“Not in his goals but in his transitions the man is great.” (Ralph Waldo Emerson)
According to media reports, our prime minister is angry because his plan for energy conservation, launched with high hopes recently, has not been delivering the expected results. He should not lose heart as nothing was wrong either with his intent or the potential of energy savings in the targeted activities. He had unfortunately pinned hope on an institutional system that is capable of frustrating even the best intents and plans.
Our institutions, whether in the power sector, oil and gas sector, or any other sector of the economy, have become mostly dysfunctional. It wouldn’t be an exaggeration to say that they have turned into graveyards of creativity, imagination, innovation, and even initiative. Conformity to the system is the name of the game and passing the buck is not an exception, but the rule.
If our prime minister really wants results from any reforms in the power sector, he must first fix its institutions: their structure, their executive leadership, their management, their organizational processes, their operating procedures, and their culture. In simple words, the power sector needs a systemic overhaul. This is indeed a tough call and will not be politically expedient, but without such a surgery, as painful as it may be, we cannot save this sector that is bleeding all over and dying by a thousand cuts.
Let’s be clear. We are not suggesting that the government should stop or reverse the power sector reform process that has already been set into motion. We are only suggesting that it should ensure that the enabling conditions and supportive institutional capacity essential for the success of these reforms is provided on the ground.
Reform-friendly institutional structure and capacity
Most experts now agree that the decisive factor for the success of any effort for structural reform in the power sector is the enabling conditions on ground, and the most important among these is having reform-friendly institutional structure and capacity. If not, then any effort for reform, to conserve energy or any other, will remain just a wish. We should not expect to conserve water in a vessel that has no lid and has holes all around its body.
It’s difficult to specify all the improvements required in the institutional structure and capacity in the power sector in a short article like this. Nevertheless, it suggests a few that, in this writer’s view, are critical for the above purpose. But let’s first have a little background to bring these suggestions in perspective.
We live in a world in which change is the only constant. As individuals, communities, institutions, or business enterprises, we are under constant stress to adapt to the changing world. So are the ways we use to deal with the challenges it presents. Societies and organizations that remain rigid and inflexible gradually become extinct; those that successfully adapt, survive; and those that confront the challenges head-on and pull opportunities out of these, thrive.
Energy markets have gone topsy-turvy in the past decade. The confluence of multiple new developments has shaken the foundation of the electric supply and delivery business. These include elimination of economies of scale in generation, plummeting of renewable energy (solar and wind) technology costs, IT and communication technology (ICT) based intelligent and smart grid schemes, viability of battery storage, and growing popularity of electric vehicles.
These developments are proving disruptive for an industry that has enjoyed the status of one of the most stable businesses in the world, until recently. Most utilities now face stagnating demands in their systems as large and energy-guzzling industries are giving way to smaller and knowledge-laden high-value products and services. ICT-based sensors and controllers provide the utilities greater control on their systems. These have enabled consumers to manage their demand and offer some control on it to their utilities. Consumers are also no longer captive to their local grids and have multiple options on supply as well as demand sides.
These developments have rendered the traditional way of running the electric utility business — via centralized generation, transmission, and distribution systems — practically obsolete. There is consensus in business literature that when a business faces disruptive challenges, mere improvement in its routine functions does not suffice. It must transform by rethinking its mission, strategy, organizational structure, and managerial practices to keep afloat and grow.
Electric utilities are also under growing pressures to adapt to the changed, and still changing, market forces, or risk bankruptcy. Monolithic and bureaucratic structures with too many vertical layers and central managerial control are turning into relics of the past. In their place, lean, granular, and organic entities are emerging. Lateral structures, decentralized decision-making, and participative management are proving more effective in confronting the vexing challenges of the turbulent energy markets.
Privatization not a cure
The most common solution proposed in Pakistan to resolve the chronic woes of our power sector is its privatization after some restructuring. More recently, we have been hearing that the government intends to move the DISCOs to their respective provinces. Our government should rethink very carefully on both these moves.
Privatization may not be a cure for every ill in our economy, particularly in the power sector due to its capital-intensive and long-lived infrastructure—a lifeline for our economy and people. Privatization is also not without its perils. Such attempts even in advanced countries have led to serious unintended consequences including massive layoffs, income disparities, and abuse of market power by the private owners. It has its pros and cons and the devil may lie in the details. Our government must exhaust all other options to reform this sector before jumping head-on into untested waters.
The federal government’s intent to shift DISCOs to provinces in their present state may reduce one thorny issue from the list of challenges it faces but it would be naïve to expect that mere a shift of responsibility would provide any respite to the country or the electricity consumers.
