From KESC to K-Electric A Synopsis of Turnaround… Journey of 100 Years Journey of 100 Years Generation Initiatives Improvement in Fleet Efficiency by 23.1% • 960 MW new capacity added since FY09 o 560 MW BQPS II o 220 MW KCCPP o 180 MW Jenbacher (Site + Korangi) • Recovered 50 MW through rehabilitation • Investment of US$ 726 million • Benefiting from this strategy as gas supply cut by around 1/3rd • Converting 420MW to coal fired from FO. Investment size US$ 400 million plus • Closing cycles of KCCPP and GE Jenbacher to recover a further 47MW Generation Fleet Efficiency (%) Drop in Gas Supplied to K-Electric Transmission Initiatives • Transmission losses reduced by nearly 2/3rd • Over US$ 100 million investment • 10 new Grid Stations since April 2009 • Net addition in transformation capacity 635MVA since April 2009 • Implementation of SCADA • Substantial reductions in transformer and line tripping Distribution Initiatives Annualized T&D Losses represents a 1/4th reduction since Jun-09 Transmission & Distribution (T&D) Losses % 35.9% Electricity of 15 GWh per annum IBC Categorization c. 18 million population 34.9% Coverage area: 6,500 sq km 32.2% 29.7% Over 15,600 PMTs and sub stations 28.6% 27.8% Low Loss 43.0% 52.4% Med Loss 25.9% 25.6% High Loss 31.1% 22.0% Distribution lines: c. 20,000 km 26.5% FY 2013 % Sent % Out Rev. Jun-09 Jun-10 Jun-11 Jun-12 Dec-12 Jun-13 Dec-13 Improvements from Restructuring, Accountability, Process changes § IBC concept piloted in 2009 – introduced to overcome challenges from: (a) Lack of Transparency & Accountability; (b) Misaligned Technical & Commercial boundaries; (c) Demoralized staff & lack of customer orientation § 28 IBCs created (covering the whole city) and rolled out including revamped office buildings and customer servicing areas § Restructured Organization leading to enhanced processes - KPI based incentive program to motivate & recognize § Differentiated Service based on T&D losses Rewarding Communities that use electricity honestly and pay their bills § SAP IS-U implemented providing a new technology platform / system § Capex Project Initiated: Aerial Bundle Cable, Smart Grid, Mobile Application for Meter Reading etc Customer Service Defence Business Center – Pre Revamp Inside an IBC Customer Service Centre IBC Defence – Post Revamp 118 Call Centre Anti Theft Drives Pre ABC Installation PMT “Kunda” (Illegal Hook Connection) Removal Drive Post ABC Installation PMT Support to Industry Total Load Shed Exemption in all Industrial Zones Capital Expenditure Capital Expenditure • • • About 3/4th of CAPEX focused on generation (1,010 MW) Transmission CAPEX focused on improving system reliability Distribution CAPEX on network rehabilitation, IBC construction, new meters, theft reduction etc. Financed through • • • • US$ 988 million US$ 935 million Long term loan of US$ 401 million without sovereign guarantee US$ 484 million equity injection completed IFC/ADB converted US$ 50 million loan to equity IFC/ADB’s confidence in K-Electric Rightsizing • Huge resistance after Voluntary Separation Scheme (“VSS”) announcement with labor unions resorting to violence and lockout • Cost of VSS PKR 6 billion • 4,459 non-core staff were offered VSS • 3,400 opted for VSS; rest retrenched • Outsourced non-core jobs and inducted managerial and technical human resource • Roll-out of AZM Change Management Programme – sessions held for 5,817 non-management employees and officers to bridge employee and senior management gap • Performance based appraisals • Today a Paradigm shift in the culture of K-Electric Financial Yardstick for Turnaround • Profit in FY12; first time in 17 years • Contribution margin 4-year CAGR @ 87% • Reduction in T&D losses (i.e., increased billing) • Higher efficiency (saving on fuel) • Economic Dispatch Order followed • Cost of O&M nearly doubled to improve consumer services • Positive EBITDA since FY11 and growing Challenges • Circular Debt adversely affecting our cash flow management and hence operating performance • Law and order situation of Karachi • Weak legislation and law enforcement to combat electricity theft and non-payment • Short supply of gas to our power stations • Higher consumption of furnace oil substantially impacts consumer tariff causing theft • Large sums overdue from SOEs including KWSB How Privatized KE was Different • Privatization changed the ORGANIZATION CULTURE o Rightsizing o Enlargement of technical and managerial capability o Performance based management • Privatization provided much needed IMPETUS o Board approvals for major decisions rather than bureaucratic processes o Enabled expedited implementation of several major projects • Privatization provided much needed FLEXIBILITY o Financial autonomy o Prioritizing expenditure and resource engagement • Privatization ensured much greater ACCOUNTABILITY o Sponsors continuous monitoring of financial results and health o Professional management with integrity o Code of Corporate Governance and Audits o Reward and Punishment system
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