Karachi 's first step towards good e-power!

Karachi Electric Supply Corporation is believed to have decided to partially 'disassociate' Siemens Pakistan from its operations. This could be its first step towards getting good electricity. However, it may have to pay a rather heavy price for it.

Under the arrangement in vogue since KESC's de-nationalisation (Nov 2005) Siemens has been its 'managing partner' in day to day operations and technical matters. Any (premature) termination of the (six year) agreement will require KESC to pay Siemens for each remaining year an aggregate of sixteen million dollars or 65% of the Fixed Fee for the remaining term of the Agreement.

German born Siemens and its various subsidiaries including Siemens Pakistan, though being amongst the most respected of electrical engineering companies, have had no previous experience of running a power company any where in the world. According to insiders, this was the prime difficulty being faced by KESC since its privatisation in November 2005.

More detailed reference to clauses of the KESC-Siemens agreement about consequences of such a disassociation appear later in the report.

'Partial termination' happening in late November covers seven areas from where Siemens, KESC's O&M Part-ner, has been shown the way out. These are: Human Resou-rces, Procurement, Inventory Management, Fleet Manage-ment, Administration, Legal Affairs, Finance and Accounts Keeping.

Till KESC's new owners discover more about Siemens' capabilities, it would continue to look after generation, transmission, distribution, customer services and billing.

The move, KESC's new owners hope, will improve the power utility's overall performance. They could be very right said an engineer who had been watching the affairs from close range.

But the bigger and a more technical part of the problem - generation, transmission, distribution - besides customer services and billing are still under Siemens charge.

And this could be the 'real problem', he added quickly. These are the areas where Siemens has had no experience whatsoever, he recalled.

A group of engineers while talking to Engineering Review had described (our issue August 16-31, 2006) 'Siemeni-sation as KESC's biggest problem'. And they were mostly referring to the above three besides mishandling of human resources and procurement.

Paper for dislodging of Siemens is believed to have been signed by KESC's Chief Executive Engr. Frank Schers-chmidt, Chief Accountant Muhammad Asghar and Chief Operating Officer Engr. Rolf Bergemier. Under the post-Siemens arrangements heads of all support functions will report to their corporate heads directly.

The decision to show Siemens the exit gate (in respect of seven functions) was taken by KESC's board of directors at a recent meeting (late November). Every member had blamed Siemens for a lack of improvement in Karachi 's power services. Some had, in fact, described it as a 'further deterioration' in the quality of the utility's service.

KESC insiders hope the decision would help improve its performance and result in ending the demoralisation of KESC staff and the ongoing rift between its management and employees.

Following points from the agreement governing KESC-Siemens inter dependence agreement are worth looking at in respect of the consequences of its full or partial termination:

i The amount of compensation determined as aforesaid is a fair and reasonable compensation to be paid to Siemens who will not be required to furnish any further proof for the incurrence of such losses.

i KESC shall not be required to pay compensation to Siem-ens, if as a result of reorganization and after mutual agreement with Siemens it decides to reduce the scope of services.

i As part of the agreement, KESC acknowledges that Siemens has structured the Services Fee in a manner that Siemens can only be fairly compensated, if this agreement remains valid for its full term of six years. Any termination prior to the expiry of such period shall cause financial losses to Siemens.

i No compensation shall be paid by Siemens to KESC, if the Agreement is terminated by mutual agreement or for any reason.

i The termination shall not relieve KESC of any obligation it may have to pay to Siemens any Services Fee, which has accrued due up to the Termination Date.

i After the second anniversary (November 2007), this Agreement may also be terminated at any time by either Party without assigning any reason. However both will have to give due notice (KESC 90 days and Siemens 180 days) for the purpose.

i If the Agreement is terminated by KESC as per the above mentioned condition, it shall compensate Siemens for each year of the remaining term of the Agreement in an amount equal in aggregate to the lower of US $ 16,000,000 (sixteen million dollars) or 65% of the Fixed Fee for the remaining term of the Agreement.

i KESC acknowledges that Siemens has so structured the Services Fee that it can only be fairly compensated, if this agreement remains valid for its full term of six years and any termination prior to the expiry of such period shall cause financial losses to Siemens ... who will not be required to furnish any further proof for the incurrence of such losses.