2 KESC Presentation

Karachi Electric Supply Company (KESC)

KESC is the only vertically integrated power utility in Pakistan with licensing rights for the city of Karachi

Business Overview

Generation Transmission Distribution

Value Chain

B C t TOwn Generation (60%)

Grid Stations End User

By Customer Type:FO or Gas

77%22%

1% Residential

Commercial

IndustrialImports & Purchases (40%)

By Revenuec. 35% lossesFO or Gas

Dependable Capacity MWKESC Internal 1,738

Capacity:

59 id t ti

Capacity:

8 025 di t ib ti t f

32%50%

Residential

Commercial

Industrial

Operations: Fully integrated power utility involved in generation, transmission and distribution

IPPs 460WAPDA 650 Total 2,848

59 grid stations

117 power transformers

Network of 220, 132, and 66 KV circuits

8,025 distribution transformers

1,107 11 KV feeders; 5,500 km of cable

11,013 km of overhead lines

18% Industrial

Employees:

Labor:

A public limited company listed on all three stock exchanges in Pakistan

17,567

Staff split into five active unions CBA in placeLabor:

Customer Base:

Staff split into five active unions. CBA in place

c. 2.1 million customers (77% residential customers, 22% commercial and 1% industrial customers)

This presentation addresses the four key questions that an average person or stakeholder of KESC has regarding:

1. Load-Shedding

2 Electricity Tariff

p g g

2. Electricity Tariff

3. Customer Service

4. Foreign Investment

1. Load Shedding - Four Primary Causes

A Scheduled Load Shedding (LS) Policy is in place across the KESC network (covering whole of Karachi and parts of Baluchistan & SIndh – 6500 square km area – approx. 18 million people)

2. Fuel 1. Demand & Scheduled LS Policy*

24/7 exemption to all six major industrial zones + strategic customers (KWSB, etc)

…but there are occasional Unscheduled Outages as well due to any of the following equipment failure across the network**:

ConstraintsSupply Gap

For residential customers, no LS between 1:30am and 9:00am daily and during Friday prayers; otherwise:3 x 1 hr fixed timings daily

network :1,200 feeders18,000 km of overhead & underground wires/cables 2,500 substations 3 x 1 hr fixed-timings daily

(normal loss feeders: 70%) and3 x 1.5 hr fixed timings daily (high loss feeders: 30%)Key Commercial Markets (78

,15,000 PMTs150 power units60 grid stations

y (feeders) - as per the Energy Summit decision on energy conservation

4. Liquidity /Cash Flow Constraints

3. Transmission & Distribution Bottlenecks/

Faults

* compared to an average 6-7 hours of unscheduled load shedding last summer** nonetheless, 99% of Industrial Customers were provided uninterrupted power supply, and 97% of Residential &Commercial Customers were load shed as per above Policy – August 2010 statistics

1.1 Load Shedding - Demand & Supply Gap (MW)…has reduced considerably over the past 2 years, as new power units have come on line, which has helped us maintain a Scheduled LS Policy across the system , but there’s often a difference between Installed Capacity and Available Capacity in any given hour due to a variety of reasons beyond our control; such as low gas volume and pressure, furnace oil supply disruption, technical faults, scheduled

DemandAverage summer 2010 peak load of 2,500 MW (5% increase from last summer)

New Connections of 309 MW added since March 2009

f f

y y ; g p , pp y p , ,preventive maintenance, etc. Likewise, 3rd party power suppliers such KANNUP and DHA COGEN are often unavailable from time to time

450 MW added to the system since new management took over in Sept 2008, andanother 560 MW under construction (3x GE/France gas turbines already at site;

Not-so-significant impact of recent energy conservation initiatives

Supply( g y

largest such project in Pakistan) i.e. in excess of 1000 MW of new capacity over 3years

215

Gross Capacity Addition (MW)KESC-WAPDA PPA Signing

450

1,010

9050

150 30 85

45

345

215

Nov-08Mar-09

Various indigenous/imported coal based projects in feasibility stage (1000 MW)

Nov2008

Mar2009

Jul2009

Aug2009

Oct2009

Dec2009

Mar2010

Jul2011

Mar2012

90

5-year Power Purchase Agreement signed in Jan ‘10 with NTDC (WAPDA) for up to650MW supply

