Perspective: KESC Labour Row - A Test Case

By Amir Zia
The News
Sunday, January 23, 2011

The government seems to listen and bargain only with those who shout the loudest, resort to lawlessness and violence

The Karachi Electric Supply Company (KESC) management appears on its own to face the violent backlash and political pressure following the retrenchment of more than 4,000of its “non-core” employees.

When the sacked employees went on rampage on January 20 at the KESC head office, smashing furniture and damaging vehicles, police and paramilitary rangers’ personnel simply stood by, many with smiles on their faces. They made no effort to stop the lawlessness, exposing the vulnerability of businesses and law-abiding citizens in the countryís commercial hub. The ruling coalition partners — the Muttahida Qaumi Movement (MQM) and the Pakistan Peoples’ Party (PPP) - were quick to offer support to protesters. Governor Sindh Ishratul Ebad asked the loss-making Company to defer its retrenchment decision until a government committee gives verdict regarding the issue.

Welcome to the unique business and investment-friendly environment of Pakistan, which offers little protection to the life and property of foreign and local investors or ensures rules of the game - at least under this democratic dispensation.

The government seems to listen and bargain only with those who shout the loudest, resort to lawlessness and violence. In such a scenario, even local investors remain reluctant to invest, but we hope to attract foreign investment to help revive our battered economy. No wonder, Pakistan’s privatization programme stands stalled since 2008 and the foreign investment dipped to a mere $2.08 billion at the end of fiscal 2009/10 from the highs of $8.42 in fiscal 2006/07.

Those investors, who have already taken the plunge here, are getting a taste of Pakistanís choppy political and business environment in which corruption, inconsistent policies, lawlessness and insecurity reign supreme. The KESC, privatized in 2005, emerges as a glaring example that why investors should stay away from Pakistan. The baggage is too big and political interference too much.

Indeed, retrenchment of workers from any organisation remains a painful and unpopular process. But tough economic conditions demand difficult decisions. Institutions - both private and public - have to remodel, reinvent and adjust according to the changing times. The process can be agonizing, but necessary to make institutions lean, efficient and financially viable. This goes a long way in determining the fate of not just businesses, but the country’s economy.

It is the company, which has to determine the size and skill criteria of its work force and not the government. Any deviation from this principle proves lethal. We have seen Pakistan’s state-run institutions paying the price of over-staffing and mismanagement.

For the KESC, which booked losses of 14.64 billion rupees in financial year 2009/10 compared with 15.48 billion a year ago, reduction in operating cost is definitely a make-or-break decision. In 2010/11, the company hopes to cut losses further if it is allowed to restructure, recover money from defaulters and curb power theft. The signs of a slow recovery can be seen. In the first-quarter of the current financial year (July-September), KESC’s losses were around 1.78 billion rupees down from 5.61 billion rupees a year ago in the corresponding period.

But a sustainable turnaround in KESC’s fortunes will be hard to achieve without reducing the size of workforce, which hovers around 17,000 employees. According to senior KESC officials many of the appointments were made in the past on political basis in the category of non-core employees including drivers, office attendants, sanitary workers and security guards. Many of these employees were ghost workers and their functions already have been out-sourced in what the management claims “at a fraction” of the cost that the company incurs on internal resources.

For any business model, reduction in operating cost makes sense. Companies cannot provide jobs if they are in the red. They create employment only when they make profits. The successive Pakistani governments tried to be the biggest job provider, but the formula did not work. It transformed functioning, profit-making institutions into sinking ships, which proved a drain on the economy for decades now.

KESC says that retrenchment of workers came as a last resort. It initially launched a voluntary separation scheme (VSS) with what it called “generous payoutsî ranging from a minimum of 700,000 rupees to five million rupees. But only 400 employees accepted the scheme out of the targeted 4,500 as the Collective Bargaining Agent of the employees assured members that it would either be able to prevent retrenchment or get them better terms. In these pressing economic times, the dark specter of unemployment certainly remains a concern for employees, but that could have been addressed through peaceful and lawful means.

As the government, political parties and labour unions press the KESC management to change its decision, the company maintains that the step remain in compliance with local labour laws. “The company has the right to declare certain functions redundant and to retrench staff in these positions - this is all that has been doneÖ We intend to maintain our position and vigorously defend this decision through the courts,” a senior official of the company said. “The legal precedent remains on the side of the company since the higher courts have repeatedly upheld the right of companies to manage their staffing and to retrench redundant staff as necessary.”

How authorities resolve the management-labour dispute at KESC remains a test-case, particularly for the Finance Minister Abdul Hafeez Sheikh, who led the most successful privatisation programme of the country during Pervez Musharraf era as his Privatisation Minister. The tackling of the labour row at KESC by the government will determine not only the direction of the country’s privatization programme, but also the signal it wants to give to foreign investors. Will the government be able to make the right decision for the economy - remains today’s thorny question.