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Iesco faces governance issues: USAID report

May 26, 2012

ISLAMABAD, May 26: The Islamabad Electric Supply Company is facing the governance issue, which is impeding its transition to a business-like electric utility, according to a report submitted to the Planning Commission by USAID.

The report has been prepared by the International Resource Group for the three-year project of Power Distribution Improvement Programme (PDIP) financed by USAID.

“The company remains subject to political interference, and the Board of Directors has not been empowered to oversee a true corporate entity,” points out the report.

The replacement of the board by the government has left Iesco in a state of some uncertainty and it is hoped that the new appointments will be a positive step towards greater professionalism and operational autonomy, it says.

Additional changes will, however, be required to enable the board to exert the strategic influence the utility will need to succeed in the restructured power sector in Pakistan, and to improve the company’s operational and financial performance to more acceptable levels.

Iesco has reported that the loss level for 2009-10 was 9.8 per cent whereas the preliminary loss analysis on five sample feeders including one underground feeder was around 13.7 per cent which is paradoxically higher than the total reported loss. This is because Iesco has a mix of very high and extremely low loss feeders, the report says.

Iesco’s revenue meter installations require immediate attention to improve installation quality, and to address significant vulnerabilities in exposed transmission lines. A new service standard is ultimately needed to better protect the meter and the service from being tampered with.

Iesco faces a significant financial challenge due to an ongoing dispute over power supply to the AJK government.

The utility is acting as the power supplier for this territory even though the tariff for AJK sales is well below the cost of power to Iesco.

Statistics indicate that Iesco is functioning reasonably well commercially. However, commercial activities need improvement and transparency.

The meter reading practices currently employed are subject to influence by operations management.

The entire revenue cycle, from the setup of a new customer account to meter reading to receipt of customer payments and ultimate revenue recognition, remains a highly fragmented and manual process. The current system of automated processing is typical of the late 1970s.

Although Iesco is piloting advanced metering technologies, inadequate monitoring of all steps in the revenue cycle leaves it vulnerable to negative cash flow impacts, low customer satisfaction, and delays in completing even the simplest jobs, it says.

The report recommended that the board of directors should be trained to prepare for the challenge of governance in the changing utility environment in Pakistan.

It should be enabled to become Iesco’s corporate governing body empowered with ultimate decision-making authority.

A thorough review of organisational structure should be undertaken to evaluate changes required to improve Iesco’s technical, commercial and overall operational performance, suggests the report.

The report was of the view that Iesco’s greatest financial vulnerability centres on its relationship with government clients.