Up to 37MW of incremental supply secured from small captive power producers

220 MW Combined Cycle Power Plant - Korangi

1.1 Load Shedding - Demand & Supply Gap (MW)

2 x 90 MW GE JENBACHER Simple Cycle Power Plants - Korangi & SITE

2 x 25 MW Aggreko Rental Power Plants – West Wharf & Haroonabad

1.1 Load Shedding - Demand & Supply Gap (MW)

560 MW Bin Qasim Power Station Phase II – Under construction

1050 MW Bin Qasim Power Station Phase I - Existing

1.2 Load Shedding - Fuel Supply Constraints We burn two types of fuel: natural gas from SSGC and furnace oil from PSO. Any shortage of fuel (especially volume/pressure of

natural gas) means that we’re often unable to run our generating plants at full capacity, leading to scheduled & unscheduled outages

Total Gas Requirement = 300 MMCFD* + 130 MMCFD for 560

MW BQPS II**

KESC-PSO FSA Signing * As per decision of the ECC meeting ofJune 2008 and “Cabinet Committee onEnergy Crisis” meeting of July 2009

** As assured by GOP under the RevisedImplementation Agreement of AprilMW BQPS-II** Implementation Agreement of April2009Article 158 of the Constitution alsoguarantees the required quantity of gasto KESC from SSGC

Average Supply: 200 MMCFD this year versus 275 MMCFD

last summer

No Gas Supply Agreement with SSGCyet, hence, ad hoc daily supply againstour need to maintain consistent powersupply to KarachiGas quota & pricing allocation (amongstpower fertilizer CNG Industrial and

10-year landmark Fuel SupplyAgreement signed with PSO in2010 power, fertilizer, CNG. Industrial, and

domestic sectors) needs to be reviewedby GOP

201033,000 ton credit limit(equivalent to PKR 1.5 billion)barely covers 15 days of fuelrequirement against our 45day recovery cycle a serious U bl t fi d l t t f ll

Supply Shortfall: 100 MMCFD

day recovery cycle – a seriousstrain on our working capitalas we’re now compelled tomake advance cash paymentagainst daily fuel purchasesWe’re actively pursuing other

Unable to run our gas-fired plants at fullcapacity leading to load shedEvery 25MMCFD reduction in gassupply increases consumer end tariff by50 Paisas per Unit (becausereplacement furnace oil 2.5x moreWe re actively pursuing other

furnace oil procurementalternatives

expensive than gas)

Analysis – Gas Consumption (MMCFD)

1.2 Load Shedding - Fuel Supply Constraints

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Avg MMCFD %

Analysis Furnace Oil Consumption (M Tons) Including IPPs

2009-10 251 254 265 215 183 106 88 125 167 194 191 215 188 -21

2008-09 265 250 292 268 235 149 194 177 216 247 285 282 238

Analysis – Furnace Oil Consumption (M Tons) Including IPPs

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total %Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total %

2009-10 73,352 77,968 37,480 53,178 19,738 32,642 54,232 37,413 65,618 60,506 119,149 121,315 752,591 35

2008-09 72784 60549 39007 41065 16436 11547 35030 41577 48212 50958 60456 78484 556,105

1.3 Load Shedding - Transmission & Distribution Bottlenecks / Faults…an overloaded, unbalanced and fragile T&D network (transmission lines, transformers, sub stations, feeders, etc) means that we’re sometimes unable to supply power to the end consumers, leading to unscheduled outages; however, capacity addition and system improvements are proactively addressing these infrastructure bottlenecksimprovements are proactively addressing these infrastructure bottlenecks

Historical lack of investment and master planning (haphazard growth)

System catering to unauthorized load (read: theft) as well

Actual load greater than sanctioned load in most instances (“tripping” and “voltage fluctuation”)Main Causes

g ( pp g g )

“Rights of Way” issues with municipal authorities leading to delay in execution of projects

Frequent theft of overhead conductors and bus bars at sub stations (copper)

HT distribution network mostly underground

Key initiatives(since Sept ‘08)

7 new grid stations energized (plus 3 under construction)

