Reworking Reforms

Need for strategic policy focus on human capital

There has been a continuous focus of the policymaking apparatus on implementing well-thought-out, comprehensive techno-commercial reforms – both of a structural as well as a prescriptive nature – to help bring the electricity distribution segment out of its financial morass. However, all reform measures have been top down and have only resulted in making the cadre feel sceptical about them. This is as much a function of their inability to meet the stated objectives in a timely manner as it is a blind spot of the reform process to not give due credence to human resource (HR) policies, and to construct and devolve reform measures from the rank and file of the discom and up. The HR department is generally staffed by promotee engineers. The paucity of hands-on HR professionals means that the department has taken on the role of a control function. It lacks an understanding of the nuances required to work up from the grassroots level and build a motivated, positive organisation. This paper focuses attention on this neglected reform area and suggests a few policy actions.

After the Electricity Supply Act of 1948, which nationalised the majority of the existing independent suppliers of electricity through the creation of monolithic and integrated state electricity boards (SEBs), there have been three phases of reforms in the electricity sector:

Phase 1 (1991 to 1995): It opened up generation to independent power producers (including foreign players) through competitive bidding and capacity addition by way of mega projects (1,000 MW and above); this kicked off the reform process.

Phase 2 (1996 to 2002): It involved the creation of regulatory commissions, allowing private participation in transmission; the Accelerated Power Development and Reforms Programme (APDRP) to tackle fiscal deficits in the distribution space, etc.

Phase 3 (2003 onwards): This was the age of an enlightened reform policy. The Electricity Act, 2003 (which subsumed all previous laws such as the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948, and the Electricity Regulatory Commissions Act, 1998), created a liberal framework for further development of the electricity sector by inviting private participation (subject to conditions), across the electricity value chain and introduced open access.

The sagacity of these reform measures enabled improvements in the generation and transmission segments. There has been a commendable enhancement in generation. In 2002, the installed capacity in India was just 105 GW, which has galloped to nearly 400 GW now. In the transmission segment also, the network has increased from 196,123 ckt. km to over 432,785 ckt. km.

Distribution is the most challenging segment due to the lack of access, a lopsided demand pattern, the urban-rural schism, inefficient equipment and appliance stock, etc. There are other issues of complex tariff structure, cross-subsidy, corruption, staff and bureaucracy. The issue of access was addressed to a large extent when a large number of power connections were provided under the Saubhagya scheme. However, most of the power discoms are under financial stress and their accumulated losses as of March 2019 stood at Rs 48.87 billion (PFC, 2020) despite various financial restructuring efforts and bailouts discussed as under.

APDRP

The APDRP was launched with the following objectives:

A reduction in aggregate technical and commercial (AT&C) losses from around 60 per cent to around 15 per cent in five years, beginning with urban areas and high density/consumption areas.

A performance audit (Public Accounts Committee, 2008-09, 14th Lok Sabha, India, 2008), indicated several gaps in the scheme, which was also conceded by the Ministry of Power (MoP).

R-APDRP

The Restructured Accelerated Power Development and Reforms Programme (R-APDRP) was launched in December 2008 as a continuation of the APDRP in the Eleventh Plan period. The programme envisaged sustainable reduction in AT&C losses, the establishment of a reliable and automated system for the collection of accurate baseline data and the adoption of information technology in the area of energy accounting as necessary preconditions for sanctioning distribution strengthening projects.

According to the MoP, the lacuna were:

  • Slow pace of implementation: Out of an envisaged Rs 284.24 billion (2008-17), only Rs 124.15 billion (2008-14) was budgeted and out of this amount, only Rs 81.75 billion was released.
  • Programme implementation errors: There were delays of up to 13 months in preparatory activities in programme implementation, detailed project reports (DPRs) were not in line with model DPRs, and inadequate training given to staff.
  • AT&C losses: Baseline data was not available, there were variations in calculation methodology, 100 per cent metering was not done, inaccuracy in energy accounting and energy audits.
  • Customer satisfaction: Computerisation of commercial activities such as billing and collection remained incomplete, tamper-proof/high accuracy meters not installed as envisaged.
  • Shortcomings were noticed in the monitoring and evaluation of the scheme by the state distribution reforms committees.

