Way to the Future Structure of DISCOs

A legitimate question that every organisation or entity asks itself is how is its performance along a set of pre-defined KPIs (Key Performance Indicators). If it is not of an acceptable standard it first looks for the underlying reasons that are the cause of the low performance. The next step is to take the necessary corrective actions and then monitor the results of such actions over a stipulated period of time. If there is still no improvement in the performance indicators, it once again goes back to the first step of identifying the reasons followed by corrective measures; and the cycle continues. In the context of Pakistani DISCOs, has such an iterative thinking process taken place? If it has, was it at the level of the DISCOs themselves or at least with their active participation? Even if the answer to the first question is in the affirmative, the answer to the second question would most likely be in the negative.

It appears that it has been decided at the government level that the way to fix the problem of high indebtedness and bringing about a general improvement in Pakistan’s power sector is by reorganizing the DISCOs’ structure. Specifically, it is being proposed that each DISCO should be bifurcated into two independent entities – one responsible for technical/engineering aspects and the other for managing the financial matters. It would be advisable that the decision-makers step back and reassess the pros and cons of this approach. What is needed is an in-depth thinking and analysis aimed at ascertaining the reasons of these inefficiencies – let’s call it diagnostics study. Afterall, for the medicine to work and act as a cure the underlying causes of the disease should be first determined. It is highly plausible that a deeper thinking will give rise to additional options that are more viable and would help achieve better outcomes.

The first question to ask is whether there is one medicine for all, i.e. should all the DISCOs undergo the same change of structure. For example, is the proposed bifurcation into two entities – Wire and Commercial – an equally applicable solution for all DISCOs? Before answering this question, consider, for example, that FESCO has T&D losses (11%) and revenue loss (1%) in contrast to PESCO where these are (38%) and (12%), respectively. These are two extreme ends of the spectrum which illustrate the point; Other DISCOs fall somewhere in between them and require varying remedies to increase their effectiveness. As the new energy landscape takes shape, distributed generation based on solar systems is expected to take a centre-stage in the growth of electricity production. Not all the DISCOs are at the same stage of development of the Net-Metering systems in their respective constituencies. Therefore, each will need to evolve into an organization that promotes this business according to its own specific situation.

The second point to ponder is whether the division into separate entities will result in more cohesion and smoother overall working of the DISCOs. On the contrary, it is more likely that the resulting entities would be operating in “Silos” with little communication among them. As a result, instead of an improvement in their operations, exactly the opposite is likely to happen. Just imagine the situation that the revenue collecting entity decides that a certain consumer should be disconnected due to non-payment of bills. It would have to advise and depend on action by the technical entity to physically disconnect the customer. Now, it is quite possible that the consumer has an on-going complaint with the technical entity, e.g. there is a pending complaint about a defective meter or increase in approved load, etc. Under this scenario, the resolution of such a situation and achieving of a timely corrective measure within a reasonable time-frame is outside the realm of possibility.

Thirdly, considering that the eventual goal is the privatization of DISCOs, on which there appears to be a consensus on all sides of the political divide, would it be easier to achieve this objective by putting the wire business on the bidding block, separate from the commercial business. More likely than not, because the new owner would not be interested in a business whose operations have been constrained due to the need for a close day-to-day working relationship with the counter-party. Not only that, but in order for a business to be attractive to own by the private sector, it should be of a fairly large size in order to make economic sense. A larger business that combines all the T&D operations would also attract more experienced and versatile set of companies that will add good value for the sustainable growth of a DISCO.

Fourthly, any restructuring of DISCOs should take into account how they will evolve out of legacy systems as they are still tied with an umbilical cord with WAPDA. The provident fund and pension systems of DISCOs’ staff continue to reside in WAPDA although it is more than 15 years since they became independent commercial entities. Further, the insurance of assets is still being managed by WAPDA and DISCOs can only get the insurance from NIC and competitive environment is discouraged. To make yet more spinoffs from the existing organizational arrangement of DISCOs will require a careful handling due to the human resource linkages with the former parent entity which is a highly delicate matter.

So how to proceed forward toward the goal of removing the endemic inefficiencies of DISCOs and to reduce the indebtedness of the power sector which continues to afflict the government in a major way. It is built into our corporate tradition and culture that those who are in the higher echelons sit in their offices and believe that they know more about a given business than those who are on the ground – in this case DISCOs. The later end up facing the brunt of the decisions made by those in the upper levels. The lesson of Management is that in the absence of a “buy-in” by those at the lower rungs of the ladder, the changes – or so-called reforms – often prove to be counter-productive.

First and foremost, it should be resolved that decision about the future course of action should be made at the level of the DISCOs’ BODs. In carrying out this ground-breaking task, the BODs should be given the necessary guidance and advice as well as the required tools and resources. A detailed management study is needed at the level of each individual DISCO which addresses the peculiar situation faced by it and to offer viable solutions. The study should outline a future vision and the steps that are needed to achieve it. All actions, including the need for any restructuring, should emanate from the recommendations of this study with the endorsement of the BOD.

This approach would potentially generate up to 10 (ten) separate reports, one for each DISCO, and a similar number of proposed courses of actions and thus result in the generation of a wide range of ideas. It can be expected that the recommendations of some of these studies might overlap in some aspects which is not a bad thing as it could lead to the building of consensus on a unified action-plan to be followed. Anything less than a professional approach based on conducting detailed studies being proposed here runs the risk of adopting a less than optimum improvement strategy of the DISCOs. In this case, not only precious time will be lost but it will lead to further increase in the government debt as a result of the ineptitudes of some, if not all, of the DISCOs.

Author: Mr. Farrukh Mahmood