25 km new transmission lines laid & 76 km of existing lines rehabilitated

Rs. 2.5 billion “Model Towns” project substantially completed p j y p

200 new Feeders laid

700 new PMTs installed

Load Balancing across the T&D network

…an overloaded, unbalanced and fragile T&D network (transmission lines, transformers, sub stations, feeders, etc) means that we’re sometimes unable to supply power to the end consumers, leading to unscheduled outages; however, capacity addition and system improvements are proactively addressing these infrastructure bottlenecks

1.3 Load Shedding - Transmission & Distribution Bottlenecks / Faults

improvements are proactively addressing these infrastructure bottlenecks

Main Cable Fault (MCF) 2009 vs 2010 Average Pending MCF Comparison 2009 vs 2010

306 328577 614 596

308 419 475 443 478

Main Cable Fault (MCF) 2009 vs. 2010 Average Pending MCF Comparison 2009 vs. 2010

3146

89

5470

48 3958 51

25

Mar Apr May June July2009 2010

31 25

Mar Apr May June July2009 2010

1.4 Load Shedding - Liquidity & Cash Flow Constraints“Circular Debt” is choking our liquidity and working capital, adversely affecting our ability to procure fuel and power from external sources on time, leading to load shedding for our customers…nonetheless, KESC strives hard to abide by its payment obligations even though over Rs 81 3 billion is currently outstanding in GOP and public receivablesover Rs. 81.3 billion is currently outstanding in GOP and public receivables

Major Receivables

PKR billions

Federal Government (MOF) 34.1

Provincial Government (CDGK, KWSB etc) 15.2

Public Receivables 32.0

Grand Total 81 3Grand Total 81.3

Payments SummaryPKR billions

Total Paid to Suppliers Last FY (2009-10)since Sept 08 Payments Purchases

WAPDA 49.6 36.3 40.4

SSGC 54 8 23 0 28 3SSGC 54.8 23.0 28.3

PSO 25.4 11.0 11.3

Gul Ahmed 14.9 8.0 8.3

Tapal 16.4 9.0 8.7Tapal 16.4 9.0 8.7

Kanupp 4.2 2.1 3.5

Total 165.3 89.4 100.5

1.4 Load Shedding - Liquidity & Cash Flow ConstraintsNon-payment of bills is also causing a severe cash flow constraint, adversely affecting our ability to procure fuel and power from external sources on time, leading to load shedding for our customers

Overview

On average, 30% of our consumers do not pay their bills on time

Public Sector Consumers (primarily KWSB and CDGK)

89.80%99.3%88 3%

Collections Snapshot FY 10Total KESCIndustryResidential and CDGK)

have the lowest collection rate

88.3%89.1%68.6%

ResidentialCommercialPublic Sector

VIBC/IBC Recovery RatioReceivable for more than 30 days

as at July 31, 2010

Tipu Sultan 92.84% 455,672 IBC Defence 91.10% 526,596 N. Nazimabad 90.88% 1,053,821 IBC Gulshan 90.83% 901,998 F. B. Area 90.52% 508,509 Saddar 90.50% 1,255,402 IBC Clifton 90.41% 708,828 Lyari 88.69% 2,176,367 Bahadurabad 88.06% 1,457,871 Garden 87.76% 855,324 SITE 87.21% 159,037 Johar 85.61% 1,100,435 Landhi 82.64% 413,690 Malir 80.37% 1,261,593 Nazimabad 80.19% 1,287,721 KIMZ 80.01% 367,934 Bin Qasim 79.04% 719,289 Shah Faisal 78.53% 595,087 Orangi 78.43% 2,123,922 Baldia 77.99% 740,236 Liaqatabad 77.43% 1,620,207 Liaqatabad , ,N Kar / Surjani 76.23% 2,525,438 Gadap 74.79% 887,977 Korangi 73.38% 1,240,928 Uthal 54.39% 529,964

25,473,842

1.4 Load Shedding - Liquidity & Cash Flow ConstraintsT&D losses are units (KWh) sent out but not billed because of technical and commercial (read: theft) losses, resulting in less money for

us to procure fuel and power from external sources leading to load shedding for everyone, including honest regular paying customers

34.9% T&D losses in FY 2009/2010:– 1/3rd technical losses (approx), and

– 2/3rd commercial (theft) losses (approx)1% T&D Loss Rs. 1-1.5 billion

69 “kunda-infested” localities in Karachi (#500,000 “kundas”)

