Developing Business Competence: A model based on Viable Systems

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Seminar on “Organisational Restructuring of SEBs” D.V. Ramana stressing the issue of reduction of T&D losses. As the licensees were not able to achieve the targets fixed by the Commission, the losses went on increasing. Following table shows the gap between the proposed and allowed expenses and losses. T&D Losses: Proposed and Approved (Orissa) Proposed Approved 1999-00 Transmission Losses 5.30% 4% Distribution 40-47 % 31% 2000-01 Transmission Losses 4% 3.70% Distribution 38 - 42.6% 31.46 Source: Tariff Orders issued by the OERC So part of the losses reflected by the companies may be attributed to the non-allowance of the expenses, losses coupled with non-acceptance of tariff proposed tariff rise. 5) Profit (loss) decreases (increases) with increase in sale volume to the low-tension consumers. It is important to note that losses (T&D) vary with the consumer mix. A division with higher LT consumers will be having higher losses. Following table demonstrates the same. Division- A Division-B Input Billing Input Billing LT 40 24 60 36 HT/EHT 60 54 40 36 Loss 22% 28% The total loss in the system increases from 22% to 28% because the proportion of LT consumers goes up. So other things remaining constant, loss increases with the increase in sales to the LT consumers. Experiments and Experiences of Orissa’s Model: An Analysis To address the problems of the power sector, the Government of Orissa decided on a comprehensive restructuring of the entire sector. Some of the steps taken were as follows; • Unbundling; • Devolution of Revenue Management; and • Corporatisation and Privatisation The following paragraphs explains the principles underlying these steps and experiences thereof. Unbundling State Electricity Boards (SEBs) were established as vertically integrated organisations to undertake generation, transmission, and distribution of power. The un-bundling of the industry is <strong>based</strong> on the realisation that it is possible and desirable to separate the transportation from the thing transported. In other words ‘Electricity’ as a product can be 2
Seminar on “Organisational Restructuring of SEBs” D.V. Ramana OSEB separated commercially from ‘Transmission’ as a service 2 . This shift in the understanding of the electricity industry may be attributed to the changes in generating costs during the 1980s 3 . These changes made the large customers to think about building their own plants. All these changes along with the shortage of public capital made the governments across the world to encourage private participation in the public utilities industries in general and power industry in particular. The Orissa Electricity Reforms Act (OERA) prescribed method by which the power sector would be restructured. The Act allowed the transfer of assets, and liabilities, staff, and statutory obligations of the OSEB to the successor companies. As a consequence, Grid Corporation of Orissa Limited (Gridco) and Orissa Hydro Power Corporation (OHPC) were registered as government companies. Accordingly following steps were taken: Figure: Unbundling of OSEB OHPC GRIDCO Transmission and Distribution OPGC GRIDCO (Transmission) WESCO Nesco Southco Cesco • Electricity business was divided into three separate activities viz. Generation, Transmission, and Distribution • The hydel power stations were transferred to OHPC • The thermal power stations were transferred to the existing Orissa Power Generation Corporation (OPGC) • The transmission and distribution business was transferred to Gridco. Though, OHPC and Gridco began operation on I April 1996 as government owned entities, corporatisation agreements were signed with the Orissa Government. Under the agreement, Government reiterated its commitment to distance itself from the operation and management and give them autonomy as commercial organisations. OHPC continues to be Government Company however, Gridco took long strides in the direction of full privatisation. Will the change in structure lead to higher efficiency and ensure decent competition? Literature is divided on this issue. Experience differs from country to country and depends on the purpose for which the change has been initiated. According to Surrey 4 , for the developed countries the restructure in the industry has been initiated to obtain cost savings in generation, whereas, for developing countries it helped in securing investment funding from the international investors. However, it is important to note that latter’s interest is not compatible with competition: international investors will be interested in high levels of profits. Orissa had mixed experience. Un-bundling demonstrated that the business drivers of these three activities are different and require different set of skills to manage them. It gave an opportunity to understand each activity as a separate business and manage them efficiently. Such unbundling helped in concentrating on a particular aspect of the value chain. It has shown that with a good management it is possible to improve the performance of a particular activity. For example, the transfer of generation business to NTPC and OPGC has resulted in enormous improvement in the performance of the generating stations. It clearly shows the performance has improvement even without passing on the ownership to the private parties. The unbundling has also resulted in the 3
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