capital has injected equity of circa $361 million together with arrangement of large amounts of multilateral and local debt. The funds received in KESC were used to pursue an aggressive reforms agenda, which included addition of around 1000MW of generation assets and revamping of transmission and distribution networks.
Raising serious concern over the sale of KESC, the Standing Committee on Water and Power on Monday asked the government to take over the management of the power utility and form a judicial commission to probe the losses and to review implementation of the agreement. It had also recommended the government to cancel agreements pertaining to KESC sale and recover favours granted to the privatised entity. The Senate panel was presided over by the committee’s chairman Senator Zahid Khan also recommended registration of cases against officials responsible for causing losses of over Rs110 billion to the exchequer through ‘illegal’ agreements signed with the private owners of the company. The KESC has reportedly denied the allegations.
The KESC management had reportedly denied the allegations leveled against it in a report submitted by a sub committee to the Senate standing committee on water & power. The KESC management had claimed that it has invested $1 billion during last few years.

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