Karachi Electric Supply Company

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In November 2005, a consortium led by Pakistan’s Hasan Associates Private Limited took over the management and operations of Karachi Electric Supply Company (KESC), a vertically integrated state owned power utility, after acquiring a majority equity stake (73%) in the company. KESC, with a generation capacity of 1,750 MW and a distribution network that spanned around 6,000 square kilometers, served the southern port city of Karachi in Pakistan. Government of Pakistan (GoP) was forced to divest KESC as the utility was making losses for over a decade and had to be supported by a US$ 200 million annual government subsidy. The privatization of KESC was seen as a means to end the unsustainable subsidies, bring fiscal discipline and offer better services through professional management, new investment and employment benefits. The winning consortium (Hasan Consortium) consisted of Pakistan’s Hasan Associates Private Limited; KES Power Limited - a holding company owned by Saudi Arabia’s Al Jomaih Holding Co.; and Premier Mercantile Services. However, there was no public information on the exact shareholding structure of the constituent companies in the consortium as of Nov. 29, 2005, the date when management control of KESC was transferred. The winning consortium was selected through an international competitive tender, based on maximum price per KESC share, conducted by GoP’s Privatization Commission (PC) in February 2005. The bidders had the option to purchase between 51% to 73% equity in KESC. Of the two consortia who participated in the tender, a consortium led by Kanooz Al Watan of Saudi Arabia, made the higher offer of US$ 0.017 (Rs 1.65) per KESC share. However, the deal with Kanooz consortium did not materialize after it failed to pay the government. In July 2005, Hasan Consortium (the second bidder) matched the highest bid and agreed to pay US$ 268 million for a 73% equity stake in KESC. Under the purchase agreement, Hasan Consortium was required to make a mandatory investment of US$ 74 million in KESC facilities, offer a 20 % increase in salaries to contract employees, offer 10 % shareholding of KESC to full time employees, retrain the workforce and allow trade union activities to be resumed within 6 months of take over. To reduce regulatory risk, National Electric Power Regulatory Authority adopted a long term regulatory framework and issued a seven year tariff order for KESC in 2003. On Nov. 29, 2005, Hasan Consortium took over KESC after making a total payment of US$ 268 million to the GoP. The Hasan Consortium planned to invest US $ 500 million in KESC over a period of three years. On Dec. 3, 2005, National Industries Group (NIG) of Kuwait announced to the Kuwaiti Stock Exchange that it had purchased, for US$150 million, a 40% share in KES Power Limited, the holding company led by Al Jomaih Holding (60%). As of December 2008, KES Power owned 71.5% of KESC's equity, giving National Industries Group a 28.6% effective share, and Al Jomaih a 42.9% effective share, in KESC. The remaining equity holders were the GoP (26.65%) and private investors (1.85%), including Hassan Associates (1%) and Premier Mercantile Services (0.5%). In May 2009, Abraaj Capital [United Arab Emirates] completed the acquisition of a 50% stake in KES Power via an additional share issuance. In return for a 50% stake in KES Power, Abraaj Capital committed to invest US$361 million in KESC over three years. As a result of this transaction, Al Jomaih's share in KES Power was diluted to 30% while that of NIG was diluted to 20%. Therefore, the effective holdings in KESC at end 2009 were Abraaj (35.75%), Al Jomaih (21.45%), NIG (14.3%), GoP (26.65%) and others (1.85%).