KARACHI - ONGOING POWER OUTAGES LEAD TO CALLS FOR

UNCLAS SECTION 01 OF 02 KARACHI 000211 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EIND ENRG ECON PK SUBJECT: KARACHI - ONGOING POWER OUTAGES LEAD TO CALLS FOR NATIONALIZATION REF: A. 08 Karachi 173 ¶B. 08 Karachi 420 ¶C. 08 Karachi 458 ¶D. 08 Karachi 533 ¶E. 08 Karachi 587 ¶1. (SBU) Summary: Electricity supply, a perpetual problem in Karachi, deteriorated further as demand increased in the summer heat of May. Karachi Electric Supply Company (KESC) resorts to load shedding and several major interruptions to the power supply have caused protests in the city and serious disruptions to industry. Local and national politicians are closely watching the situation amidst some calls for re-nationalization of the KESC. End summary. ¶2. (U) As the temperatures in Karachi rose during the month of May, rolling power outages (known locally as load shedding) increased, and residents in various parts of the city reported 8 to 10 hours of load shedding per day, while in a few areas claims of power outages reached up to 20 hours. Protests, some turning violent, have often been directed at the KESC; several of their customer service centers have been attacked and service trucks set on fire. So great is the frustration that protestors even took to pelting passing vehicles with stones. ¶3. (U) According to KESC CEO Naveed Ismail, by early June the summer heat had already increased demand by 35 percent, and he estimated that as the temperature continued to climb, the demand on the system due to increased use of fans and air conditioners would increase by 640MW. Since according to some estimates the grid was already 600MW to 800MW short of meeting normal demand, the only recourse left to KESC was further load shedding ¶4. (U) By early June the situation had reached crisis proportions and was affecting local businesses and industry. City and provincial politicians called daily for the government to nationalize the KESC, which was privatized in 2005, and is still the only private power company in Pakistan. The federal government formed a special committee to look into the KESC management and load shedding in Karachi. The Karachi city council adopted a resolution on May 26 calling for the handover of KESC to the city government, which would run the utility using a group of experts. In response, KESC announced a 100-day summer plan to bring load shedding to an end and decrease electricity theft. ¶5. (SBU) Electricity theft is a major problem for the KESC and, in a city as large as Karachi with little or no enforcement authority or oversight, it is very difficult to overcome. Ismail told EconOff that even prominent Karachites and government entities with the means to pay their tariffs do not pay some or all of their electricity bills. He added that, ironically, the people in the neighborhoods with the highest levels of electricity theft are those who generally protest the most against load shedding. As part of the 100-day plan, KESC hoped to conduct 10,000 raids against defaulters and thieves by July. ¶6. (SBU) Further compounding the problem, on June 17, Karachi suffered a massive blackout when a thunderstorm in another part of Sindh damaged a major power transmission line. The disruption caused blackouts in nearly 85 percent of Karachi. In an effort to find some relief from the heat, residents slept in parks and on the streets; in addition, at least half of the city was without water because pumping stations could not operate. It took several hours before power began to be restored, and in much of the city it was well into the next day before any power returned. ¶7. (U) A light rainstorm on June 25 again disrupted the power supply to many parts of the city and caused residents and politicians to question what will happen to the power grid when the monsoon rains reach full strength in July. This question has led to intensified calls by politicians to reverse the privatization of KESC. ¶8. (SBU) The current owners of KESC, the Dubai-based Abraaj Capital, only finalized the purchase in April. (Note: In 2005, Saudi's Al-Jomaih Group and Kuwait's National Industries Group purchased KESC. In early 2008, Al-Jomaih approached Abraaj for a purchase offer. End note.) Ismail told EconOff that electricity KARACHI 00000211 002 OF 002 demand increases by 7 to 10 percent each year, but the last major investment in power generation or grid maintenance was over 25 years ago. As a result, during the summer months there is a shortfall of several hundred megawatts. The company plans to invest $360 million in upgrades to the transmission system and construction of new power generation capacity over the next few years, including plans to build four coal-powered plants over the next five years. In an attempt to curb wastage, KESC has also launched a conservation campaign in an effort to save 200 to 250MW per year. ¶9. (SBU) Ismail told EconOff that he attempts to manage the load shedding to avoid industrial areas, government hospitals, or other vital institutions. However, many business owners in the major industrial estates tell Post their biggest problem is load shedding. As the largest factories often produce their own power, it is the medium and small businesses with lower margins that are suffering the most. ¶10. (SBU) Comment: Regardless of the actions taken by KESC it will not be able to eliminate load shedding as the summer continues. The advent of the monsoons could very well exacerbate the problem if, as on June 25, the system is unable to withstand even moderate rain. Protests against KESC will likely continue throughout the summer and during periods of particularly egregious load shedding. KESC's problems are symptomatic of those facing the country as a whole. For example, on June 30 the turbines at Mangla Dam, which normally supplies 1100 MW to the grid, broke down when they were pushed to produce 1150 MW. It will take at least two weeks to repair them and restore this power supply. Even with increased investment and system upgrades it will take KESC three to five years to produce noticeable results. Power will meanwhile continue to be a contentious economic and political topic in Karachi, and will continue to generate unrest in the streets. End comment. FAKAN