Overview: KESC Woes

By Amir Zia
The News on Sunday
Special Report
June 26, 2011

The Company appears to be fighting a losing battle against the vested interests and political mafias opposed to streamlining its operations. But in the corridors of power, who cares?

Senior officials of the Karachi Electric Supply Company (KESC) have not been able to enter their head offices for nearly two weeks now as hundreds of protesting employees remain camped outside the building, threatening and beating staff members, who want to attend duties. At other locations, KESC offices have remained mostly shut for nearly two months now as bands of protesters -- some of them armed -- roam freely, targeting those who refuse to stay away from work.

There have been more than 100 cases of sabotage and violence against KESC installations and employees during the last two weeks alone,” said Tayyab Tareen, KESC’s chief financial officer (CFO). “In majority of cases, police and the other law enforcement agencies failed to act. We can’t operate from our offices… Our staff members, who perform outdoor duties, are constantly being threatened, harassed and even targeted by trade union activists.”

As defiant workers lock horns with the KESC management against its decision of outsourcing the non-core operations of the company, the tussle has perhaps become a defining one for the country’s privatisation programme and overall investment climate. The labour trouble has also created an unprecedented power crisis in Karachi, where demand already exceeds the supply by more than 20 per cent. With workers disrupting the day-to-day operations of the public utility, even small local problems in the distribution network remain unattended for days. This has compounded the misery of consumers in the sizzling summer and triggered spontaneous protests and power riots.

“The problem is that our staff is not being allowed to work,” Tareen said. “Even sensitive installations like a power generation plant had to be shut down because the union members abducted staff on gunpoint. One of the main grid stations was also forcibly closed by the union members. Later, rangers had to get it vacated.”

The KESC management’s concerns about security are not out of place. The KESC head office, located in Defence Housing Authority -- a relatively peaceful neighbourhood by Karachi standards -- was attacked by hundreds of protesters on January 20 in which not only dozens of vehicles were damaged or set ablaze and offices ransacked, but staff also beaten-up.

No wonder that in these testing times, KESC technical staff sneaks out mostly after sunset to fix faults. Some of these staff members have been thrashed black and blue by protesters, who according to the KESC management, resort to organised sabotage activities, damaging cables, pole mounted transformers, and even grid stations.

A KESC technician, who spoke on the condition of anonymity, said that many of his colleagues remain too afraid to report to duty. “Those who come, do it at the peril of their lives. The union members roam in small groups on motorbikes and threaten and beat those whom they find working. There is no security, no law. We are even attacked by angry consumers, who want us to restore their connections then and there.”

As a result, often even small local faults remain unattended for six to seven days.

The list of acts of lawlessness committed by trade union members -- the latest bane for citizens of this volatile city -- is getting longer with each passing day. There are no rules of the game. The government and the state institutions appear to have abandoned their responsibility allowing the mob to rule. Yes, any organised minority can dictate terms, block roads, threaten and disrupt operations of a legitimate, legal business. In this land of the pure, there is a freedom to break laws, but try playing by the book and you make yourself vulnerable.

The government’s deliberate inaction is understandable. All the three parties in the ruling coalition -- Pakistan Peoples’ Party (PPP), Muttahida Qaumi Movement (MQM) and Awami National Party (ANP) -- have their trade unions in KESC.

“We are being directed by authorities to facilitate the KESC unions,” said a senior police officer requesting anonymity. “We are not making any arrests or trying to break their protest, though the union workers have been blocking major roads and resorting to numerous illegal activities.”

The government has been pressing the KESC management to resolve the issue with the unions, which means keeping the status-quo. But the status-quo is the biggest problem at the KESC; it’s in the red because of overstaffing, rampant power theft and corruption.

The government’s attempt to dictate KESC’s private management, trying to revamp and restructure this loss-making entity, goes against the grain of the privatisation programme and sends a message to potential foreign and local investors to stay away from the country -- which lacks consistency of policies and changes goal-post with the change of governments.