In the above context, we list below a few critical steps that our government must take to ensure that reform-supportive institutional structure and capacity are provided on ground to facilitate the implementation of other reforms in the power sector. Each suggested step accompanies a few words on the motivation behind it.
As a first step, our government should stop treating the power sector an extension of its own domain. It should devolve it and restrict itself to setting strategic objectives, policy, legal and regulatory frameworks, and strategic plans only. It should permit full autonomy and control to these entities like any other business or industry in the country.
As the environment around the power sector entities becomes more complex and varied, these must adjust, realign, and reposition and do so quickly to keep a competitive edge. During turbulent times, their form, functions, and routines become less important while their leadership, strategy, and competencies gain more importance. They must become adept and agile in responding to changes to remain profitable. Smaller and less hierarchical organizations are more capable of creativity, innovation, and agility to deal with market changes than their large and rigid competitors.
Electricity has now become a commodity that can be bought, sold, or traded in the market like any other product or service. Its generation, transmission, distribution, and delivery are complex and specialized endeavors and therefore require treating like any business enterprise—having autonomy and control by its executive leadership to structure, organize, or align as it feels necessary, of course within the bounds defined by the government but without any interference or tight control by it.
As a second step, but concurrently with the first, our government should hire a reputed international consulting team to identify the key technical, financial, and organizational issues each of the power sector entities currently faces and develop a set of critical improvements that must be made to turn these around.
Left to itself—its ministries, regulators, or the entities downstream—the government won’t be able to perform the major surgery that our power sector desperately requires. Even a competent and experienced surgeon avoids performing surgery in cases which involve personal emotions. The government must entrust this responsibility to a team of international experts who do not have any direct interest or sentiments involved in such a critical operation.
The government should be willing to pay this team dearly also, if needed, as this one-time investment will provide dividends to the country for many years to come. The government should retain this team until the third step below is completed to periodically review, adjust, or finetune its initial strategy. This team should also be tasked to monitor the performance of the incumbents to be selected through the third step below against the goals and targets assigned to them.
As a third step, our government should hire leaders who have the talent, capability, competence, and vision to lead each of these entities. The process for hiring them must be radically different from the one being used at present.
Leaders in turbulent markets have a special role to play as they are expected to provide vision, inspiration, and conviction to the entity they head but also the other managers under them. They must also set the pace and sequence of the transformation required for their organizations and lead the new processes and work-streams, and to guide their successful implementation.
The government should announce these job openings as widely as possible along with the list of major issues each of these entities confronts. It should allow candidates 3 to 4 months to respond with their own vision, strategy, and concrete plan for tackling the identified challenges in addition to their qualification, competence, and experience.
The government should hire the future leaders purely on merit and be willing to pay them handsomely to attract the best talent. It can link their compensation with meeting the targets and goals agreed with them. But the government must keep its own hands off their selection and entrust this responsibility to a selection committee whose members have unblemished integrity. The team referred to in the second step should also be given representation in this committee.
As a fourth step, our government should encourage and support the new leadership in these entities in reevaluating the efficiency and efficacy of their respective organization’s managerial hierarchies, processes, and procedures to minimize unnecessary administrative layers and revamp these processes and procedures.
Established and time-tested organizational processes and work routines are very effective and efficient in stable and monopoly businesses as the electric utilities have enjoyed for much of their history. These are, however, less feasible, and even restrictive, in business environments that are characterized by uncertainty, complexity, rapid changes, and increased competition because they impede the organization’s flexibility and limits its ability to respond to changing market conditions.
It’s now obvious — and is corroborated by some of our country’s credible economists and financial experts as well — that our country is in dire-straits already. Even if we manage to dodge the bullet this time by securing the much-awaited IMF bailout, in just 3 to 4 months, we will be back on its doors again. For its central and critical role in the country’s economic and social development and considering its current dismal state, the government must give priority to structural reforms in the power sector — identified as a high-priority area by the IMF also.
However, any effort to reform the power sector, present or future, without carrying out first the much-needed systemic institutional overhaul is bound to fail. The government should not expect to heal a patient by injecting medicine in his blood if it has become heavily contaminated and his cardiovascular system is also choked at multiple points.
Institutional reforms — devolving organizational control, deploying competent and capable leaders in each of this sector’s entities, and allowing their new leaders a free-hand to run their respective entities without any political meddling — are the critical action steps that our government cannot do without. The sooner, the better.
The writer is a freelance consultant, specializing in sustainable energy and power system planning and development. He can be reached via email at: email@example.com