UDAY

The Ujwal Discom Assurance Yojana (UDAY) envisaged the financial and performance turnaround of Indian discoms. As many as 27 states and five union territories had signed up for participation. The scheme’s objectives were financial turnaround, operational improvement, development of renewable energy, reducing the cost of generating power, and energy efficiency and conservation with the ultimate objective of making available 24×7 power for all at an affordable price.

The performance under UDAY also falls short of expectations despite being more effective compared to previous schemes.

ADITYA, March 2020

The Rs 1.1 trillion Atal Distribution Transformation Yojana (ADITYA) aims at reducing distribution losses to under 12 per cent and promotes smart metering and continuous power supply to all.

Bailouts

These reform measures have been in addition to several bailout packages as under:

  • Bailout package 2001-02, which converted Rs 0.35 trillion of state electricity board dues to state government bonds and waived 50 per cent outstanding interest.
  • The Financial Restructuring Plan 2012 of short-term loans where states took over half the outstanding short-term loans as on March 31, 2012 and converted them into state-guaranteed bonds issued to lenders.
  • Discom bailout package May 2020 of Rs 900 billion enabled states to pay their dues to gencos to overcome the Covid-19 impact.

Why reforms and bailouts have not been effective

While this paper shall maintain a critical disposition towards the reform process, one should remember that in a growing country such as India, “Power for All” is an avowed objective. Some expenditure and the resultant margin pressure is allowed in pursuit of this social objective.  Successive reform measures have only met with partial success. One of the main reasons for this is mere cosmetic attention to changes in human resource policies, and employee engagement and participation.

There are multiple quality papers which have critically evaluated all previous bailouts and reforms. They have studied the reasons behind the limited efficacy of the initiatives. However, at best, human resources’ corruption or inertia has only been acknowledged as one amongst many factors responsible for the limited impact. A case in point is the seminal work by S.C. Bhattacharya, which delineates the essentials for the reform process to be effective in the long term (see accompanying Schematic).

Notice the lack of internal buy-in and employee motivation, a key component which this paper argues, in the definition of sustainability of reforms. It may be countered that this is subsumed in the “ease of transition”, but this paper posits that it is complex and impactful enough to necessitate an independent branch.

The reform processes discussed in brief above have been cast by various power ministry officers and have largely been of a top-down nature. They have by design not evolved from the grassroots levels and thus have seen limited ownership by the rank and file. Do note the limited representation by junior engineers (who will always remain at the forefront in the execution of any reform measure) in the policy- and process-setting across various publicly owned discoms. Thus, the deep-rooted and well-hidden scepticism about these initiatives in the lower-level cadres is not surprising.

Visits to various government discoms across the country has bolstered the value judgement that despite corporatisation, after almost two decades, the HR (rechristened from personnel) departments are still working in a mode befitting that of a government department, leading to employee frustration and with no discernible long-term benefit of corporatisation. Most states revealed that departmental proceedings of both major and minor nature remained pending for years without any progress and that the question of punishment surfaced only at the time of promotions, leading to suspected graft in these decisions. Most states also do not have a flexible incentive and reward policy. Lateral entry for managerial talent is available only at the director level.

HR departments of corporatised government discoms come across as controlling rather being a support system. This has to change and these departments need to win the hearts and minds of the cadres with emphasis on merit- and performance-linked reward and recognition policies, proper learning and development, employee engagement, job enrichment, and employability and scope enhancement initiatives.

Across government discoms, it is found that the employees leading the HR function are, in fact, engineers, who have been promoted from the engineering cadre rather than the specialised HR field.

