Identifier
Created
Classification
Origin
09ISLAMABAD2022
2009-08-25 05:53:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:
ENCOURAGING GULF INVESTMENT IN KARACHI'S POWER
how-toVZCZCXRO0170 OO RUEHDE RUEHLH RUEHPW DE RUEHIL #2022/01 2370553 ZNR UUUUU ZZH O 250553Z AUG 09 FM AMEMBASSY ISLAMABAD TO RUEHC/SECSTATE WASHDC IMMEDIATE 4538 INFO RUEHDO/AMEMBASSY DOHA PRIORITY 1676 RUEHBUL/AMEMBASSY KABUL PRIORITY 0794 RUEHKU/AMEMBASSY KUWAIT PRIORITY 1530 RUEHLO/AMEMBASSY LONDON PRIORITY 1184 RUEHNE/AMEMBASSY NEW DELHI PRIORITY 5401 RUEHRH/AMEMBASSY RIYADH PRIORITY 5968 RUEHDE/AMCONSUL DUBAI PRIORITY 1874 RUEHKP/AMCONSUL KARACHI PRIORITY 2166 RUEHLH/AMCONSUL LAHORE PRIORITY 7772 RUEHPW/AMCONSUL PESHAWAR PRIORITY 6774 RUEAIIA/CIA WASHINGTON DC PRIORITY RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY RHMFISS/HQ USCENTCOM MACDILL AFB FL PRIORITY RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY RHEHNSC/NSC WASHINGTON DC PRIORITY RUEKJCS/SECDEF WASHINGTON DC PRIORITY RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL PRIORITY
UNCLAS SECTION 01 OF 02 ISLAMABAD 002022
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PREL PGOV EFIN ECON EAID ENRG AE PK
SUBJECT: ENCOURAGING GULF INVESTMENT IN KARACHI'S POWER
SYSTEM
REF: A. AUGUST 20 MARKS-GAVITO E-MAIL (NOTAL)
B. ISLAMABAD 1724
UNCLAS SECTION 01 OF 02 ISLAMABAD 002022
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PREL PGOV EFIN ECON EAID ENRG AE PK
SUBJECT: ENCOURAGING GULF INVESTMENT IN KARACHI'S POWER
SYSTEM
REF: A. AUGUST 20 MARKS-GAVITO E-MAIL (NOTAL)
B. ISLAMABAD 1724
1. (SBU) Summary: Karachi Electric Supply Company (KESC),
Pakistan's only private utility, serves 18 million
consumers in Karachi, the financial, industrial and
commercial hub of Pakistan. Inadequate generation and
out-dated transmission infrastructure have contributed to
chronic load shedding and blackouts, impacting industrial
output and sparking public unrest. Abraaj Capital, a
UAE-based private equity firm, finalized the purchase of KESC
in May, agreeing to invest $361 million in the utility over
the next three years. However, KESC needs $4-5 billion in
capital investments over the next five years to fully upgrade
its operations to meet even current demands. EMBASSY
Islamabad requests assistance in ascertaining possible means
to influence Gulf state investors to devote additional
private or public funds to KESC. End Summary.
Economic and Political Impact of KESC's Poor Performance
-------------- --------------
2. (SBU) KESC is a vertically integrated utility with
generation, transmission and distribution assets serving 18
million consumers in Karachi and its environs. Decades of
under-investment and poor maintenance have contributed to
chronic load shedding from insufficient generation and
blackouts from a crumbling distribution network. KESC
distributes 2350 MW, 1000 MW short of Karachi's current power
demands. (Note: KESC generates 1300 Mw from 22 power plants,
but depends on additional power purchases from independent
power producers and the government of Pakistan's (GOP) power
plants for an addition 1050 MW. End Note). KESC has a $15
million operating loss each month due to power theft, poor
tariff collection, and technical losses.
3. (SBU) With 18 million inhabitants, Karachi is home to
only 10 percent of Pakistan's population, but accounts for
nearly 40 percent of GDP. It is Pakistan's commercial,
industrial, financial and media hub. Though KESC prioritizes
energy distribution to industrial estates, black outs and
load shedding are a serious impediment to economic
productivity. Poor power delivery has also led to large
public demonstrations, especially in July when flooding
contributed to black outs lasting days in most of Karachi
(ref B). KESC CEO Naveed Ismail said there have been 50 mob
attacks on KESC offices and 36 KESC cars burned in 2009.
