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Dubai’s Abraaj Capital, the controlling shareholder of K-Electric, the power distributor in Pakistan’s largest city of Karachi, is planning to sell its stake and try its luck with power distribution businesses in Pakistan’s other cities. Photo: Bloomberg
Dubai’s Abraaj Capital, the controlling shareholder of K-Electric, the power distributor in Pakistan’s largest city of Karachi, is planning to sell its stake and try its luck with power distribution businesses in Pakistan’s other cities. Photo: Bloomberg

How do you make a Taliban sympathizer pay a bill? Ask K-Electric

K-Electric became profitable in 2012 as bill collections jumped to 70% from 40% in 2005. Thanks to local bill collectors

Karachi: Abdul Khaliq Mirza has the job you could die for.

He leads a team of bill collectors for K-Electric Ltd, the power distributor in Pakistan’s largest city of Karachi. A typical day on the job can include threats of violence and then the real thing, including being shot at and dealing with angry mobs throwing home-made grenades.

It gets really rough in Orangi, an area once a stronghold of the Taliban, he said.

“We risk our lives every time we venture into the streets," Mirza said in an interview in Karachi. “I’m from Orangi and am known in the area, so wherever I’m faced with a challenge, my connections always help."

The risk comes with a payoff. Cash recovered is split with the company, with the bill collectors getting 20%, K- Electric said in a statement. The more they recover, the bigger the pot.

More broadly, Mirza, 48, and others like him have helped K- Electric write a turnaround story. The shares have climbed 15% over the past year, compared with a 12% gain in the benchmark KSE100 Index.

‘Success story’

The company became profitable in 2012 as bill collections jumped from 40% when it was first privatized in 2005 to 70% currently. Now, K-Electric’s controlling shareholder, Dubai’s Abraaj Capital, is planning to sell its stake and try its luck with power distribution businesses in Pakistan’s other cities.

“We want to complete the success story," said Tabish Gauhar, K-Electric’s chairman and country representative for Abraaj, in an interview earlier this month. “We are answerable to our foreign investors that we can take money out of Pakistan with a decent rate of return."

Abraaj plans to reduce its 66% stake, held with two other investors, to 26% through a series of share sales and then sell the remainder with management control by late 2016, he said. It bought its stake for $360 million in 2008. It’s now worth about $1.3 billion.

The company is in talks with five potential investors in East Asia and the Middle East, Gauhar said, without naming the parties.

More cities

“A new management will stand to benefit in the long run given the city’s rising demand and the company being the only provider of electricity," said Abdul Azeem, head of research at Spectrum Securities Pvt. Ltd in Karachi.

In the meantime, K-Electric will bid in the sale of state-owned utilities in other Pakistani cities. The government plans to sell the first of nine distribution companies by September, Privatization Commission chairman Mohammad Zubair said last month.

The utility may also buy a stake including management control of a power distribution company in Nigeria, Gauhar said, without giving specifics.

K-Electric, which was established in 1913 and nationalized in 1952, distributes electricity in a city of more than 20 million people. In 2005, 71% of the company was sold to an overseas consortium by the government. Abraaj bought some of that stake in 2008.

‘Tear gas’

Electricity outages are common in Pakistan, offering opportunity for power companies that can fill the gap. Though they’ll need the services of men like Mirza, who dresses in the traditional shalwar kameez, locally made Sindhi cap, and displays the quiet authority of a schoolteacher.

The government kicked off an anti-crime drive in Karachi in September 2013, which prime minister Nawaz Sharif said last week has reduced the rate of kidnappings and killings. Still, on 20 March, several people were hurt in an explosion outside a Karachi mosque, while two soldiers were killed in a bomb attack in the city the next day, local media reported.

“If there is a protest we try to negotiate with the protesters and if they get aggressive we use baton, water cannon and even tear gas," Atiq Shaikh, a spokesman for the Karachi police, said in a phone interview in response to questions about bill collectors.

“We have to be careful since at times these mobs may be armed," he said, adding that the police have helped negotiations between people in conflict with K-Electric over power supplies.

In the interview in Karachi, Mirza adjusts his spectacles as he puffs on an ever-present cigarette and says mobs have shown up at his house firing guns and throwing home-made grenades.

“We get threats from everybody," he said, recalling his face-off with a Taliban supporter in November. His team had received a tip off in the morning that a marble crushing factory in Orangi was running on stolen power.

Cooling down

Mirza and his team of about 25 men reached the spot and found unauthorized cables running from a K-Electric transformer across the street to a walled compound, where the crushing machines were located.

They shut off power to the area so they could cut the illegal cables, which they handed over to the local police and filed a criminal complaint against the factory’s owner.

Later that day, the owner showed up at Mirza’s office and threatened him, saying he belonged to the Taliban.

As Mirza explains it, they talked a long time until things cooled down, with the owner finally agreeing to a payment plan so that his factory can run. The complaint was settled out of court.

Mirza says he told the factory owner he’d need to negotiate the connection of power with K-Electric. “They’re authorized to give connections. We only do bill recovery." Bloomberg

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