KARACHI ELECTRIC SUPPLY COMPANY LIMITED

Analyst Briefing
October 04, 2012

DISCLAIMER
This presentation and discussion conducted today may contain forward looking statements including time lines, strategies and plans going forward. Forward looking statements and the associated impact on the Karachi Electric Supply Company Limited (KESC or the Company) are subject to systematic and unsystematic risks and situations that KESC has no control over. Furthermore, as KESC is dependent on several parties/ factors for its operations including, but not limited to, fuel supplies, supply of equipment, operations, regulatory affairs, revenue and cost drivers; the information contained and discussed is subject to circumstances affecting decisions and actions of these parties/ changes in such factors. Although KESC believes that assumptions behind matters discussed were reasonable when made, results may differ due to inherent risks as above. As such the discussion and presentation may not contain all the information required for Company analysis. Each Analyst is therefore advised to conduct independent investigations and analysis and should check the accuracy, reliability and completeness of the information contained within the discussion and presentation, and where necessary, obtain independent advice from appropriate sources. KESC and its employees make no representation or warranty and shall incur no liability under any law, statute, rules or regulations as to the precision (accuracy), reliability or completeness of this discussion and presentation. KESC is not obligated to update or revise statements made, unless, as required under laws applicable to the Company.

BUSINESS HIGHLIGHTS

PERFORMANCE OVERVIEW (1/3)

Significant transformational strides have been made ..

Generation

Installation of the new 560MW Power Station complete- site efficiency of 45.5% Improvement in average annual fleet efficiency from 33.5% to 34.3% over the year current fleet efficiency of 38% 49% increase in generation capacity to date (1010 MW added) 8 x 132 kV Hybrid Grid Stations linked to SCADA System, integration work in progress DHA Grid added total 61 grid stations in the network A comprehensive Project to further rehabilitate/ expand the EHT network developed Annualized T&D Losses at June 30, 2012 stood at a 17 year record low of 29.7% Collections Improved to 95% in areas consuming more than two thirds of energy while Company wide collections increased by 3.1% closing at 88.7% on 30 June, 2012 Load Shed: 50%-exempted; 10%-3 hrs. Industry Exempt throughout the week. Complete exemption in the city on Sundays Distribution Service Provider agreements being explored for 11 high loss areas with average losses in excess of 50% - Agreements signed for Gadap & Orangi I, on going negotiations for few more areas Over 25,000 new connections added during the year amounting to load addition of 200 MW, 112 KM of overhead and underground lines added to the distribution system Third successive performance based appraisal rolled out 5,516 management staff and 5,922 non-management staff appraised under the annual Performance Management System resulting in promotion of 308 management employees and 300 non-management employees
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Transmission

Distribution
`

Human Resources

PERFORMANCE OVERVIEW (2/3)

Financial Major turnaround in net earnings positive net profit earned after a period of 17 years Net profit of PKR 2.6 bn for FY12 as compared to a net loss of PKR 9.4 bn in FY11 A- long term entity rating assigned by PACRA Instrument rating of AA assigned by PACRA PPA with NTDC: Tariff Differential of PKR 45.0 bn paid during FY 12 and PKR 134.1 bn since the signing of PPA directly with NTDC by Ministry of Finance as per payment mechanism under PPA GOP receivables of PKR 70.2 bn as of to date: Tariff Differential of PKR 40.3 bn (to be paid directly to NTDC) KWSB receivables of PKR 18.9 bn to be paid / adjusted against SSGC payables GST of PKR 2.5 bn receivable from FBR Interest on GoP payables (SSGC & NTDC) and GoP receivables not accrued Increase in fuel prices, negative impact on cash flow of PKR 5.1 bn Gas average supply was 169 MMCFD (FY11: 153 MMCFD; FY10: 188 MMCFD) against allocated level of 276 MMCFD for existing fleet and 130 MMCFD for new 560 MW plant, resulting in additional PKR 30.7 bn incurred on FO during last 3 years Pakistans first Utility Sector Retail Bond Issue of PKR 2 bn launched Fixed coupons of 13% (13 months), 14.75% (3 years), and 15.5% (5 years) Fully subscribed within six weeks of subscription opening as against the total stipulated time frame of 3 months
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Entity Rating

