TOR for LESCO Consultancy: Yousaf Hashim Khan

7/31/2019 TOR for LESCO Consultancy: Yousaf Hashim Khan

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TERMS OF REFERENCE FOR MANAGEMENT CONSULTANCY

Table of Contents

Foreword.. 2

Background.. 3

LESCO. 4

Existing Organizational Structure. 5

A Vision ofOrganizational Health. 9

Organizational Analysis .. 10

Objectives of Organizational Development... 11

Establishing the Direction... 12

Human Resource Management 12

Performance Appraisal Systems 13

Reward and Pay Systems 14


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Foreword

Power distribution companies are in state of chronic despair on account of skyrocketing tariff and their

operational inefficiencies and they are finding it difficult to coupe with. Line losses which constitutes of

technical loss due to poor and sluggish infrastructure and the commercial loss due to theft of energy, both

are adding to their troubles. Central to their underperformance is lack of system to plan ahead therehabilitation works resulting in brownouts due to damaged transformers, frequent faults and overloaded

network. Moreover, the companies do not have mechanism to isolate technical losses from commercial

losses and therefore can neither channelize efforts to target high loss making segments of the network nor

able to identify the consumers involved in theft. Inventory stock outs are common across the DISCOs

resulting in delayed installation of new connections making consumers more frustrated. In the midst of

loadshedding, power outages due to faults in the network are also taking toll on consumers and seriously

questioning the credibility of companies.

The management and the employees are not only dissatisfied with the remuneration which is not

commensurate with the private sector and does not keep pace with the inflation but also with the slow

promotion policy. A young engineer is kept at the same position for more than 15-20 years leaving himdemotivated and .

The financial issues are rooted in the fact that the cost-recovery tariff determined by NEPRA is not

applied to the customers. Thus the government bears the differential as a subsidy. Losses and costs

excluded from the tariff formula also accumulate at the power distribution companies level. The lack of

financing leads to arrears for the power generation and fuel companies.

Timely payment to these companies, essential for the sectors reliability, has become increasingly

difficult, partly because of increased dependence on imported fuel, which is subject to wide price

fluctuations. The cost of (oil-based) power generation in the country escalated by almost 40%. Despite

steep increases in tariff and fuel price adjustments, customer tariffs remain below cost recovery, requiringlarge government subsidies to keep the system operating. The focus on massively increasing spending on

power subsidies, reforms and efficiency measures has been unable to remedy the circular debt in the

system.


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Background

Water and Power Development Authority(WAPDA), was created in 1958 as a semi-autonomous body for

the purpose of coordinating and giving a unified direction to the development of schemes in water and

power sectors, which were previously being dealt with, by the respective electricity and irrigation

department of the provinces.

The local areas electricity distribution service was performed by various regions of WAPDA. Then the

Area Electricity Boards (AEBs) were established under the scheme of Area Electricity Boards in 1982, in

order to provide more autonomy and representation to provincial government, elected representatives,

industrialists, agriculturalists and other interest groups in functions of the AEBs.

In order to promote fair competition in the electricity industry and to protect the rights of consumers as

well as producers and sellers of electricity, the Government of Pakistan has enacted act the Regulation of

Generation, Transmission and Distribution of Electric Power regulation Act, 1997. Under this act the

National Electric Power Regulatory Authority (NEPRA) performs three main regulatory functions i.e.,

licensing of generation, transmission and distribution of electric power, tariff determination andprescription of standards and rules for conduct of business.

The vertical disintegration of WAPDA was begun in the year 2000 as part of the countrys new electricity

market restructuring and liberalization program. WAPDA was broken down into fourteen separate units:

four generating companies, nine distribution companies, and one national transmission and despatch

company. However, the envisaged privatization of these independent generating and distributing

companies is proving difficult, because they often operate at a loss due to line losses, unpaid bills and sub

marginal electricity tariffs.

Since October 2007, WAPDA has been bifurcated into two distinct entities i.e. WAPDA and Pakistan

Electric Power Company (PEPCO) . WAPDA is responsible for water and hydropower development

whereas PEPCO is responsible for the management of all the affairs of WAPDAs fourteen public limited

companies in the areas of thermal power generation, transmission, distribution and billing. These fourteen

(14) corporate entities are:

o Four Thermal Power Generation Companies (GENCOs)1. Southern Generation Power Company Limited (GENCO-1) head quarter at Jamshoro district Dadu near

Hyderabad Sindh.

