It’s a chilly January morning and the reception area at the office of the Federal Ombudsman in Saddar town, Karachi, is full of people waiting for a hearing.

Almost all of them have the same complaint: they have received an inflated electricity bill and cannot understand why.

Having failed to obtain any relief from the offices of the power utility, they filed a complaint with the Ombudsman, were issued a date for a hearing where a representative from the utility will also be present, and the matter decided by an officer of the watchdog’s office.

None of them is wealthy or connected. Irfanullah, for instance, is a young student from Chitral. He lives in a small single room flat, around 100 square feet, along with a varying number of roommates, sometimes three, other times five. They are all university students and work part time in restaurants to earn their keep.

There is one light bulb and one fan in their room and historically their bill rarely went over one thousand rupees.

Then suddenly, in the month of August, they received a bill of Rs25,000. At the KE office, the only answer they were given was that they could pay the amount off in instalments.

Not satisfied with this, they approached the office of the Ombudsman with a complaint and were given a date for a hearing about 20 days ahead. This was their big day and they were waiting for their moment, Irfanullah and one of his friends. “This is a lot of money for us, we cannot even imagine how we got billed this amount”.

Others around them have almost identical stories.

Around the month of July or August, an electricity bill arrived like a jolt.

Nasir Khan, sitting in the same waiting room, had come from the low-income locality of Keamari.

His bills have been around Rs1,200 since May 2016, and his record shows he has paid them regularly.

Then suddenly, in August a bill arrives for Rs 14,000. Puzzled, he too goes to the KE office, and is told to pay in instalments and call it a day.

He agreed to a Rs2,000 instalment to avoid disconnection, then began a series of visits to the KE office to find out the cause behind the excess billing, and how he could get it reversed.

“At one point they told me to pay half the amount and they’ll forgive the rest” he says.

The curious case of a spike in inflated bills just before a sell off...

Over the next three months he visited the office regularly to follow up.

He arranged for a Site Inspection Team (SIT) to visit his premises. He asked for proof of theft.

And through it all, he kept making an instalment payment, totalling just over Rs6,300 over three months, to prevent disconnection.

During these same months, his bill for consumption of electricity was less than Rs500. Failing to make much headway, he approached the Ombudsman as well.

A copy of an inflated bill. The complainant’s plea fell on deaf ears at the KE offices

Sitting nearby is Abdul Matlib, a tall bearded man who is there with a companion.

He runs a tandoor, and has a metered connection on which he runs only one bulb after dark.

His consumption is shown as six units only, which automatically raised suspicions at the KE office.

One day in July, he received a bill for Rs 77,000.

Naturally puzzled by this he went to the KE office on Mai Kolachi, and was again offered an instalment plan. “Why should I pay in instalments?” he asks. “I haven’t stolen anything.”

So KE sent an inspector to his site.

“We were astonished when we saw the inspection report” he tells me. “The fellow had included three deep freezers in the shop next to ours as part of our load.”

So began a rolling series of negotiations, requiring three trips per month on average according to Matlib, whose connection is in his own name, and lives in Generalabad.

He refused all offers to reduce the amount, or to pay in instalments, insisting that the billing was a mistake and must be reversed in full.

Making no headway, he too headed to the office of the Ombudsman.

Stories such as these have now become so numerous that they have prompted public statements from officers in the Ombudsman’s office as well as from the power sector regulator’s consumer affairs division.

Those who take the trouble to go to the Ombudsman’s office have a good likelihood of getting relief.

But in all cases that I spoke to, those who approached K-Electric were promptly given the option to pay in nominal instalments and nothing more.

Even those instalments would effectively double or even triple their bills.

There is a pattern underlying many of these complaints. When the bills are examined closely, it appears that the additional charges almost always appear as “arrears”.

This is a category in the bill that appears below the part that reflects the actual power consumed.

So in the case of Nasir Khan from Keamari, given above, his units consumed are shown as 53, amount due on power consumption is Rs 306, and after adding taxes, duties, surcharges, and TV license fee, the “net amount of current bill” is shown as Rs435.

The jolt comes right below that, where it says “arrears”, and where the majority of the amounts that land up in dispute are usually tacked on.