Circular Debt

Fuel Mix

KESC AZM TFC

PERFORMANCE OVERVIEW (3/3)

Supply Chain Process driven initiatives resulting in improvement in availability of materials and inventory rationalization

Information Technology

SAP Industry Solution for Utilities (ISU)/Customer Relationship Management (CRM) Successfully rolled out in Defence and North Nazimabad IBCs. SAP roll out in KIMZ, SIMZ, Gulshan-e-Iqbal, Gulistan-e-Johar, Clifton and PSC IBCs completed in July 2012 Approximately 45 % of total customer revenue of KESC transformed onto SAP ISU

Marketing & Comms

AZM change management program rolled out - focus on organizational development through employee engagement, bridge communication gap between employees and management Largest change management initiative in Pakistan, participation of around 8,500 employees Organized the biggest football tournament in the countrys history, Conducted under 15 football talent hunt program engaging over 1,000 children from the city 300 children of non management employees awarded fully paid scholarships for technical trainings at Amantech and Hunar foundation, Partnership with INJAAZ Pakistan Over 1.53 million consumers tapped through mass awareness activities on conservation Transformation from conventional to energy efficient lighting in house and at several institutes, hotels and commercial centers Facilitated and advised on installation of power factor capacitors for industrial consumers

CSR / Enercon

Significant challenges remain ..

Socio-economic: stagnated economy, high inflation and 47% increase in average tariff - negatively impacting customers propensity to pay Poor law and order situation hampered loss reduction and recovery efforts in 11 of KESCs IBCs (no-go areas) with combined average T&D losses of above 50% representing one-third of all energy served Political environment not ideologically aligned to the objectives and needs of a privatized utility company operating in the largest and most volatile city of Pakistan potential further regime change in 2013 Fuel Mix: inconsistent supply of gas resulting in need to increase consumption of furnace oil (FO 3.5x more expensive) Regulator (NEPRA) rejection, without logical reasoning, of two petitions to remove various structural anomalies in tariff formula

FINANCIALS

HIGHEST PROFIT IN KESC HISTORY AND FIRST AFTER A GAP OF 17 YEARS

NET PROFIT / (LOSS)
1.3 times

EBITDA
4.0 times

1.9 times 36% 6%

44%

CONTRIBUTION MARGIN
100%

T&D LOSSES

1.1 times 1.4 times

FINANCIAL RESULTS FY 12 (1/2)

Description REVENUE Revenue from Sale of Energy Tariff Adjustment Total Revenue Rate/Unit Power Purchases Cost of Fuel COST OF FUEL AND POWER PURCHASE Contribution Margin Contribution Margin % Contribution Margin /Unit Billed (Rs.) O&M Expenses Provision for doubtful Debts Other Charges/ Other Income EBITDA (before VSS) VSS EBITDA - (after VSS) Depreciation & Amortization Expenses Financial Charges Taxation (Current / deferred) (Loss) / Profit Actual Actual Inc/(Dec) FY11 FY12 ----------------------------(PKR million)---------------------------% 85,927 44,581 130,508 8.54 (65,296) (50,694) (115,990) 14,517 11.1% 1.44 (12,536) (2,239) 4,851 4,594 1,123 3,471 (8,397) (5,127) 661 (9,393) 92,570 70,029 162,599 9.01 (74,658) (58,597) (133,255) 29,344 18.0% 2.86 (14,662) (2,462) 6,446 18,667 1,291 17,376 (7,105) (7,702) 52 2,620 7.7 57.1 24.6 5.4 14.3 15.6 14.9 102.1 6.9 97.9 17.0 9.9 32.9 306.4 15.0 400.6 (15.4) 50.2 (92.2) 128