Abraaj Capital's Investment in KESC
--------------
4. (SBU) Abraaj Capital, a UAE-based private equity firm,
gained formal control of KESC in May 2009, though it took
informal management control in September 2008. Hassan
Associates, a Pakistani firm, had initially purchased the
firm from the GOP in 2005. After the purchase KESC shares
are divided accordingly: 37.2% Abraaj Capital; 37.2% Hassan
Associates and other private investors; 25.6% GOP. However,
Abraaj Capital has 7 of 13 seats on KESC's board, with other
private investors (3 seats) and the GOP (3 seats) controlling
the remainder.
5. (SBU) Under its purchase agreement, Abraaj Capital
promised to make three payments totaling $361 million over
three years that would be directed towards capital
investments in KESC rather than buying out the previous
shareholders' stakes in the company: $150 million in year 1,
$150 million in year 2, and $61 million in year 3. KESC CEO
Ismail told Econoff that Abraaj has already invested $138
million and plans to invest an additional $40 million by
ISLAMABAD 00002022 002 OF 002
April 2010. In order to maintain its stake at 25.6%, the GOP
promised to invest an additional $140 million in KESC, but
has yet to do so. (Note: Abraaj's investment is diluting
the shares of the previous owners. Private investors agreed
for their stake to be diluted from 74.4% to 37.2%, but the
GOP agreed to invest additional capital to avoid the halving
of its shares. End Note.)
6. (SBU) CEO Ismail told Econoff that KESC plans to leverage
the GOP's and Abraaj's capital contributions to raise $1.3
billion for capital improvements. (Note: The World Bank and
ADB report that their private sector arms have lent $300
million to KESC and believe private banks will follow their
lead. End Note) However, Ismail believes that KESC needs
$4-5 billion over the next five years to fully upgrade its
operations.
Influencing Abraaj Capital and Gulf Investors
--------------
7. (SBU) Abraaj Capital is the largest private equity firm
in the Middle East and South Asia. Headed by a Pakistani
national, Arif Massood Naqvi, the majority of the board is
from the UAE and Saudi Arabia. Abraaj invested in KESC under
its 10 year, $2 billion Infrastructure and Growth Capital
Fund, managed by Executive Director Tabish Gahaur. The
majority of Abraaj's 210 investors are based in the Middle
East, including a number of Gulf State sovereign wealth and
royalty funds, according to Ismail.
8. (SBU) EMBASSY Islamabad requests the Department seek
Consulate Dubai's assistance in informally approaching Abraaj
Capital leadership and influential board members to assess
how additional private or public capital could be mobilized
for KESC from the Gulf.
9. (U) Abraaj Capital board members:
Sheikh Abdulrahman Ali Al Turki, Chairman
Arif Massood Naqvi, CEO
Hussain J. Al-Nowais, Vice Chairman
Bisher Barazi
Fadi Chandour
Mohammed Ali Al Hashimi
Hamid D. Jafar
Saud Abdulaziz Kanoo
Sheikh Khaled Bin Zayed Al Nehayan
Sheikh Sultan Bin Saqr Al Qassimi
Hamad Abdulla Al-Shamsi
Sheikh Nawaf Nasser Bin Khalid Al Thani
Mustafa Abdel-Waddood
Board member biographic information can be found at:
http://www/abraaj.com/english/List.aspx?mid=3 7
PATTERSON
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PREL PGOV EFIN ECON EAID ENRG AE PK
SUBJECT: ENCOURAGING GULF INVESTMENT IN KARACHI'S POWER
SYSTEM
REF: A. AUGUST 20 MARKS-GAVITO E-MAIL (NOTAL)
B. ISLAMABAD 1724
1. (SBU) Summary: Karachi Electric Supply Company (KESC),
Pakistan's only private utility, serves 18 million
consumers in Karachi, the financial, industrial and
commercial hub of Pakistan. Inadequate generation and
out-dated transmission infrastructure have contributed to
chronic load shedding and blackouts, impacting industrial
output and sparking public unrest. Abraaj Capital, a
UAE-based private equity firm, finalized the purchase of KESC
in May, agreeing to invest $361 million in the utility over
the next three years. However, KESC needs $4-5 billion in
capital investments over the next five years to fully upgrade
its operations to meet even current demands. EMBASSY
Islamabad requests assistance in ascertaining possible means
to influence Gulf state investors to devote additional
private or public funds to KESC. End Summary.
