Investing in Karachi

Karachi, often referred to as a city of dreams and opportunities, is home to around 20 million people. It is a metropolis that welcomes everyone with open arms. According to the Economic Survey of Pakistan, at least 45,000 migrant workers come to Karachi every month from different parts of the country.

As per news reports, Karachi is growing in population at a rate of around five percent per year and has grown 60 times its size since Independence. However, this boom in growth has brought with it tons of challenges that have mainly arisen due to a lack of sufficient investment in infrastructure. As a result, Karachi can be seen as a prime example of how lack of adequate investments and the absence of efficient implementation of urban development protocols for the future may lead to many long-term consequences.

Take the water supply crisis; it stems largely from chronic underinvestment as whatever is being spent on it is typically ad-hoc and aimed at addressing immediate needs rather than long-term goals. The Karachi Water & Sewerage Board (KWSB) could not make sufficient investment for over a decade, even though their 2008 Master Plan estimated investment needs of over $2.5 billion to achieve universal access to safe and affordable drinking water by 2030. Consequently, Karachi’s supply of water remains 665 million gallons per day (MGD) against a demand of at least 1,200 MGD. Ninety-one percent of the city’s water supply remains unsuitable for drinking purposes and people are compelled to pay exorbitant amounts of money for tanker water.

The situation is not very different when it comes to gas supply to Karachi. Here too, lack of proper investment in production and supply operations leads to heavy shortages every year and long-lasting gas suspension, especially during the winter. According to reports, the Unaccounted-for-Gas (UFG) loss of the Sui Southern Gas Company (SSGC), the gas provider to Sindh and Balochistan, has increased from around 13 percent in 2017 to over 18 percent in 2020, which translates to a loss of Rs25 billion per annum and the SSGC is seemingly failed to scale down. Further, as the gas supply remains inadequate, it adversely impacts power production and causes double agony for both domestic and industrial consumers, compelling them to shift to expensive alternatives. As per media reports, the SSGC had recently requested Ogra for tariff increase mainly to meet the loss it is currently facing in the sale of gas and to cope with the rising operational costs, but with little focus on undertaking required investment for future development plans. The approach, once again, is reactive rather than proactive.

The state of affairs in the power segment is promising as compared to gas and water supply to the city – yet has its own challenges. Especially in the monsoon season, different parts of the city experience extended power outages owing to interruptions in KE’s network. We also see a constant tussle between KE and SSGC on the supply of gas which as per KE is not adequate and results in underutilization of KE plants, adversely impacting power supply to Karachi.

As per K-Electric, it has invested $3.5 billion across its power value chain since the privatization; this includes adding around 1,057 MW in generation capacity, enhancing its transmission, and distribution capacity, as well as amplifying its focus on customer service. KE’s operational improvements include a significant reduction in T&D losses since 2009; these have benefited the national exchequer through savings of around Rs550 billion, as per publicly available data. As a result of different initiatives taken by the utility, around 78 percent of the service area is exempt from load shedding and the industrial zones are 100 percent load shedding exempted. KE’s improved performance has also been acknowledged by independent forums, including Nepra.

The power situation in Karachi may not be completely ideal but KE has evidently come a long way from being an inefficient and loss-making utility service provider to becoming a customer-centric company with a futuristic approach. All this was possible only because the organization realized that in order to deliver it had to be customer-centric and invest heavily in its power infrastructure to meet the rising future needs. However, to continue the momentum and further the improvement trajectory, sustained investments are required in Karachi’s power infrastructure. In particular, targeted investments are needed to transform the distribution infrastructure to make it more resilient to cater to extreme events and to ensure reliable and smooth power supply to consumers.

KE’s top management has said that it is committed to its investment plan and awaits regulatory approval of additional investment of Rs140 billion over and above allowed by the regulator in power utility’s tariff for the period FY 2017-2023. KE officials also say that the investment plan includes adding a 900 MW RLNG fired power plant expected to come online during 2021, setting up new interconnection and grids for off-take of additional supply from the national grid which would enable the power utility to meet the future power demand, as well as investments critical for the upgrade of network safety and reliability.

Overall, Karachi is suffering due to utility service providers’ inability to invest for tomorrow and to upgrade themselves against the city’s growing needs. It is a collective responsibility, and of utmost importance now, that all stakeholders including the government and regulators play their role in creating an enabling environment for the investment in the utility sector.

Underinvestment in the future of Karachi is already taking a toll on citizens’ health and living, but if we continue to delay it further, the effects will be irreversibly catastrophic.

The writer has an MBA degree from the Insead Business School in France and has worked at leading Pakistani banks in a variety of cross-functional roles. He has an interest in the power sector policies that affect the economic outlook of the country. He can be contacted at tahir.rizavi@outlook.com.