1% T&D Loss loss per annum

Area Distribution Loss (Jan 2010 - July 2010 Average) Orangi 59.48%

Korangi 56.56%

Landhi 54.83%

Baldia 53.94%

Liaqatabad 53.69%

Malir 50.60%

Nazimabad 50.33%

N Karachi / Surjani 49 46% N Karachi / Surjani 49.46%

Gadap 48.77%

Lyari 43.32%

N. Nazimabad 35.31%

Shah Faisal 34.75%

F. B. Area 33.99%

Garden 31.18%

Johar 28.41%

Bahadurabad 27.59%

Gulshan Iqbal 26.44%

Tipu Sultan 23.68%

Clifton 23.14%

KIMZ 19.96%

Saddar 18.21%

Uthal 17.54%

Defence 17.47%

Bin Qasim 9.74%

SITE 6.29%

KESC I iti ti

T&D losses are units (KWh) sent out but not billed because of technical and commercial (read: theft) losses, resulting in less money for


1.4 Load Shedding - Liquidity & Cash Flow Constraints

1. FIRs + “Name & Shame” public awareness campaign through media

2. 8,000 complaints received from public under our “Speak Up” Program – 5,000 attended to date

“ ” f f

KESC Initiatives

3. “Fatwa” from religious scholars against electricity theft

4. “Kunda” removal drive and village electrification schemes

5. Various technical initiatives such as laying Aerial Bundled Cables, installing Automatic Meter Readers increasing HT/LT ratio installing capacitor banks (for power factor) setting up new gridReaders, increasing HT/LT ratio, installing capacitor banks (for power factor), setting up new grid stations and transformers, doing load balancing, etc

6. Internal accountability campaign against corruption and non performance

7. Differentiation between high loss and low loss feeders in term of scheduled load shedding

1.4 Load Shedding - Liquidity & Cash Flow ConstraintsT&D losses are units (KWh) sent out but not billed because of technical and commercial (read: theft) losses, resulting in less money for


1.4 Load Shedding - Liquidity & Cash Flow Constraints

T&D losses are units (KWh) sent out but not billed because of technical and commercial (read: theft) losses, resulting in less money for


Distribution (LT)* Loss Profile of Current IBCs

Initial Results

•There has been a decreasing trend in T&D losses over the past three quarters• The IBC results are particularly encouraging, as shown below:

Amendment to Electricity Act to make electricity theft a non-bailableAmendment to Electricity Act to make electricity theft a non bailableoffence (as in India)

Full support from the government, political parties, media, law enforcementagencies, judiciary, and civil society in eliminating electricity theft by a“ i ifi t i it ” h ti th t j it f h t t It h t

Needed

“significant minority” hurting the vast majority of honest customers. It has tobe a JOINT effort

Load-Shedding

Electricity TariffElectricity Tariff

Customer Service

Foreign Investment

KESC TariffM h R li


Myths vs. Reality

Myth Reality1 KESC determines the consumer tariff 1 NEPRA (Regulator) determines our tariff under a fixed1. KESC determines the consumer tariff

unilaterally, at its discretion…1. NEPRA (Regulator) determines our tariff under a fixed

formula agreed at privatization in Nov 2005

GOP decides what % of NEPRA determined tariff ispassed onto consumers as “Consumer Tariff”. Theremainder is paid to KESC by GOP as “ConsumerS b id ” A th GOP i l d thSubsidy”. As the GOP progressively reduces theConsumer Subsidy, the Consumer Tariff goes upaccordingly

NEPRA / GOP determines the different tariff rates &slabs for various categories of consumers –residential (lowest), industrial, commercial(highest), etc.

2. Our actual T&D losses are at least 10% higher than the notional losses assumed/built into our fixed tariff f l ( d d li i h dl f t l

2. KESC tariff is high because of T&D losses-we recover the cost of theft from honest

formula(and declining each year regardless of actual results)customers...