"Nasir Khan’s bills have been around Rs1,200 since May 2016, and his record shows he has paid them regularly. Then suddenly, in August a bill arrives for Rs 14,000.

The cases given above are the more benign ones.

In one case, whose owner did not wish to speak for attribution, a family in North Nazimabad whose normal bill oscillated between three to four thousand rupees save for one spike in August when it was 11,000 rupees, was suddenly served a bill of Rs596,000 in October.

They have a near perfect track record of paying their bill in the first week of the month every month, but from here onwards, they have no idea what to do.

K-Electric says that it is dealing with a culture of theft around the city that will take a long time to reverse

One of their neighbours, Mubashir Khan, has worked in the office of the District Municipal Council all his life.

He lives in a small house, less than 150 square yards. His family of five lives in the upstairs portion, and his sister and parents live below.

Both portions have a separate metre, both in his name. He has raised three children and put them all through college.

His normal bill fluctuates between 2,300 and 5,600 rupees, depending on the month, but then suddenly in the month of July they received one bill for Rs75,000.

Then a few days later, the bill for the second metre in the downstairs portion arrived for Rs82,000, of which Rs77,000 was tacked on as arrears and the rest was shown as consumption.

He took up the matter with the KE offices, and they sent a SIT team to his house.

“The team members came inside, and as they were counting up the appliances and light bulbs, one of them took a picture of a wire that was emerging from behind a wall hanging,” he tells me over the phone.

Later, that picture was presented by KE as “proof” of a kunda (hook connection), and the billing explained accordingly.

Khan took up the issue with the Ombudsman as well, and two separate hearings were held, one for each metre.

In both cases, the order was to reverse the billing.

For its part, K-Electric says that it is dealing with a culture of theft around the city that will take a long time to reverse.

One of the officers present during the hearings that I attended at the Ombudsman’s office, who did not wish to speak for attribution, says that their teams are denied access to many areas that are designated “high-loss”, and if they should spot a kunda connection and try to take a picture of it, they often find themselves coming under attack.

In the six hearings that I sat through, a few pictures of kunda connections were presented, but in all the cases, the complainant successfully argued that the pictured connection is not going into his premises but elsewhere.

So the question naturally arises: is K-Electric management serving inflated bills to growing numbers of people during this period in an attempt to fatten up the balance sheet of the company and make it more eligible for the sale?

In other cases, KE staff uses patterns of usage to determine irregularities.

If somebody’s consumption shows large irregular spikes, they surmise that something must be wrong, and decide to bill the person under “arrears”. Once the party complains, they offer to reduce the amount or simply make it into instalments.

Data from the Ombudsman’s office shows that the number of complaints received by them through the year 2016 almost doubled in the second half of the year. From Jan to June, they received 8,282 complaints, while from July to Dec the number rose to 13,426.

More than 80 per cent of these are related to K-Electric, according to the member in charge at the Ombudsman’s office.

What is so special about the month of July 2016 that the number of billing complaints rises so sharply after it?

K-Electric's rising stock.

Long before 2016, K-Electric’s sponsor — Dubai-based Abraaj Capital — was in some amount of difficulty with its acquisition in Karachi.

Their original investment plan envisaged holding the company for five years. For an exit, they had two possible options. One was to “unbundle” the company, separate out generation and distribution, and sell them off as separate assets.

The second was to find a strategic buyer to sell the unified entity to.

The unbundling plan ran into difficulty early on since it required a new license for each entity, something for which regulatory approval was proving too difficult to obtain.

As of last year, word kept leaking out that the sponsors were searching for a buyer.

By June 2016, word leaked out that two Chinese teams were conducting the diligence on KE’s numbers.

By July, as the reports persisted, some began asking why the sponsors have not informed the stock exchange of their plans to divest their holdings if diligence is indeed being carried out by a number of parties.

That notification came on August 28th. “We would like to notify that Abraaj is evaluating the possibility of divesting (directly or indirectly) its shareholding in K-Electric which will be subject to a prescribed sale process, due diligence and execution of binding documentation (including receipt of applicable regulatory approvals and satisfaction of other conditions precedent). We will keep you informed of material developments.”