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FINANCIAL RESULTS FY 12 (2/2)

ASSETS Actual FY 12 Actual FY 11 EQUITY & SHARE CAPITAL Actual FY 12 Actual FY 11

------------------PKR In Mn------------

------------------PKR In Mn------------

Property, plant and equipment Intangible assets Long-term loans/ deposits Total Non-Current Assets Amount due from GoP due from the Government Stores & spares Gross Provision Trade debts Gross Provision Loans, advances and Trade deposits & prepayments Other receivables Derivative Cash and bank balances Total Current Assets

169,031 19 164 169,214 318 6,517 (412) 6,105 67,064 (17,683) 49,381 2,719 41,520 2,135 1,184 103,362

167,491 23 80 167,594 635 6,472 (332) 6,140 55,887 (16,531) 39,356 3,462 17,860 37 1,269 68,759

Share Capital & Reserves Accumulated losses Surplus on revaluation Long term financing Banks NTDC KANUPP Others Long-term deposits Deferred liabilities Deferred revenue/Specific grant from GOP Deferred tax liability Total Non Current - Liabilities

98,218 (82,855) 15,363 27,095

84,884 (87,333) (2,449) 28,953

35,754 5,745 989 696 43,184 4,754 5,158 16,103 14,590 83,789

36,586 10,545 26 47,157 4,333 5,606 16,493 15,590 89,179

Trade and other payables Accrued mark-up Short-term borrowings Short-term deposits/Provisions/Taxation Current maturity and overdue installment of long-term financing Total Current Liabilities

98,892 3,740 23,420 6,059 14,217 146,328 272,576

75,299 5,009 21,374 8,492 10,496 120,670 236,353

TOTAL ASSETS

272,576

236,353

TOTAL EQUITY & LIABILITIES

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PLANS GOING FORWARD

BQPS I Coal conversion Project : 420 MW in first phase KESC and BEEGL (a Hong Kong based investment company) have entered into a Joint Development Agreement for the Bin Qasim Coal Conversion Project (starting with Phase I - 2 units of 210 MW each), whereby BEEGL will fund the Project Project feasibility Study for the Project, carried out by Knight Piesold & Company completed ITB documents have been sent out to all potential EPC bidders and responses are being received KESC and BEEGL are in the process of finalizing Project structure and are engaged with the Regulator A coal mine has been identified in Indonesia for the project, which has around 100 million tons of remaining reserves, sufficient enough for long term fuel availability over the life of the project Karachi Biogas Pre-feasibility studies completed by Biogas Technology provider-Highmark Renewables, Canada In dialogue with KMC and Commissioner Karachi for provision of land adjacent to LCC and support in feedstock supply chain Potential Project partners include GE, IFC, Acumen, Aman Foundation, Fertilizer companies Thar Coal Joint Development Agreement between KESC and Oracle Coalfields signed Short listing of consultants for Power Plant feasibility carried out and accordingly negotiation is underway Dialogues underway with Sindh Engro Coal Mining Company (SECMC) to arrive at collaboration for setting up power plant based on Thar Coal LNG In contact with all key stakeholders including EVTL, FOTCO, Shell, CoP, Vitol, GE and PGL Adopting a wait and watch strategy till GoP arrives at clarity on weighted average cost mechanism and LNG import strategy
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THANK YOU

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Q&A

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KESC TARIFF MECHANISM PERFORMANCE BASED TARIFF

No provision for ROI/ROA Tariff formula is structured such that company makes profits only through: Loss Reduction beating the NEPRA loss curve Efficiency improvement Multi Year Tariff (MYT) KESC tariff is determined through performance based Multi Year Tariff (MYT) formula MTY to be in place for 7 years from date of signing of Amendment Agreement, April 13th 2009 Cost Variation Adjustment Fuel Surcharge Adjustment (FSA) : Monthly adjustment from increase / decrease in fuel component of own generation and fuel component of Power Purchased Impact of actual T&D losses for the month not considered Quarterly Tariff Adjustment Fuel component (own) and Power Purchase Component (including fuel, O&M and capacity payments) variation of the last month of the current quarter over the same cost for the last month of the previous quarter Unrecovered cost due to non adjustment of T&D losses in the monthly FSA component Variation in capacity payment costs and O&M, costs of IPPs and external sources Other unrecovered costs
* based on NEPRA T&D LOSS CURVE and Efficiency