KESC TariffM h R li


Myths vs. Reality

Myth Reality3 We claim tariff increases on account of 3 Fuel & power purchase cost is a straight “pass3. We claim tariff increases on account of

monthly Fuel Surcharge Adjustment (FSA)… yet save on furnace oil by not dispatching our oil plants & IPPs at full capacity, get “cheap” electricity from WAPDA but don’t

3. Fuel & power purchase cost is a straight “passthrough” item under our tariff formula. During the lastfiscal year (July ‘09 – June ‘10), there was an increase in theprice of:

Furnace Oil: Rs 28,000 to Rs 51,000 per tonp ypass on the benefit to consumers, etc… Natural Gas: Rs 350 to Rs 394 per MMBTU

IPP (Tapal): Rs 6.6 to Rs 11.8 per KWh

WAPDA: Rs 6.2 to Rs 9 per KWh

Directly/Indirectly burnt approx. 197,000 tons (35%)Directly/Indirectly burnt approx. 197,000 tons (35%)more furnace oil during the last fiscal year comparedto the previous fiscal year (because of reduced gassupply)

Furnace oil is 2.5 times more expensive than naturalgasgas

Every 25 MMCFD reduction in gas increases tariff by50 paisa per unit on average

Reduced gas supply not only increases consumertariff (monthly price adjustment) but also de-rates ourtariff (monthly price adjustment) but also de rates ouravailable plant capacity and reliability


KESC TariffM h R li

Myth Reality4 Average Billing (adjusted in subsequent months) is an

Myths vs. Reality

4 We over charge our customers through 4. Average Billing (adjusted in subsequent months) is an administrative reality (but down from 10% to 8% overall) due to faulty meters, inaccessibility to meters inside premises and because of law & order situation, meter tampering, etc. Our meters are procured from third party manufacturers and actually slow down with age until

4. We over charge our customers through “average” billing, “fast meters”, etc…

manufacturers, and actually slow down with age until replaced with more accurate devices. For billing complaints, customers have recourse to the Federal Ombudsman, Courts, NEPRA, etc in addition to the CEO Task Force. It is strictly against our Policy to “over charge” our customers in any mannercharge our customers in any manner

SC’ ff ffAs a utility company, it is in KESC’s own interest to keep the electricity tariff as affordable as possible. Thereality, however, is that the current tariff formula does not compensate us for the actual cost of operating and maintainingthe utility, nor does it incentivize the shareholders/lenders to inject more capital to finance new power plants, gridstations, etc to meet long term demand. These structural flaws in the tariff formula ought to be addressed now to take careof the future. In the meanwhile, and simultaneously, to keep the tariff affordable (and reduce load shed), we need 300y p ( )MMCFD of gas now (+ 130 MMCFD for the upcoming 560MW plant next year), or equivalent furnace oil @ gas price, orconsumer tariff subsidy regime to continue. Long term solution lies in setting up coal plants (indigenous or imported).

Load-Shedding: Issues & Remedies

Consumer TariffConsumer Tariff

Customer Service

Foreign Investment

3. Customer ServiceHistorically, being a public sector monopoly, KESC never took Customer Service as a core value…there’s now a renewed focus on

this but differentiating between the “good” and the “bad” customer…

CEO Task Force /

Public CommunicationIntegrated

B i Force / Rewards Program

Business Centers

“Private Company” with a “Public

Scheduled Load

Shedding 118 Call

Center / New Connectionswith a Public

Service” RolePolicy Connections

I t l

Community Welfare Program

Reducing Faults

Attendance TimeInternal

ReorganizationTime

3.1 Customer Service - Scheduled Load Shedding Policy

24/7 e emption to all si major ind strial ones + strategic c stomers (KWSB etc)

…is in place for the last one year which allows people to plan their lives around it…

Salient Features

24/7 exemption to all six major industrial zones + strategic customers (KWSB, etc)

For residential customers, no load shed between 1:30am and 9:00am daily and during Friday prayers; otherwise:

3 x 1 hr fixed-timings daily (normal loss feeders: 70%) andFeatures

3 x 1.5 hr fixed timings daily (high loss feeders: 30%)

Differentiation between normal-loss (“good” )and high-loss (“bad”) localities. All low-loss (“excellent”) areas to be load shed free in the near future

Load shed relief if there’s a prolonged unscheduled outage in an area for any reason

Ad hoc load shed relief given daily (religious and political gatherings, law and order situation, etc)

Key commercial markets (78 feeders) - as per the Energy Summit decision on energy conservation

Shutdown ads given in 3 newspapers (in advance)

3.2 Customer Service - Integrated Business Centers (IBCs)…the “new face” of KESC providing one-stop service to our customers for their billing and technical complaints…merged the erstwhile

