Saudi investor says KE has given zero returns even after 15 years of investment

Saudi investor Sheikh Abdulaziz Hamad Aljomaih, who is a stakeholder in the power utility company Karachi Electric, has said that even after 15 years since its privatisation, investors are yet to see any returns from the K-Electric.

“When we invested in Karachi’s power utility (KESC) at the time of its privatisation, the company was making huge losses and for years no investment was made in the infrastructure. It continued to make huge losses during our initial years," said Managing Director of International Investments, Aljomaih Holdings, Sheikh Abdulaziz Hamad Aljomaih in an interview.

The Saudi businessman said that initially the investors had to face a "tough time" but added that they had faith and the utility company finally became "profitable".

Aljomaih said that the company re-invested "every penny" to make K-Electric sustainable.

"No dividends paid out to investors in 15 years. As a result our gain from this investment in the country has effectively been zero,” said the Saudi businessman.

Aljomaih gave the interview during his two-day trip to Pakistan where he met Prime Minister Imran Khan and other officials to raise issues and challenges being faced by KE. 

Despite facing losses, the Saudi businessman who has significant interests in several industrial and financial sectors internationally, does not regret investing in Pakistan.

“Aljomaih believed that Pakistan was a worthy investment destination and the capital injection came at a time when the Pakistan government was actively looking for private investment in the power sector, oil and natural gas," said the businessman.

He said that Pakistan and Saudi Arabia enjoy brotherly relations and that Riyadh takes pride in standing side by side with Islamabad.

When the Government of Pakistan (GoP) initiated its reforms agenda in the power sector, one of the most pivotal parts of it was the privatisation of utility companies. 

KESC – as K-Electric was known at the time – was the sole electricity provider to the city and had been losing money for almost a decade.

 It was a consortium of companies led by KES Power that agreed to take a 73% stake in the Company in 2005. 

Aljomaih Holding Company was the largest investor in this consortium, and therefore became one of the main catalysts for the company’s turnaround.

The Saudi investor said that the investors not only put in equity but also brought much-needed management and technical expertise to lay the groundwork for a transformation of the company and to call it a world-class utility today. 

"It was a critical investment at the time and a crucial factor in the eventual turnaround of KE or KESC as it was called back then," said Aljomaih.

He acknowledged that Aljomaih did not think that it would be an "easy investment", adding that the company "knew that based on the historical relations" between Islamabad and Riyadh they wanted to get involved. 

"I personally believe that value creation arises from “building companies” rather than by simply restructuring them for a quick re-sale in 3-5 years. This was our vision when we entered into the agreement to take over,” said Aljomaih.

The Saudi businessman,  who was KE's first chairman after it was privatized, shared that over the years the power utility company has pursued  multiple core initiatives  such as establishing capable senior management and operational teams. 

"The management targeted capital expenditures to improve fiscal discipline and focused on operational improvements. They also focused on reducing transmission and distribution (T&D) losses and added efficient generation to improve overall fleet efficiency," said the businessman.  

"I believe that through good work of the management we have achieved a lot of what we planned to, and we are proud of it,” said Aljomaih.

The Saudi investor said that it was normal for companies to face challenges, but noted that in KE's case the biggest challenge is the issue of pending receivables from the government and related entities. 

"The current management turned the company into a profitable entity, but after only eight years of profitability, it reported a loss in 2020, because of the impact of these pending payments, which have now grown to around PKR 275 billion," explained  Aljomaih.

The former KE chairman said that they have already put in over $3.5 billion into the power infrastructure of Karachi despite the delays. He also shared that they will be going ahead with the $650 million 900 MW BQPS-III power plant as well as transmission upgrades to evacuate additional power supply from the national grid.

But the investor warned that it was critical that "investment roadblocks including payment delays and pending approvals are addressed". 

"Any delays in the issue of regulatory approvals or in the resolution of pending receivables will only cause a delay in new projects and new investments. So we are hoping these issues will be resolved soon,” he said.

Speaking about his meetings with PM Imran Khan and others, the Saudi businessman said that they have assured that all necessary steps will be taken to resolve these long-standing issues. 

“We await action from the Pakistan government with regards to issues that send a positive message to investors looking towards Pakistan,” he said.

Commenting on the impact of Abraaj Group’s dissolution of the company, he said: “K-Electric is an independent, listed company. KES Power Limited is the majority shareholder in KE and it has various investors including the Al-Jomaih Group of KSA, NIG of Kuwait and IGCF, a private equity fund formerly managed by Abraaj comprising several Middle Eastern institutional investors. Abraaj is not a shareholder in KE or KESP – after it has gone into liquidation - and is no longer involved in the affairs of either company. As such KE’s operational and management continuity is unaffected by the liquidation of Abraaj.”

“The management is determined to continue forging ahead in the interest of Karachi, and its customers. Despite the mounting financial strain, KE continues to focus on the future and the city’s energy needs.

In addition to KE’s robust investment plan, a strategic investor with utility expertise would leverage its strengths to bring further advancements, benefiting consumers and the economy at large. 

The Saudi investor said that KE has been transformed into a utility that has attracted investors like Shanghai Electric, a major player in the global energy sector that has scaled power generation in the city of Shanghai from 3,000MW to 30,000MW. 

"This would have not been possible 10 or 15 years ago. However, this is possible today, now that KE has become a top-of-the-line vertically integrated utility company of Pakistan," said the businessman.   The transaction that has been lingering since 2016, when completed, will open the doors to investment of billions of dollars into Karachi’s energy infrastructure.

“In the last 10 years prior to when we took over the company, it had reported losses of around Rs100 billion. The company needed money going in, not more coming out," said the Saudi investor.

He repeated that for 15 years K-Electric’s investors have continuously reinvested their earnings to energise Karachi because they truly believe that they are invested in the port city, working for its future as a mega-city and as Pakistan’s economic engine.

"K-Electric’s turnaround from a loss-making entity into a profitable one is a story of sustained optimism and unwavering determination that set a benchmark for the state-run power entities in the country and if the issues are resolved, it has the potential to start the wave of privatization of other DISCOs that will change Pakistan’s energy landscape for the better," he concluded.