A chartered accountant by profession, Syed Moonis Abdullah Alvi’s career spans over three decades in the finance industry with a focus towards driving operational efficiencies, financial planning and capital restructuring. He has been associated with K-Electric in various positions. Mr. Alvi joined K-Electric in 2008 and has served as K-Electric’s Chief Financial Officer. He has also served as KE’s Company Secretary and Head of Treasury and has played an integral role in the transformation of K-Electric. He was appointed CEO of K-Electric in June 2018. He is a fellow member of the Institute of Chartered Accountants of Pakistan. Following are the edited excerpts of his conversation with BR Research:
BR Research: The benefits of K-Electric’s privatization have been visible; from transmission losses down from 40 percent to 15 percent, to improvement in recovery rates from 80 to 95 percent. However, load shedding has increased over the years. You say that in the coming summer season, Karachi will not experience load shedding unless it rains. Why is this so?
Moonis Alvi: I would like to correct your statement slightly and say that the duration of load shedding will be substantially lower compared to last year. There will still be load shedding in certain areas, which in our view is the load shed that happens nation-wide, as per policy. Last year, the duration of load shedding was extended since we were facing fuel issues, and a demand-supply gap in power. This year, we are getting equipment and machines, along with incremental supply from NTDC, which will limit load shedding to a manageable level.
As far as the issue regarding rainwater is concerned, we have been working to improve the situation where we have elevated our substations in some areas and installed new cables. As part of our rain mitigation investment, we will be spending Rs9 billion, and in 2021 alone we plan to spend Rs1.5 billion. By doing this, our expectation is that a lot of the areas will get a relief. At the same time, because a large part of Karachi comprises of “katchi abadis” with the “kunda” system, it is not possible that the entire area is protected. In such risky areas, we will certainly shut down power supply for a while and only after ensuring that the environment is safe, will we restore it. It is really difficult to make changes overnight, and it is not in control of KE alone.
BRR: So, the population residing in the fairly posh localities of Karachi will continue to get electricity, but the poor people, who already have many other issues, will not, in the event of rains?
MA: If the rain creates a risky environment as per our standards, electricity will be shut off until we ensure that there is no danger. And because there are few such areas left; the amount of feeders shutdown due to safety would reduce substantially.
BRR: Last year you had 3100MW of electricity while demand was 3600MW. This year, the first unit of your RLNG plant is coming up, along with more plants and more electricity commitment from the government. Despite these, you are doubtful that in 2025-26 power supply will be adequate in Karachi. Why do you think so when NTDC has a surplus in South? Two nuclear plants are also coming up. Why can’t KE get electricity from these new nuclear power plants?
MA: Firstly, electricity from the nuclear power plants is not as cheap. As far as the plan for 2023 is concerned, work on preparing the grid and evacuation of electricity that the governemnt has committed to provide us has begun. As per the plan, we should be able to get 700MW by the summer of 2023.
As far as the integrated planning of electricity distribution and transmission is concerned, that rests with NTDC and CPPA. Our part comes in when they tell us how much electricity they will give us so that we conduct our load flow and plan grid design accordingly. By 2025-26 we will be able to equate supply with the demand with the additional megawatts coming in. But in 2026-27 we see another gap. While we still have another 5 to 6 years, we need to be guided by NTDC as to how this shortage will be addressed; for example, they could provide us additional electricity; or we could put up a plant, or somebody else could put up a plant and sell it to us. Going forward, Karachi’s demand will expand with SEZs coming up, and they will need grid electricity.
BRR: In 2023, KE’s exclusivity is ending; Competitve Trading Bilateral Contract Market is also coming from 2022. There will be competition; why is it then your problem alone whether there is electricity or not?
MA: You are right. But the question is, when our exclusivity ends in 2023, and CTBCM will be implemented, will KE be given a level playing field? For example, there are four players and one of them chooses to supply electricity to DHA only, will KE be also given a choice to supply electricity to any area of our preference and choose not to supply to any area that for instance has higher T&D losses?
In the absence of level playing field, there will be two consequences: One, the utility will make losses. And second, the price of electricity for the inefficient areas will increase, and the people in these areas who are already struggling to pay, will have to pay even more. In essence, this will bifurcate Karachi into a good and bad areas where bad or inefficient areas will have high cost of electricity. So, exclusivity has to be on the basis of a level playing field.
BRR: Coming to the process of privatization, the stake sale of K Electric to China’s Shanghai Electric Power has been in limbo for a long time. Why is there a deadlock?
MA: From what we understand, it is sustainability issue of KE. The biggest issue is the mark-up on KE liabilities. There are Rs160 billion in liabilities that now have a mark-up of Rs150 billion. There are around Rs230 billion in receivables, but they don’t have mark-up. The good thing is that we are negotiating some TORs as we speak, based on which an arbitrator will decide what should be the correct amount of these mark-ups; and whether KE should be compensated in case there is a delay. We have to seek our board’s approval, and it seems that we will be able to get it. We are also in an active discussion with the government, but it is unconcluded. Basically, if these issues are resolved, KE will become sustainable.
BRR: What is the back-up plan, should Shanghai Electric blackout?
MA: It is the shareholders’ decision when and who they sell to. Our focus is to become sustainable. As mentioned previously, the company has been able to improve T&D losses from 40 percent to 15 percent, and recovery from 80 to 95 percent. We are also coming up with a 900MW plant. Our number of feeders have doubled over the last 10 years; and our transmission capacity has increased from 3,000 to 6,500 MW. We believe we have a well-equipped management to run K-Electric.
BRR: Then why not work with SAPM on Power who was also the previous CEO of K-Electric and understands KE’s problems?
MA: We must acknowledge that Tabish Gauhar played a very positive role in K-Electric’s transformation. We should give credit where its due. When he was the CEO, I was the CFO and I have learned a lot from him.
To answer your question, we must understand that when you sit on the other side of the table, you have to take the decision accordingly. He is representing the government; and we are representing KE. Although he understands all our issues – and I am sure he will eventually be able to explain them to the government also – his role is different, and he will act accordingly. He can neither serve as an ambassador for KE just because he was here once, nor do we have that sort of expectation from him. My expectation is that sanity will prevail.