BOCs and M&Cs into a single entity headed by a General Manager as the “CEO” of that business…

Overview

3 IBCs fully operational in Defence, North Nazimabad, and Gulshan Iqbal and recently Clifton

Overview3 additional IBC in pipeline including 2 industrial centers expected to be fully operational by Oct’10

Total of 25-27 such IBCs by the end of next year to cover the entire city

Existing 3 IBCs Clifton Liaqatabad KIMZ SITE Johar Saddar

No. of Customers

254,320 64,000 89,500 20,000 36,125 20,000 36,125

Date of L h ‐ Aug‐10 Sep‐10 Sep 10 Oct 10 Dec‐10 Dec‐10Launch g p p

Cumulative Billing Covered %

13% 17% 19% 24% 36% 40% 45%

3.3 Customer Service - Public Communication …an integral part of our Customer Service orientation is to actively engage with our stakeholders, particularly our customers and media,

something that had been lacking in the past…

Newspaper ads on Safety, Theft, Energy Conservation, Monthly Scorecards, etc

Press releases

Name & Shame Campaign

Key Initiatives

Press releases

Media team “beefed up”

Press conferences

Info portal (www kescinfo com pk)Info portal (www.kescinfo.com.pk)

Media Interviews

“Umeed” newsletters

15 000+ email database“They Steal, We Pay”Media Briefings 15,000+ email database

Monthly updates to GOP, etc

We Pay Campaign

Media Briefings



Safety CampaignCampaign

EnergyEnergy Conservation



“Khuli Kutcheries” (Open Houses) – on the spot resolution of customer complaints

17 across various towns of Karachi this year

Baldia Town Elander Road Gulistan Johar (x2) Khalid Bin Waleed– Baldia Town, Elander Road, Gulistan Johar (x2), Khalid Bin WaleedRoad, Landhi, North Nazimabad (x2), GulshanIqbal, Defence, Lyari, Orangi, Gulzar Hijri, Gulberg, Manghopir, SITE, NorthKarachi/Surjani

3.4 Customer Service - CEO Task Forces & Customer Rewards Program …two dedicated Task Forces have been set up in the CEO Secretariat to monitor and address customer complaints regarding

technical faults and billing…

CEO Task Forces

Technical Faults

3 shifts working 24/7 across the city

Billing issuesForces Billing issues

Out of 334 cases 307 cases have been resolved and responded to the consumer since 1st June’10; 92% resolution ratio.

Rewards Program

Monetary rebate being considered to be given to those customers who pay their bills on time for 12 consecutive months and have no other billing related anomalies

Work in Progress

118 Call Center capability significantly enhanced with installation of Customer Relationship Management Software (CRMS) and addition of over 250 call agents. New Connections department working towards clearing backlog of pending consumers

3.5 Customer Service - 118 Call Center / New Connections Department

118 Call Center

Workforce enhanced from 100 to 350 call agents

One window billing unit now entertains approx 200 walk in customers daily

consumers…

NeNew Connections team is working diligently towards

i i th t t blNew Connections

revising the current processes so as to enable:

– Maximum automation

– Process simplification

– Increasing customer convenienceg

309 MW added since March 2009

3.6 Customer Service - Reducing Faults Attendance Time…other than frequency, the duration, of outages (“SAIDI” Index) is also an important element of our Customer Servicethat we are actively focused on…

Generation & Transmission – all power units and grid stations monitored by a centralized LoadDispatch Centre using state of the art SCADA system

Distribution - a Rapid Response “nerve Centre in place that coordinates with 118 Call Centre andvarious Operations Centers to address HT/LT faults

Key Initiatives

p

Number of owned MTL vehicles increased to 1,010 with “trakker” system in 500 vehicles+ another815 from third parties

Training of technical staff at our Gulshan Training Center– recently started providing cross-functional training to LT employees for HT workg p y

Procurement of key items (PMTs, Cables, Joints, VCB’s etc) streamlined/fast tracked

EOQ concept introduced in Inventory Management

Decentralization process partially completed to bring HT & LT departments under one head

3.7 Customer Service - Internal Reorganization…eventually, it’s our 17000 employees who will drive our shared Customer Service agenda. To streamline our internal organization, a number of landmark initiatives have been taken for the first time since privatization…