Restructuring and revamping are part and parcel of the privatisation of any organisation anywhere in the world. No management can change fortunes of a company without cutting operational costs and a major overhaul and shakeout of the workforce. In Pakistan, there has been a precedent of restructuring in a number of key privatised institutions, including in the banking sector. It worked perfectly well because there was political will behind the move. Employees were given financial benefits through “golden handshake schemes” for leaving their jobs. The successful implementation of these schemes resulted in the turnaround of many institutions, which became profitable and financially robust, paving way for improved services, expansion and creation of new jobs.

But unfortunately KESC is not being allowed to do that for narrow political reasons. At one level, PPP’s traditional pro-worker posture leaves no room for retrenchment. This is a major contradiction in the ruling party’s policy which also endorses privatisation and maintains its full-fledged ministry, although it hardly has any success to its credit since coming to power in 2008.

The second key reason is that at lower level of the party, there are huge stakes in maintaining the status-quo at organisations like KESC. Not just PPP, but workers and local leaders of all the other major parties and trade unions also have financial and political interests as big organisations and their resources remain open to loot, abuse and exploitation. For years, political parties have abused and exploited these institutions by doling out jobs to lackeys, activists and relatives. They patronised nepotism and corruption at all levels.

This has financially wrecked most public sector enterprises that remain a drain on the national exchequer. Only a dozen or so top such loss-making institutions need more than 300 billion rupees a year in subsidies to remain afloat.

Obviously, the local leadership of these parties and their trade unions will resist any attempt to stop this loot. And ironically, the top leadership -- by design or default -- is following suit at the cost of not just KESC, but the country’s long-term economic interest.

Finance Minister Dr. Abdul Hafeez Shaikh, who once headed the privatisation ministry under former president Pervaz Musharraf, should know better the consequence of prolonging this unnecessary and self-damaging tussle with KESC run by Dubai-based Abraaj Capital.

The KESC as part of its restructuring plan aims to reduce number of employees to around 13,000 from the current 17,000 plus. The move is not unlawful and part of the privatisation agreement with the government.

It tried to implement this in early January by terminating the services of 4,300 non-core employees who refused to accept a voluntary separation scheme (VSS). The non-core employees included drivers, bill distributors, security staff and sweepers. The scheme offered a minimum of 700,000 to a maximum of 4.0 million rupees to each employee according to seniority. The KESC says that by doing this it wants to concentrate on core technical operations, which makes sense. However, the move was derailed as a result of January 20 violence. At that time, the political parties in the ruling coalition forced the KESC management to reinstate these employees.

But the KESC management made it clear even then that it was not abandoning the restructuring plan and accordingly outsourced non-core operations to specialist firms. The non-core employees were put in the surplus pool and their job specific allowances and overtime were stopped, but they continue to draw salaries.

This move led to the current protest campaign that started on April 29 as it directly hit the vested interest groups. The KESC management says that charging up to eight hours daily overtime by many of the non-core employees, especially those affiliated with trade unions and political parties, has remained a norm for years. Many came just to show their faces during office hours, but still claimed overtime through the muscle power of the unions.

According to the KESC management, the cost of outsourcing remains 250,000 rupees less than just the overtime claimed by these non-core employees. Once the restructuring is complete, the company will be able to significantly cut its fixed operational cost -- a move which makes perfect business sense. The management says that it will be able to invest on hiring new technical staff where needed once it is through with the VSS implementation.

However, the KESC management finds itself in a tight-spot given the political interference and politicisation of the issue. For now, it appears to be fighting a losing battle against the vested interests and political mafias opposed to streamlining KESC operations. The government’s criminal inaction is adding not only to the woes of KESC and its more than 2.2 million consumers, but also hurting the future foreign investment and privatisation prospects in the country. But in the corridors of power, who cares? In the short-term, appeasing trade unions seem to suit their interest more.