A textbook for the power sector

Dr Ruet is one of the very few analysts who, like me, has consistently argued that the fundamental problem of state electricity boards (SEBs) is the absence of a management or enterprise culture. Instead, they have an administrative culture.

Unbundling was introduced not so much to improve efficiency as to bring about some transparency. The corporatisation of SEBs has had little effect since it has not changed the culture from paper, procedures and processes of government.

Authority still remains concentrated in the power secretary. The designations have been changed so that there are now more managing directors than members but little else.

Dr Ruet has studied SEBs intensively and is well qualified to make the comments he does. His earlier book made similar points but this one goes farther. He argues that we need to change the culture if SEBs in whatever form are to perform.

He begins by pointing to the irrationality of the state in India in relation to the SEBs. There is little in terms of policy directives given to SEBs. Instead there is a plethora of minute political and executive instructions. The measures of performance are related to the adherence of procedures. There is no focus on costs and efficiency.

The book provides graphic descriptions of internal decision-making in SEBs. It is a pity that management academics have not done this earlier because it throws up the basic reason for the decline of the SEBs.

He concludes that internal organisation matters, as do the decision-making processes. This requires that the choices be conditioned by information and reporting systems.

He describes the hierarchical nature of the SEBs. If the effects on the economy were not so grim, we could read this as a good management case study of how not to manage vital assets of the country.

His description of the Budget processes in SEBs is another sad account of a system that has nothing to do with efficiency, cost control, and quality, but everything to do with protecting turfs and evading individual responsibility. Costs are budgeted for but not incomes. With the advent of the state electricity regulatory commissions (SERCs) and the need to provide annual revenue requirements for purposes of determining tariffs, no SEB has so far successfully presented even close approximations to reality.

The budget procedure is such that there is no flexibility to the operating executive to reallocate funds. There is no cash provided to the field executive.

Physical inputs, when sanctioned, are sent centrally from the board to divisions and circles. Information is not integrated and reports cannot be used as centralised management tools.

In the same way there is no set rule for calculating subsidies. Reimbursements of subsidies depend on evaluation by the government of its own resources and how holding back the payment might affect the availability of power to the public. Often the subsidy payments are at the cost of funds for sanctioned capital expenditures.

SEBs do not deal directly with central public sector undertakings like NTPC. All dealings, especially on matters relating to supply and payments, are through the power secretary of the state. Thus, SEBs have little authority, unlike enterprises that negotiate purchases, payment terms, etc. with suppliers.

Unlike an enterprise, SEBs have very limited or no property rights. They do not have a list of assets and their values. They have little motivation to repair burnt-out transformers and other equipment even when the cost involved is small and the resultant benefit to power supply for the community is great. They also do not have rights over their cash flows. When they are corporatised, this takes a lot of paper work to accomplish but in any case is largely escrowed to suppliers.

Dr Ruet raises the question as to whether there is any alternative to the World Bank model of unbundling and corporatisation, since by themselves they have little effect.

In any case, this is a model that appears to apply only to government-owned enterprises but not to private ones. His answer is "yes" and he devotes considerable space to what he terms "enterprisation". What he is talking about is the bringing in of a management culture.

In this context, he commends the Delhi model of public-private partnerships through contract, which might lead ultimately to full-fledged private ownership.

But achieving it will require considerable change in administrative mindsets both in governments and in the SEBs or their newly designated corporate forms.

They have to move from a lack of management culture to one in which managerial attitudes and practices are at the fore. It will require adequate capitalisation and handing over property rights to the SEBs.

Asset registers will need to be constructed so that lenders know what backing the enterprise has got. The SEB will have to be reorganised around costs and efficiencies as the central concepts. Budget allocations must be agreed upon and strict budget constraints must apply.

A transparent and synthesised management information system must deliver timely management information. Coordination between field and headquarters must be structured.

Training must be given to executives in management and accounting aspects so that there is an understanding of how to run the SEB as an enterprise and not as a government department.

The book is not easy reading, with very long sentences and paragraphs. It is too respectful of government reports like the N K Singh Task Force report. It is uncritical about the functioning of the SERCs.

Indeed, it devotes little critical attention to their functioning and how they can improve and help in creating in them a more entrepreneurial management attitude.

Its referencing is quite limited, considering the large body of work on the sector in the last six years since the CERC was established.

Despite these minor negatives this must be compulsory reading for all SEB executives, government officers in the power sector, electricity regulators, and anyone interested in the sector. It provides an alternative to privatisation, which has not happened and will be more difficult in the present political climate.

Privatising Power Cuts?

Joel Ruet
Academic Foundation
Price: Rs 795,
Pages: 339

(The author is former chairman, Central Electricity Regulatory Commission, and former director-general, NCAER.)