There is a crying need to induct professional HR managers into the HR function and run discoms as true corporates. Finally, in order to ensure that the vision of reformist bureaucrats is actuated upon, senior IAS officers should have stability of tenure in state discoms.

How to attract skilled manpower to match the retirement of quality manpower

Currently, there is no paucity of talent. In fact, the public sector has more talent than the private sector. However, the management practices are not centred around rewarding performance. However, in the future, once the legacy manpower retires, manpower gaps will arise. While junior engineers are selected through various governmental entrance exams, it is pertinent to note that all discoms need to undertake employer branding measures to hold on to the talent. There is a perception in the industry that discoms (both public and private) train employees well but do not provide them with fast-track growth avenues. Discoms may look at creating a consulting arm, apart from the regular job rotation and deputation, so as to retain and further enrich the existing talent.

Since the new talent are millennials and the generation thereafter, it is necessary to give a fillip to technology-enabled employee engagement measures. The HR strategy should enshrine a holistic physical, emotional and spiritual wellness philosophy. It should facilitate the roll out of fair and transparent recognition tools. Most importantly, it should meld financial and engagement objectives in such a way that return on investment can be measured not only in monetary terms but also in terms of efficiency, recruitment and retention outcomes.

How to ensure independent regulation

Much has been opined upon the recent challenge by the Supreme Court over the member constitution in the Central Electricity Regulatory Commission. As suggested in the article, this paper agrees with the need for independence from the executive and increase in accountability.

The last suggestion in the article is the push to increase expertise. Until sufficient expertise is built in this value chain, deputation from existing private/public discoms should continue. This will improve motivation and also allow star discom performers to enrich their experience. In order to minimise conflicts of interest, it would be best to on-board them mainly as advisory staff and ensure that the comments on departmental files are vetted by other departments and stakeholders through a time-bound, open, public dialogue. These informed opinions and facts can serve as a valuable insight for the line management in regulatory commissions to take better decisions. Recruitment of specialists and lateral hires in regulatory commissions are indeed positive steps but unless the conflict of interest aspect is properly addressed, the move may backfire in the long run.

It would also be beneficial if a cadre of regulatory experts is built along the lines of the Indian engineering services, which can be trained and then regularly retrained in order to frame and monitor regulations.

How to meld the differing culture of the millennials with the legacy manpower

Privatisation could be another alternative to policy revamp within the HR space as, owing to the specialised nature of the business, the government should concentrate on regulation. In the event of privatisation, the biggest challenge would be cultural integration, which would require deft HR handling.

There has been a diversity of culture change and reconciliation experience between the legacy staff and the new talent brought in through the privatisation of discoms. Also, the centre and states have launched projects in close coordination with independent consultants (with mostly private sector experience as in the case of Aadhaar), NGOs and international consortiums.

The key takeaway here is that the initial pain and culture shocks are easily recognised and are resolved through mutual respect and living in a hybrid structure. The structure should foster innovation by allowing freedom to the millennials to experiment within a limited sandbox. A systemic roll-out of the experiment/ innovation should respect hierarchy by presenting religiously recorded feedback and exhaustive rationale behind the innovation to the established management before authorisation for roll-out. The other legacy issues should be resolved on a case-by-case basis to the comfort of the senior officers concerned.

Conclusion

Clearly, management practices and policies related to human capital need to be reworked from the bottom up. This neglected area will also serve as the bedrock to propel techno-commercial reforms into successful financial/commercial turnarounds.

While the paper only gives a broad outline of the reform measures, it should serve to impress that the opportunity for both strategic policy intervention and tactical on-the-ground implementation is indeed rife. Since the scope is so vast and because there is negligible scholarship in this area, industry and academia need to join hands to address the scope of the challenges identified in this paper.

Sarang Kanchan

Sarang Kanchan, Former Associate Director, Mercados Energy Market India Private Limited

Arun Kumar Kanchan

Arun Kumar Kanchan, Former Director and CEO, BSES Rajdhani Power Limited and BSES Yamuna Power Limited

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