Base Tariff

Monthly & Quarterly Cost Variation *

Annual CPI adjustment

Final Tariff

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GAS PRODUCTION & CONSUMPTION PATTERN

Natural Gas Production by Province (% Share)
120.0%

Natural Gas Consumption by Sector (% Share)

1,600,000

1,545,994 1,400,025 1,454,194

2.0% 4.9% 22.0%

1,482,848
5.1% 4.7% 19.4% 7.4% 1.5% 18.6%

100.0%

1.4% 4.8% 23.6%

1,400,000

80.0%

1,200,000

60.0%

1,000,000

40.0%

70.1%

71.0%

70.8%

72.5%

800,000

20.0%

600,000

0.0%

400,000

2006 Sindh

2008 Baluchistan Punjab

2010 NWFP

2012 Total (mill CFT)

Gas supply to Pakistans power sector has decreased from 40.1% in 2006 to 27.5% in 2012.

Overall Gas production has increased by 1.7% annually since 2006.

Note: Difference of production and consumption pertains to Transmission losses by gas fields, distribution losses by distribution companies & gas used for compression. Source: Energy Year Book 2011 & Economic Survey 2011-12

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STATEMENT OF MAJOR RECEIVABLES FROM/PAYABLES TO GOP ENTITIES/IPPS

KESC - Statement of Major Receivables & Payables from/to Government Entities A. MAJOR RECEIVABLES FEDERAL GOVERNMENT Tariff Differential Claims GLMP Claim 12,500 MT (Nov 01, 10 Nov 05, 10) Interest on FIP Loan General Sales Tax (GST) Refund Other Federal Departments, bodies Total PROVINCIAL GOVERNMENT KWSB Strategic Customer (covered under the IA) CDGK (City Government Karachi) Other Provincial Departments, Bodies, etc Total PKR in bn. 40.28 0.34 0.24 2.49 1.53 44.88 18.91 5.14 1.32 25.37 KANUPP** SSGC NTDC PSO Other Federal/ Provincial dues Grand Total: NTDC Current Less: Tariff differential Claim Net Current Payable SSGC Total Less: KWSB Net Current Payable B. MAJOR PAYABLES (CURRENT) PKR in bn. 0.04 27.44 30.43 4.03 3.99 65.93 30.43 40.28 (9.85) 27.44 18.91 8.53

Total Provincial and Federal Government Dues ORDINARY CONSUMERS (Residential/ Commercial / Industrial) Dues from Residential/Commercial/Industrial Grand Total

70.25

49.74 119.99

** PKR 1.44 bn classified as long term based on agreement with KANUPP which is to be paid in monthly installments of PKR 50 million each. Initially two weekly installments of PKR 100 mn along with monthly installment of PKR 50 mn paid from Jan to Sep 2012.

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MAJOR PAYABLES SUMMARY FY 2012

(PKR mn) NTDC Purchases Payment 57,604 (46,000) 11,604 TAPAL Purchases Payment Gul Ahmed Purchases Payment SSGC Purchases Payment (PKR mn) 29.992 (24,279) 5,713

10,446 (10,262) 184

9,637 (9,483) 154

Kanupp Purchases Payment

4,082 (3,646) 436

PSO Purchases Payment

34,996 (35,296) (300)

Receivable TDC Claims Receipts TOTAL Purchases Payment KWSB + CDGK + Others Billing Recovery

66,720 (45,000) 21,720 17,797 (13,837) 3,960 25,680

146,757 (128,966) 17,791

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