Powering Growth in Pakistan

Almost two decades ago, Mushtaq Chapra and five friends decided to do something about the state of Pakistan's chronically under-funded education system.


So the businessmen launched the non-profit Citizen Foundation and opened five schools in slums of Karachi, a teaming metropolis of 17 million.


For many of the students, the schools provided a first taste of education. The foundation's model, which uses donations to subsidize education for the poorest children, quickly took off.


But like any charity, money is always tight, says Chapra, whose organization has more than 900 schools and 126,000 students.


To help relieve some of that pressure, long-time IFC client Karachi Electric Supply Company (KESC) is pitching in. The utility, which powers the greater Karachi area, provides 320 foundation with free electricity, helping 58,000 students. It has also donated solar-powered lamps to scores of students and is helping Chapra install solar panels on rural schools.


"Every rupee counts," says Chapra, whose schools save a combined $60,000 thanks to KESC. "So, 500 more children can come to school because of KESC's generosity."


Stories like this are becoming increasingly common in Karachi, where KESC has transformed a once-antiquated power grid. IFC has played an instrumental role in that process, shepherding the company through complex transition from a debt-laden crown corporation into a model private utility. IFC's work with KESC is part of a wider strategy to spur the development of Pakistan's power sector and drive economic growth in the country of 180 million people.


“Power is the lifeblood of any economy,” said Adil Marghub, IFC Manager for Infrastructure and Natural Resources in the Middle East and North Africa. “By supporting innovative companies like KESC, we can extend a vital service and lay the groundwork for economic development that benefits all Pakistanis.”



On the fritz



Few countries are as chronically short of power as Pakistan. Rolling blackouts can last up to 12 hours, forcing factories to close, leaving school children without light and compelling retailers to draw their shutters. According to some estimates, power failures cost Pakistan 4 percent of its gross domestic product annually.


In addition to hampering development, power cuts have also sparked violent riots, leading the government to proclaim in February that the energy crisis had become a national security issue.


To help address those problems, IFC has in recent years ramped up its work in Pakistan's power sector, focusing on renewable energy and the development of local gas fields. Since 2007, we have invested $418 million in seven projects, from hydro plants to wind farms. That, combined, with some pioneering advisory services work, has helped give 51 million people access to electricity.


"By combining both our investment and advisory services, we can make a huge difference in the lives of everyday Pakistanis," said Marghub from IFC.


IFC's recent investments include a $35 million loan to Laraib Energy to finance a run-of-the-river hydro power plant in the northern part of the country. The environmentally friendly facility, which opened in March, collects water from the Jhelum River and releases it downstream.


IFC also invested $38 million to support the construction of a landmark wind-power project in Sindh Province, the first such venture in Pakistan financed with foreign investments.


Our advisory teams are also helping a KESC subsidiary develop a biogas plant in Karachi that will convert cow manure – now being dumped into the sea - into electricity. It will be the biggest biogas plant in the country and one of the largest in world.


The work follows a $125 million investment IFC made in the utility in 2007, shortly after it was privatized by the Pakistani government. At the time, Karachi’s power grid was decaying, leaving the country’s commercial hub prone to long blackouts. IFC’s investment supported the company as it launched a nearly $1 billion overhaul of the system. IFC also worked with KESC during a 2009 ownership change and supported the utility as it made internal reforms.


That helped the firm return to profitability for the first time in 17 years. The turnaround allowed the company to provide a reliable supply of power to the Karachi area, where half of the city is now exempt from rolling blackouts. Alongside that, KESC ramped up its social outreach, providing free electricity to a host of charities and hospitals.


“As a company, we believe it is extremely important to support the communities were operate in,” says Nayyer Hussain, KESC’s chief executive officer. “The changes we have made at KESC have allowed us to provide help to society’s most vulnerable, and IFC helped us do that.”



Industrial revolution



Industrial clients across Karachi have benefitted from KESC’s investments, as well; all factories in the city are now exempted from rolling blackouts.


That is music to the ears Ashar Jameel, the CEO of S. Ahmed Garments, a clothing manufacturer with 150 workers. Power failures used to force him to close the company plant, which often led to layoffs and strikes, slashing profits by over 60 percent.


But with a steady stream of juice, Jameel says productivity is up and workers are happier.


"The power situation has greatly improved," says Jameel, who lauded KESC's customer service.


His company is still facing some challenges, including a shortage of natural gas and the fallout from recent violence in Karachi. But with electricity sorted, Jameel is optimistic about the future.


"My target is to increase production quantity and capacity," he says. "If the security situation and gas situation improve, I see my business taking leaps and bounds."