Charter of Demand signed in early 2010 with elected CBA after 11 years under which:

6,000 workers “regularized”, 25% base salary increase given, performance-based variable compensationstructure introduced, etc

1300 management employees “regularized” in 2010 with medical, provident fund, gratuity, etc benefitsg p y g , p , g y,

Since September 2008:

419 employees laid off on account of integrity and performance related issues

1261 employees retired

750 fresh talent hired

Running the largest Management Trainee & Trainee Engineer program in the country (approx 200 people)

A landmark Performance Management System kicked off in 2010 (employee appraisal against set objectives, etc)

All transfers/postings through a transparent Internal Job Posting (IJP) systemAll transfers/postings through a transparent Internal Job Posting (IJP) system

Working environment in the office and housing colonies improved – work in progress

3.8 Customer Service - Community Welfare Program …notwithstanding the challenging financial position of KESC, we have embarked on several Corporate Social Responsibility (CSR) projects in the communities that we serve, for instance:

Dedicated double-feeder supply and load shedding exemption to several hospitals (e.g. Civil Hospital, MarieAdelaide Leprosy Centre)

Water purification plants e.g. at Ibrahim Hyderi

F t i l litiFree eye camps at various localities

Denso Hall restoration work

Youth Football development at grass root level in Lyari

KESC Care Camps (Flood Relief)– Base Camp in Thatta at Makli

3.8 Customer Service - Community Welfare Program

– Base Camp in Thatta at Makli– Camp 1 at Munarki– Camp 2 at Surjani– Camp 3 at Sundha

Over 550 tents, 8000 IDPs

Food, Shelter, Drinking Water, Medical Care for all IDPs

Free electricity/generators have been provided to relief camps in:

– Bin Qasim Town– Super Highway-Northern Bypass

H k B– Hawks Bay

Load-Shedding: Issues & Remedies

Consumer TariffConsumer Tariff

Customer Service

Foreign Investment

4.1 Foreign Investment – Shareholder Base

Other Shareholders

(Al Jomaih / Saudi Arabia) +

Abraaj Capital (Dubai) c. 180 investors from ME, Europe, Far East, North

A i t N t i l (Al Jomaih / Saudi Arabia) + NIG / Kuwait)

50% 50%

America etc. Not a single Pakistani

KES PowerMinority & Shareholder Free Float

Government of Pakistan (GOP)

1.90% 25.66%

72.45%

4.2 Foreign Investment – Since PrivatizationUnder the IA Amendment Agreement of April 2009, Abraaj Capital agreed to inject $361 million into KESC over a periodof 3 years, on the back of certain GOP commitments and obligations, several of which remain outstanding whilst Abraaj Capital is ahead of its commitment on investment This translates into approx $1 billion of debt & equity investment in

Investment TimelineYear 1 Year 2 Year 3 Total

Capital is ahead of its commitment on investment. This translates into approx. $1 billion of debt & equity investment in KESC over 3 years which is unprecedented in the history of the company…

ending April 2010 ending April 2011 ending April 2012

Agreement with GOP US$ 150 million US$ 150 million US$ 61 million US$ 361 million

Actual Investment:

Abraaj US$ 208 million US$ 153 million US$ 361 million

GOP US$ 71 million US$ 70 million US$ 140 million

Total Equity Funding US$ 501 million

Foreign Debt

IFC / ADB / OeKB US$ 210 million US$ 110 million US$ 320 million

Local Debt

NBP / HBL / SCB etc. US$ 100 million US$ 100 million US$ 200 million

Total Debt Funding US$ 520 million

Total Financing Commitments (Equity + Debt) US$ 1 021 millionTotal Financing Commitments (Equity + Debt) US$ 1,021 million

New Face of KESC

Annexure

Even as sustained performance improvements are becoming evident at KESC, a number of external factors continue to hamper the utility’s operational and financial health

Support Required (1/3)

Circular Debt/Strategic Customers

KESC is suffering from severe working capital constraints due to accumulated receivables of Rs. 49.32billion from the GOP, federal and provincial government bodies and other sovereign entities including“Strategic Customers”

This is despite the fact that the Implementation Agreement (IA) contains an explicit and unequivocalThis is despite the fact that the Implementation Agreement (IA) contains an explicit and unequivocalcommitment on the part of the GOP, acting through the Ministry of Finance (MOF), to make payment ofall amounts due and owing from identified Strategic Customers for the supply of power

Karachi Water & Sewerage Board (KWSB):

KESC’s liquidity is significantly hampered due to nonpayment of these receivables particularly Rs.10.91 billion which is outstanding from KWSB

Despite repeated attempts by KESC to obtain payment from both KWSB and the MOF, thecommitment of the GOP under the IA remains unfulfilled

KESC has even accepted the principal that its claims against KWSB and others may be set off/paiddirectly against what KESC itself owes to other state owned entitiesdirectly against what KESC itself owes to other state-owned entities.

