VZCZCXRO0990
RR RUEHLH RUEHPW
DE RUEHKP #0021/01 0210112
ZNR UUUUU ZZH
R 210112Z JAN 09
FM AMCONSUL KARACHI
TO RUEHC/SECSTATE WASHDC 0879
INFO RUEHIL/AMEMBASSY ISLAMABAD 0343
RUEHLH/AMCONSUL LAHORE 2632
RUEHPW/AMCONSUL PESHAWAR 4515
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAIIA/CIA WASHDC
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 02 KARACHI 000021 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ENRG EFIN PK
SUBJECT:  SINDH - ABRAJJ DELAYS INVESTMENT IN KESC UPGRADES 
 
REF:  A:  08 KARACHI 587 
      B:  08 KARACHI 533 
      C:  08 KARACHI 508 
      D:  08 KARACHI 458 
      E:  08 KARACHI 420 
      F:  08 KARACHI 199 
      G:  08 KARACHI 173 
 
¶1. Summary: Dubai-based Abrajj group, the new owner of Karachi 
Electric Supply Company (KESC) (ref E), has yet to carry through on 
its promise to invest up to USD 350 million to upgrade the power 
company's crumbling distribution and generation systems, leading 
many to speculate about the seriousness of Abrajj's commitment to 
KESC.  Outages can last up to ten hours daily and businesses 
continue to report substantial financial losses as a result. 
However, a company spokesperson assured Post that the company plans 
to carry through on its investment promise.  The same KESC official 
denied recent media reports that Abrajj Group may walk away from its 
investment in the power company.  End Summary. 
 
Abrajj Yet to Invest in KESC Upgrades 
------------------------------------- 
 
¶2.  (SBU) Aisha Erabi official spokesperson for the Karachi Electric 
Supply Company (KESC), confirmed to Post on January 14 that KESC's 
owner, Dubai-based Abrajj Group, has yet to invest in the aging 
electric utility's infrastructure or in expanding power generation 
capacity, both desperately needed to keep up with either current or 
projected demand (refs A, F, G).  Erabi said that Abrajj did plan to 
invest heavily, around USD 350 million, in the company's generation 
and transmission systems, but did not give a timeframe for 
implementation.  (Comment:  Other sources have indicated that the 
investment could be as much as USD 500 million.  End comment.)  She 
denied a media report that Abrajj Group is considering abandoning 
its investment in KESC. 
 
¶3.  (SBU) The GOP sold KESC in 2004 to Saudi-based al-Jumaiyah in 
order to reduce the need for government subsidies and to improve 
management of the company's generation and distribution network. 
Al-Jumaiyah sold its interest in July 2008 to Abrajj for an 
undisclosed amount, which promised substantial investment to upgrade 
the distribution and generation of the utility.  Nazir Soomro, 
Director of the Alternative Energy Development Board at the Ministry 
of Water and Power, confirmed that Abrajj has, to date, not invested 
substantial funds in upgrading the company as promised.  Unlike 
previous owner al-Jumaiyah, the GOP's contract with Abrajj Group 
does not have a clause preventing it from abandoning the project if 
it so desired, according to Soomro. 
 
KESC Accused of Mismanagement, Political Motives 
--------------------------------------------- --- 
 
¶4.  (SBU) Soomro pointed out that KESC's financial situation is 
dire.  The company has defaulted on payments to its oil and gas 
suppliers and owes the Water and Power Development Authority (WAPDA) 
around 40 billion rupees (approximately USD 503 million).  He 
accused KESC of spending revenues on excessive management salaries 
at the expense of investing in upgrading the company's decrepit 
distribution and generation systems (refs A, C, E, G).  However, 
KESC Director of Business Operations Asif Siddiqui told EconOff that 
his company's cash flow has been hindered by around 35 billion 
rupees (around USD 440 billion) in past due bills. 
 
¶5.  (SBU) Soomro opined that KESC was plagued by mismanagement and 
political influence.  He said that President Zardari is rumored to 
have a 35%stake in Abrajj, which has hindered GOP action to bring 
KESC in line.  Soomro also stated that the Muttahida Qaumi Movement 
(MQM) political party had infiltrated its members into key positions 
at the utility in order to gain control of valuable KESC real estate 
holdings. 
 
Citizens, Businesses Frustrated 
------------------------------- 
 
¶6.  (SBU) Karachi's citizens have become increasingly frustrated by 
what they perceive as the GOP's inability to resolve the crisis. 
Businesses have claimed huge losses as a result of the undependable 
electricity supply (ref A), which may go out for as much as eight 
hours a day in some areas of the city.  However, the situation has 
improved in other areas, which are now experiencing outages of only 
two to three hours daily.  Mehmood Hamid, Karachi President of the 
All Pakistan Organization of Small Traders and Cottage Industry, 
estimated to the media that small businesses had lost over 40 
 
KARACHI 00000021  002 OF 002 
 
 
billion rupees (around USD 513 million) due to the blackouts. 
Around 2,500 small industrial units have closed, costing 20,000 
jobs, he said. 
 
¶7.  (SBU) Comment:  Karachi's electrical outages have improved, but 
the crisis continues to have a substantial impact on businesses and 
residents alike.  Abrajj's delay in funding needed improvements to 
the KESC system threatens to damper Karachi's economic growth and 
feed popular anger, perhaps even civil unrest.  The company already 
faces a substantial shortfall in meeting demand, as much as 600MW, 
and announced projects will not keep pace with future projected 
demand (refs C, G).  End comment. 
 
FAKAN