KESC

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	25396
Company name	Karachi Electric Supply Company Limited
Country	Pakistan
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Active

Date SPI disclosed	January 31, 2007
Projected board date	March 8, 2007
Previous Events	Invested: July 24, 2007 Signed: March 22, 2007 Approved: March 15, 2007

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Karachi Electric Supply Corporation Limited (KESC or the company) is an integrated electric utility supplying power to the city of Karachi, Pakistan's largest industrial and commercial centre. The company is engaged in generation, transmission and distribution of electricity in a service area that includes approximately 6,000 square kilometers and a population of between 12-14 million. KESC was privatized in December 2005 when the Government of Pakistan, through a competitive bidding process, transferred 73% of its shares to a consortium of investors led by Al-Jomaih Group of Saudi Arabia and National Industries Holding of Kuwait.

The project is KESC’s capital investment program to be implemented over a three year period from July 2006 to June 2009. The investment program includes:

- expansion of generation capacity by approximately 795 MW;
- investments in the T&D network;
- improvement of commercial systems; and
- refurbishment of existing generation to improve available capacity and reliability.

The main objectives of the project are:

- increase in power supply to meet current deficit;
- reduction of technical and commercial losses;
- improvement in the quality of service;
- reduction in fuel costs by using an efficient combined cycle plant in expansion of generation;
- improvement in internal work processes; and
- promotion of better public relations and client satisfaction.

Anticipated development impact of the project

The project will have a significant development impact as a result of:

- eliminating load shedding and meeting incremental demand for electricity in the Karachi area from existing residential, industrial and commercial users;
- enabling new residential and business customers to be connected to the grid, thus reducing their cost of obtaining power;
- significant reduction in technical and commercial losses of electricity;
- improved quality of service to consumers;
- reducing carbon emissions through the development of more efficient and cleaner natural gas fired generation; and
- demonstrating the benefits of power sector privatization in the country and region.

IFC's expected development contribution

The World Bank has been actively involved in the reform of the electricity sector in Pakistan and has been instrumental in the establishment of the regulatory agency and the unbundling of WAPDA, the major electricity utility in Pakistan. By supporting the largest privatization in Pakistan’s power sector, this project complements the IBRD work on sector reform.

- IFC’s Role:

- Supporting infrastructure development and additional privatizations

IFC financing for KESC’s capital expenditure program is critical for the success of privatization and sector reform. A successful outcome of KESC’s privatization could be a catalyst for other power sector privatizations in the country.

- Long term funding and “anchor’ lender

IFC will provide long term funding which will ensure a proper match of debt service with the long term nature of the underlying assets. In addition, IFC’s presence in the transaction as an “anchor” lender will facilitate the company in raising additional parallel loans from other financial institutions.

- Environmental and Social Expertise

KESC has benefited from IFC expertise in the environmental and social areas. IFC has added value in terms of the environmental review of the generation expansion facility and has worked with KESC to strengthen its environmental management practices.

Environmental and social issues - Category B

The project involves:

- electricity generation capacity expansion at KESC's existing thermal power stations (Korangi Thermal Power Station and Bin Qasim Thermal Power Station) by adding gas-fired combined cycle power generation units; and
- rehabilitation of KESC's existing transmission and distribution (T&D) assets.

The generation capacity expansion will be conducted within the existing power stations, requiring no additional land acquisition. The gas-fired combined cycle power generation units are cleaner and more energy efficient than KESC's existing thermal power generation plants, and are expected to improve the corporate environmental performance. Social and environmental assessment was conducted for the generation expansion components in accordance with the Pakistan Environmental Impact Assessment Regulations of 2000 and the IFC's Performance Standards on Social and Environmental Sustainability. The rehabilitation of KESC's T&D assets is expected to improve the energy utilization efficiency of the company's grid system and its occupational and public health and safety performance. As part of financing by IFC, KESC has agreed to implement an Action Plan, which includes strengthening KESC's Social and Environmental Management System, implementing the recommended actions by the Environmental Audit conducted for KESC's generation assets, and conducting additional Environmental, Health and Safety Audit for the T&D assets. Considering that the project is expected to improve the overall social, environmental, health and safety performance of KESC, and that the potential adverse impacts can be readily addressed through mitigation measures, the project has been categorized as B by IFC. For further information, please see the Environmental and Social Review Summary (ESRS).

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