Poor boardroom governance mars Discos’ performance

Published November 28, 2021
None of the 10 chairmen in as many electricity distribution companies (Discos) is a certified director from the Pakistan Institute of Corporate Governance, research paper says. — AFP/File
None of the 10 chairmen in as many electricity distribution companies (Discos) is a certified director from the Pakistan Institute of Corporate Governance, research paper says. — AFP/File

KARACHI: None of the 10 chairmen in as many electricity distribution companies (Discos) is a certified director from the Pakistan Institute of Corporate Governance (PICG), an independent training body set up by multiple regulatory authorities to improve boardroom governance in the corporate sector.

According to a recent research paper by Afia Malik of the Pakistan Institute of Dev­e­lopment Economics (PIDE), only three of the 40 independent directors on the Disco boards are PICG-certified directors.

The bifurcation of the Water and Power Development Authority (Wapda) in November 2007 created initially eight and eventually 10 Discos that are now distributing electricity to end-consumers in their respective geographical areas as monopolies. Their overall performance is less than satisfactory as almost one-fifth of electricity units generated in the country were lost in the transmission and distribution (T&D) network in 2020-21.

Research paper says chairmen of 10 distribution companies aren’t certified directors

“Discos lack technical and managerial skills to operate independently. The structure of these companies based on corporate governance principles has not been established. Poor corporate governance is the main reason behind the poor technical and financial performance of Discos,” wrote Ms Malik.

New boards were appointed in all the 10 Discos in the last seven months. During the selection process, the Power Division relied on the candidates’ enlistment as independent directors with the PICG, their CVs, and affidavits from each proposed nominee that they fulfill the fit-and-proper criteria as required under the rules. “While going through the profile of these independent directors, wherever available, we find that the actual practice is different from what was stated in the [newspapers],” it said.

As many as 11 directors serve on the boards of two Discos while one of them is on three boards at the same time. At least five of the 10 appointed chairmen of Discos happen to be ex-employees of K-Electric Ltd, a privatised distribution company that sells power to Karachi-based consumers. “In the selection of independent directors, the focus seems to be on those with K-Electric experience. In total, 10 independent directors, including chairpersons, remained affiliated with K-Electric in various capacities,” it said.

The paper noted that Disco board chairmen were appointed against Corporate Governance Rules 2013, which state that the chairperson be elected by the board to achieve an appropriate balance of power, increase accountability and improve the board’s capacity to exercise independent judgment. “But in these Discos, the chairman is appointed by the government,” it said.

Similarly, the government also appoints Disco CEOs against the rules, which state that this responsibility belongs to the respective boards. Besides, the government takes all major decisions, which is “evident from the minutes of board meetings” that discuss only human resource–related issues.

None of the 10 Discos publishes its annual company report except Faisalabad Electric Supply Company (Fesco), Multan Electric Power Company (Mepco) and Islamabad Electric Supply Company (Iesco).

Published in Dawn, November 28th, 2021

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