Karachi Blackouts Worsen With Power Ship Idle in Harbor

Rolling Pakistan Blackouts Arm Gilani Rivals With Lethal Weapon
Khuda-e-Noor, a 52-year-old vendor, lights gasoline lamps to rent to shopkeepers and pushcart vendors suffering from long hours darkness during the blackout in Karachi, Pakistan. Photographer: Asim Hafeez/Bloomberg

The world’s largest power ship lies anchored off Pakistan’s energy-starved port city of Karachi, just one of its 19 chimneys puffing smoke into the sea air.

The Kaya Bey and a sister vessel, whose furnace-oil generators could halve the city’s peak 600-megawatt energy shortfall, has been largely idle since the Supreme Court on March 30 suspended its license amid an anti-corruption probe. Karachi’s 18 million people face another summer without the power they need to cool homes or run businesses.

The Turkish floating power station dropped anchor in November 2010 as part of Prime Minister Yousuf Raza Gilani’s bid to curb a nationwide power deficit that widened to 6,000 megawatts this month, or 30 percent of demand. Energy shortages, which the government says may slice 4 percentage points off economic growth in the year to June, have stirred public discontent against Gilani. Street protests and factory shutdowns are proliferating less than a year before the next general election.

“This is a lethal weapon in the hands of opposition parties, and probably the most decisive factor in the next elections” to be held by February, Rashid Khan, a professor of politics and international relations for four decades, said by phone from the University of Sargodha in central Pakistan.

As Gilani’s government prepares to unveil its final budget in June, it forecasts the $177 billion economy will expand 4.3 percent in the fiscal year that starts from July, too slow to generate the jobs needed in a country with 60 percent of its 180 million people under 25 years of age.

Musharraf Mess

“This is a constant struggle until we get to the point when we have surpluses and can safely say that we are out of this crisis,” Naveed Qamar, Pakistan’s minister for water and power, said May 7 in Islamabad after hosting a dinner for Chinese investors interested in building dams and wind units.

Gilani’s elected government is faced with a crisis that began with missteps by the military dictatorship it replaced in 2008. Unpopular army ruler Pervez Musharraf refrained from raising power tariffs even as record crude oil prices sent the cost of generating electricity surging.

As power demand rose 10 percent during Musharraf’s eight-year rule, he failed to add a single megawatt of generating capacity from 2006 to 2008, according to finance ministry data. Foreign investment in the terrorism-plagued nation has fallen to an eight-year low.

The fixed power prices and unpaid consumer bills led state-owned utilities to stop payments to fuel suppliers and private generating companies, triggering a cycle of debt that has risen to a record 450 billion rupees ($4.94 billion), according to Foundation Securities in Karachi.

Bond Sale

The government announced May 11 that it planned to sell $900 million of domestic bonds to help pay off the debts it owes to private producers after they served a default notice.

Private companies generate about half of Pakistan’s electricity. The country had a capacity of about 14,000 megawatts in 2010, according to data on the National Electric Power Regulatory Authority’s website.

Some of Pakistan’s largest energy companies, including Karachi-based Pakistan State Oil Co. Ltd. and Hub Power Co., are trading 30 percent below fair value because of rising debt, said Nasim Beg, executive vice chairman of Arif Habib Investments Ltd. in Karachi, which oversees 35 billion rupees in stocks and bonds.

Instead of grappling with the crisis, Gilani and President Asif Ali Zardari have been distracted by disputes with the U.S. and the threat they pose to American aid, a war with Taliban militants that has cost Pakistan $68 billion since 2001, a contempt of court indictment and 2010’s worst-ever floods.

‘Total Disaster’

Pakistan needed to add 6,790 megawatts of generating capacity by 2013 to end its energy crisis, according to a plan prepared with the help of Western donors in 2010. Gilani has been able to add less than a quarter of that during his four years in power, the Manila-based Asian Development Bank said in an April report.

“Buying rental power was this government’s first line of defense,” Sakib Sherani, chief executive officer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser to Pakistan’s Finance Ministry, said May 15. “But it proved a total disaster.”

Iran’s state-run Press TV reported May 27 that Pakistani officials will visit the Persian Gulf nation this week seeking to increase electricity imports.

Cricket Star

The Kaya Bey, a converted bulk carrier, never received the fuel it needed to operate at anywhere near full capacity, according to its owner, Istanbul-based Karkey Karadeniz Elektrik Uretim AS. Since the March court order it has only produced electricity for its crew.

Amid anger over the economy and the government’s troubled alliance with the U.S., a poll last year by the Pew Research Center found former cricket captain Imran Khan to be Pakistan’s most popular politician. Sixty-eight percent of those polled had a favorable view of Khan, compared to 63 percent for former premier Nawaz Sharif, and 37 percent who approved of Gilani. Zardari won the backing of 11 percent. Khan attracted more than 100,000 people to a Karachi rally in December.

Power shortages are most acute in Punjab province, which accounts for 60 percent of the national economy.

Sizzling Summer

As temperatures rose to 41 degrees centigrade (105 Fahrenheit) this month, residents of Lahore, Punjab’s capital and the powerbase of Zardari’s chief political opponent, Sharif, faced blackouts lasting 18 hours. Television channels showed protesters setting fire to government offices and blocking national highways.

AFCO Steel Industries, headquartered outside the city, has cut production in half since 2008 in large part due to power outages, Chief Executive Officer Hammad Azhar said May 4.

“You can’t leave hot steel in machines and wait for the power to return,” Azhar said in Lahore, pointing to a newly built melting and re-rolling plant that produces beams for the construction industry.

North Star Textiles Ltd., which turns raw cotton into yarn near Punjab’s Faisalabad city, shelved expansion plans as the government failed to supply enough electricity and gas to run spindles, Akber Sheikh, its chairman, said.

“New investments have totally stopped in the textile industry,” Sheikh said at his office, where a blackout had knocked out the air-conditioning. The sector produces two-thirds of Pakistan’s exports, shipping T-shirts, trousers and fabrics worth $13.8 billion to the U.S. and Europe.

Graft Row

Telenor ASA, the Nordic region’s biggest phone company, has seen earnings squeezed by blackouts. Providing backup power adds 15 percent to operating costs, Lars Christian Iuel, chief executive officer of Telenor Pakistan, said March 1.

The arrival of the Kaya Bey was among short-term measures adopted as Pakistan bid to muster funds to mine about 186 billion tons of largely untapped coal reserves, build power-generating dams and bring in gas from neighboring Iran.

Instead, the ship, and eight other rented power units whose licenses the court suspended, finds itself embroiled in a graft investigation.

The power producers were paid “exorbitant rentals,” while their contracts were not transparent and violated the principles of fair competition, the court said March 30. Judges barred a former power minister from leaving Pakistan.

Payment Demand

The Kaya Bey was never able to operate at full tilt as fuel supplies weren’t delivered, Nuray Atacik, a Karkey director, said by phone May 18. By February, it was running at 21 percent of capacity, according to the court investigation.

“We fulfilled our all contractual obligations,” Atacik said from Istanbul. “It’s a very unfortunate situation. The Supreme Court has painted everybody with the same brush.

Faced with a court demand it return $79 million in advance payments, Karkey is considering options that include leaving Pakistan once the dispute is settled, Atacik said.

Fishermen cleaning their nets in Karachi’s Ibrahim Hyderi neighborhood would miss the Kaya Bey, whose engineers occasionally stop to buy crabs and prawns. They are already missing the power the ship was meant to generate. ‘‘Only one ever works,” said Gul Baloch as he gazed at the line of chimneys.

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