Almost immediately, KE’s share price rose and a noisy conversation began on the merits and demerits of the proposed divestment.

Almost on cue, KE released an investment plan, claiming that they are prepared to pump around $2.2 billion into the enterprise over the next decade to improve its generation, transmission and distribution systems.

Later it was disclosed that one party has been approved for the sale, Shanghai Electric from China, and the last of a few regulatory approvals were now awaited.

So the question naturally arises: is K-Electric management serving inflated bills to growing numbers of people during this period in an attempt to fatten up the balance sheet of the company and make it more eligible for the sale?

One way to search for an answer as to why there is a spike in billing complaints precisely at a time when the company is being prepared for a strategic sale is to examine the company’s quarterly reports filed with the stock exchange. But KE has not filed any financial report since its nine monthly report from last year, the coverage of which ended in March 2016. The Annual Report was due in the summer, and the first quarterly report covering July to September should also have been available by now. The half-yearly report, covering July to December, should also be close to release by now. Instead whatever financial data the company has released thus far, ends in March 2016.

Inflated bills have inordinately affected those who are not wealthy or well-connected

The financial data would tell us if there is a corresponding spike in KE revenues, and more importantly, its cash flows in the months following July. For the past three years since 2013, in the half year period from July to December, the company’s ratio of revenues to units of electricity available for sale (not including line losses), has been Rs12.13, 12.25 and 11.44 respectively.

This number would be at the heart of determining the present price of the company.

The outlook on this ratio over the next 25 years or so would also factor significantly when calculating future revenues.

The framework for lifting revenues in the future is complicated, involving numerous calculations from what is called the “clawback mechanism” to the composition of “pass through” items in the tariff.

But raw revenue for each unit of power available for sale tells you where exactly the company is standing right now.

To lift this number, you could raise revenue, or shrink losses, ensuring that more power is able to reach high recovery areas.

KE has already ensured that most of its high-recovery areas have zero load shedding.

The remaining power has to go to medium or high-loss areas, and increasing recoveries in these zones has been a persistent challenge.

KE entered profitability for the first time in 2012 after decades of running in loss. Last year it boasted of a profit of Rs28 billion, a remarkable achievement considering in 2010 it ran a loss of Rs14.6 billion.

But in order get here, the company has squeezed out every ounce of value that there was within its operation. It has prepaid all its expensive debt and replaced it with cheaper Sukkuk certificates issued in 2014.

It has reduced its average cost of borrowing by 2 percent in the same period. It has improved recoveries by prioritising those customers who are in the highest cost slab — elite residential and industrial consumers who enjoy uninterrupted electricity.

It has tried pursuing power theft in high-loss areas, and even risked a messy confrontation with a few public sector clients such as the Karachi Water and Sewerage Board (KWSB).

The challenge for the new sponsors will be to find a way to continue on this path of rising profitability given that much of the value in the company has already been unlocked.

For the long run, this means strategic investments that change the landscape of power generation and distribution.

But for the short run surge of revenue in the run up to the sale, one answer could come from an increasing reliance on discretionary powers.

If you look at your power bill, you’ll notice it is made up in two sections.

From the top down, the first half consists of items like fixed charges, variable charges, metre rent, and a miscellaneous clutch of duties, taxes, TV license fee and bank charges. These total up to the line that reads net amount of current bill.

This section is largely fixed as per rules. Your metre determines how much you can be charged for power consumed, and most other items are calculated as a percentage of this. There is little to no room for discretionary charges to be applied here.

Below this are the arrears, instalment amount, and late payment surcharge rows. This section provides vast scope for discretionary charges. If the team at your IBC determines that you have been using a kunda, or your metre has malfunctioned, they will issue a “detection bill”, and arbitrarily add an amount under arrears, and decide what instalment you must pay in the current bill.

How do they decide if there is metre malfunction or theft?

In some cases, it is fairly straightforward. An inspection team might see a line going into your house. They could see some air conditioners in your house while your bills are far too low to account for them. There could be irregular usage patterns from one month to the next. If you argue that your premises were unoccupied during that time, they can ask you to produce your gas bill, which ought to also be zero for the same time (in reality this is rarely the case; most gas bills are not produced after a metre reading).