Economic and Political Impact of KESC's Poor Performance
-------------- --------------
2. (SBU) KESC is a vertically integrated utility with
generation, transmission and distribution assets serving 18
million consumers in Karachi and its environs. Decades of
under-investment and poor maintenance have contributed to
chronic load shedding from insufficient generation and
blackouts from a crumbling distribution network. KESC
distributes 2350 MW, 1000 MW short of Karachi's current power
demands. (Note: KESC generates 1300 Mw from 22 power plants,
but depends on additional power purchases from independent
power producers and the government of Pakistan's (GOP) power
plants for an addition 1050 MW. End Note). KESC has a $15
million operating loss each month due to power theft, poor
tariff collection, and technical losses.
3. (SBU) With 18 million inhabitants, Karachi is home to
only 10 percent of Pakistan's population, but accounts for
nearly 40 percent of GDP. It is Pakistan's commercial,
industrial, financial and media hub. Though KESC prioritizes
energy distribution to industrial estates, black outs and
load shedding are a serious impediment to economic
productivity. Poor power delivery has also led to large
public demonstrations, especially in July when flooding
contributed to black outs lasting days in most of Karachi
(ref B). KESC CEO Naveed Ismail said there have been 50 mob
attacks on KESC offices and 36 KESC cars burned in 2009.
Abraaj Capital's Investment in KESC
--------------
4. (SBU) Abraaj Capital, a UAE-based private equity firm,
gained formal control of KESC in May 2009, though it took
informal management control in September 2008. Hassan
Associates, a Pakistani firm, had initially purchased the
firm from the GOP in 2005. After the purchase KESC shares
are divided accordingly: 37.2% Abraaj Capital; 37.2% Hassan
Associates and other private investors; 25.6% GOP. However,
Abraaj Capital has 7 of 13 seats on KESC's board, with other
private investors (3 seats) and the GOP (3 seats) controlling
the remainder.
5. (SBU) Under its purchase agreement, Abraaj Capital
promised to make three payments totaling $361 million over
three years that would be directed towards capital
investments in KESC rather than buying out the previous
shareholders' stakes in the company: $150 million in year 1,
$150 million in year 2, and $61 million in year 3. KESC CEO
Ismail told Econoff that Abraaj has already invested $138
million and plans to invest an additional $40 million by
ISLAMABAD 00002022 002 OF 002
April 2010. In order to maintain its stake at 25.6%, the GOP
promised to invest an additional $140 million in KESC, but
has yet to do so. (Note: Abraaj's investment is diluting
the shares of the previous owners. Private investors agreed
for their stake to be diluted from 74.4% to 37.2%, but the
GOP agreed to invest additional capital to avoid the halving
of its shares. End Note.)
6. (SBU) CEO Ismail told Econoff that KESC plans to leverage
the GOP's and Abraaj's capital contributions to raise $1.3
billion for capital improvements. (Note: The World Bank and
ADB report that their private sector arms have lent $300
million to KESC and believe private banks will follow their
lead. End Note) However, Ismail believes that KESC needs
$4-5 billion over the next five years to fully upgrade its
operations.
Influencing Abraaj Capital and Gulf Investors
--------------
7. (SBU) Abraaj Capital is the largest private equity firm
in the Middle East and South Asia. Headed by a Pakistani
national, Arif Massood Naqvi, the majority of the board is
from the UAE and Saudi Arabia. Abraaj invested in KESC under
its 10 year, $2 billion Infrastructure and Growth Capital
Fund, managed by Executive Director Tabish Gahaur. The
majority of Abraaj's 210 investors are based in the Middle
East, including a number of Gulf State sovereign wealth and
royalty funds, according to Ismail.
8. (SBU) EMBASSY Islamabad requests the Department seek
Consulate Dubai's assistance in informally approaching Abraaj
Capital leadership and influential board members to assess
how additional private or public capital could be mobilized
for KESC from the Gulf.
9. (U) Abraaj Capital board members:
Sheikh Abdulrahman Ali Al Turki, Chairman
Arif Massood Naqvi, CEO
Hussain J. Al-Nowais, Vice Chairman
Bisher Barazi
Fadi Chandour
Mohammed Ali Al Hashimi
Hamid D. Jafar
Saud Abdulaziz Kanoo
Sheikh Khaled Bin Zayed Al Nehayan
Sheikh Sultan Bin Saqr Al Qassimi
Hamad Abdulla Al-Shamsi
Sheikh Nawaf Nasser Bin Khalid Al Thani
Mustafa Abdel-Waddood
Board member biographic information can be found at:
http://www/abraaj.com/english/List.aspx?mid=3 7
PATTERSON