– This principal was also agreed and committed to by the GOP, and is clearly expressed in theminutes of the Economic Coordination Committee (ECC) appended as Schedule 1 to the IA

– Those minutes contain an explicit best efforts commitment to set off the amounts due fromKWSB within 60 days of the date of signing of the IA. However, to date, this commitmenty g g , ,remains unfulfilled

The GOP also committed to ensuring that the MOF would clear all dues from Federal agencies andoffices immediately. While some of these dues have been paid, other amounts remain outstanding



Tariff Issues

The GOP committed (under Article 10.2(a) of the IA) to supporting and assisting KESC in the filing ofnew tariff petitions with NEPRA, including petitions to rationalize and restructure the existing “multi-year tariff” (MYT). The GOP also committed to the timely notification of all NEPRA determinations (i.e.within 30 days of determination) under Article 7.1 of the IA

KESC filed both a detailed tariff petition (dated May 2009) and a subsequent motion for review (datedJanuary 2010) seeking certain adjustments and changes to the MYT

– Despite repeated requests to the GOP, no support or assistance has been forthcoming from therelevant Ministry for either the petition or the motion for review.

– Similarly, there have been significant delays to the notification of certain NEPRA determinationsfor fuel surcharge adjustments or quarterly adjustments in the tariff

Furthermore, the IA and appended ECC decisions committed the GOP to ensuring that NEPRA wouldallow KESC to recover costs of PKR 5.93 billion suffered by KESC as a result of the delay in notifyingthe removal of the 4% cap on quarterly tariff adjustmentsp q y j

– The ECC decision on this matter is included in the IA (under Schedule 1, clause 2.1(q)). Despitethe existence of a clear decision from the ECC, NEPRA has refused to allow KESC to recoverthis amount even though other DISCOs are given the same benefit

The GOP committed to provide support and assistance to KESC for a number of other mattersOther Matters

affecting the company under Article 10.2 of the IA. These included:

– Assistance in obtaining rights of way (“ROW”) for new transmission and distribution lines

– Applications to the Federal Government or Government of Sindh for conclusive land titledocuments

However, many critical applications for ROW continue to be delayed, and these delays have held upcompletion of key projects including the Model Towns improvement projects

Similarly, KESC has received no support in its endeavor to obtain conclusive title documents for certainof its key properties, including properties on which KESC has or intends to build new power plants



Gas Supply

Existing Allocation

Against an official allocation of 276 MMCFD, SSGC has reduced KESC’s gas supply by over 30% (176MMCFD in the Jan-Aug 2010 versus 237 MMCFD in the Jan-June 2009).

At t l i l 199 MMCFD M i id d d h b i ithAt present, gas supply is only 199 MMCFD. Moreover, gas is provided on an ad-hoc basis with nominimum volume or pressure requirements. This is leading to

– Tripping of power units

– Increased use of furnace oil (FO), which impacts the tariff (FO is 2.5x more expensive than gas)

Future Allocation

SSGC has shown resistance in providing KESC with additional gas for the upcoming 560 MW CCPP

In the ECC decision (July 2008), the GOP committed to provide its full support to KESC for allocationof an additional 130 MMCFD for the new plant

– Construction of the plant is already in advanced stages, but no action has been taken by theGOP with respect to the promised additional gas allocation

Gas Supply Agreement (GSA):

GOP assistance and support was committed to ensure that a commercially acceptable GSA would bei d b t SSGC d KESC D it t d t SSGC h t d d t KESCsigned between SSGC and KESC. Despite repeated requests, SSGC has not responded to KESC on

the terms of the GSA

2 KESC Presentation

Documents

Transcript of 2 KESC Presentation