During the hearings at the Ombudsman’s office, there were many cases in which the charges were reversed due to an inability on the part of KE representatives to explain why they had been applied in the first place.

They alleged kunda use, but when the client denied this, the conversation ended. In two cases, the complainant was a no show, and one of those had only paid two bills in the past 39 months.

In those cases the officer conducting the hearing did not accommodate the complaint.

But for those who had been paying their bill regularly, only to find a large amount suddenly appear as arrears, the officer usually ruled in favour of the complainant.

The argument can drag on for months. Abdul Matlib, mentioned above, claimed to have visited KE offices up to three times a month for three months following up on his complaint.

For complaints involving one lac rupees or more, there is an even longer process, since the Ombudsman first sends the complaint back to KE for deliberation by an internal committee, and gives them an additional 31 days to revert with a response.

In meantime, instalments on the amount billed still have to be paid. Automatically, the amount being recovered from many of these complainants could be doubled or tripled using this discretionary authority, and the power to tack on arrears onto a bill rest with the bill collecting machinery at the IBC which is given targets for units to be billed for their area that they have to meet.

Has KE management raised the targets for recoveries from their respective IBC, particularly in high loss areas of the city, in the run up to the sale?

Giving lower staff in the billing machinery the discretionary authority to tack on arrears to a consumer’s bill, then placing targets on them is a recipe for trouble.

The staff is likely to calculate that most of the consumers will not put up a fight and simply accept the offer to pay a portion of the arrears billed to them in return for peace of mind.

Closing this discretionary gap is crucial to ensuring that future improvements in the running of KE, or any of the other power distribution companies in the country for that matter, are not brought about at the cost of those consumers who are paying their bills with dignity.

Meanwhile, for Irfanullah, the student from Chitral, and his roommates, these big numbers don’t matter.

The only number they are interested in is the one reflected on their bill next to the heading “arrears”. They don’t know where that number came from.

The amount shown there is equal to more than four years worth of their consumption.

Them, and the untold others like them, will now fight the thousand little battles that the ordinary folks in this city fight on a daily basis, and the small modicum of relief they might get from the Ombudsman is really all the justice they are asking for.

The writer is a member of staff. He tweets @KhurramHusain

Clarification: With reference to the story by Khurram Hussain (EOS, Jan 22). All billing is done as per regulatory processes and guidelines. Bills are generated as per consumer’s meter reading. In cases where theft, meter tampering or illegal abstraction is detected, the billing is done based on prescribed regulatory guidelines.

The process of such billing is fully covered in the Nepra guidelines and is determined accordingly. The utility has also ensured that all avenues are available to customers in case of any dispute. K-Electric is part of the sessions held at the office of the Federal Ombudsman.

The documentary evidence collected at the time of assessment is included in the proceedings. In the past six months, 79pc of rulings by the Federal Ombudsman have been in favour of K-Electric.

Moreover, in 2016, K-Electric partnered with the office of the Federal Ombudsman to establish a one-of-its-kind electronic communication network between FO Secretariat and K-Electric to ensure quick disposal of consumer complaints.

In line with the utility’s mission statement to put consumers at the heart of everything it does, K-Electric offers a wide range of avenues to address consumer requests ranging from 29 Integrated Business Centres spread across its network, one of the largest call centres equipped with leading consumer experience platform ‘Genesys’, centralised handling via KE website, facilitation at consumers’ doorstep with vans and round-the-clock engagement via social media forums, including public holidays.

Moreover, KE is also one of the first utility companies to implement SAP IS-U, a state of the art customer relations and billing management system.

The overall drive against power theft and illegal abstraction remains a key priority for the company and has played a critical role in bringing transmission and distribution losses down to as low as 22pc from 36pc in 2009.

This has resulted in exemption of 61pc of Karachi from loadshedding and provision of uninterrupted power supply to industrial zones — Spokesman, K-Electric

Published in Dawn, Sunday Magazine, January 22nd, 2017