2. Central Power Generation Company Limited (GENCO-2) head quarter at Guddu district JacobabadSindh.

3. Northern Power Generation Company Limited (GENCO-3) head quarters at TPS Muzaffargarh district

Muzaffargarh Punjab.4. Lakhra Power Generation Company Limited (GENCO-4) Headquarter at WAPDA House Lahore.

o One National Transmission & Power Dispatch Company (NTDC)o Nine Distribution Companies (DISCOs) as under:


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1. Lahore Electric Supply Company (LESCO)

2. Gujranwala Electric Power Company (GEPCO)

3. Faisalabad Electric Supply Company (FESCO)

4. Islamabad Electric Supply Company (IESCO)

5. Multan Electric Power Company (MEPCO)

6. Peshawar Electric Power Company (PESCO)

7. Hyderabad Electric Supply Company (HESCO)8. Quetta Electric Supply Company (QESCO)

9. Tribal Electric Supply Company (TESCO)

LESCO

Lahore Electric Supply Company (LESCO) is the largest among the nine distribution companies in terms

of sales of electricity and the third largest in terms of number of consumers. It is responsible for the

distribution of electricity to 2.9 million consumers across 5 districts of Punjab i.e Lahore, Shekhupura,

Okara, Kasur and Nankana with an annual peak demand of 4006 MW. LESCO purchased 16.9 billion

energy units during 2010-2011 and sold 14.7 billion units of electricity which accounted for sales of

approximately PKR 138 billion. The leakage of 2.2 billion units was primarily due to Transmission and

Distribution losses and the monetary deficit tantamount to be PKR 20 billion(13.26%) which was borne

by the government in terms of subsidy. This huge quantum of losses which is growing over the years

reflects the lousy picture of operational inefficiencies deeply rooted in the conventional practices of the

distribution company.

The other challenges are not indifferent from those faced by the power distribution companies as a whole

detailed earlier. Dissatisfaction of employees from the current salary structure and slow speed perpetual

career management are big impediments to operational efficiency and productivity. Training of

employees and their exposure to global best practices in energy sector is something which had never

been underpinned.

Existing Organizational Structure

Being a large corporation with an expanded infrastructure stretching over the 5 districts of Punjab,

LESCO does not have a pure functional or a pure divisional structure rather two types of hybrid structures

are found in the entire organization. In one hybrid form, the key functions narrated above that require

economies of scale and specialization are centralized and located in headquarters and in other hybrid

form, geographical region based divisional structure is overlaid and superimposed to facilitatecoordination across functions. By combining characteristics of both structures, LESCO is taking

advantage of both technical expertise within the functions and horizontal coordination across functions;

an arrangement tailored to achieve organizational goals with coherence. However, it would be appropriate

to say that there is no silver bullet, every structure has its own strengths and weaknesses and there is

always room for improvement in any structure especially within an unstable and varying environmental

pressures; LESCO does have some functions which are not vertically integrated within the region based

divisional structure resulting in inhibition of working relationship, polarization and a little


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communication flow across divisions & functions. This state has created high walls among various

functions and led to little cross-pollination of ideas which are critical to continuous improvement.

Under the leadership of CEO, Technical director is acting as Chief Operating Officer responsible for

coordination with 4 functional Chief Engineers (Operations& Maintenance, Planning &Design,

Transmission Line & Grid stations and Project Developments) and 6 Directors which include Human

Resource Director, Customer Service Director, Finance Director, Director Surveillance & Investigation,

MIS Director and Legal Director. On the basis of geographical regions, LESCOs operations have been

divided into 6 circles with each circle further subdivided into 5 Divisions and each division is consisted

of 5 subdivisions. There are 6 Circle Managers (operations) and 2 Managers for Project Construction and

Meters &Testing who report directly to Chief Engineer (O&M).Each Circle Manager (operations) has

representative for each functions such as; one Deputy Director(Technical) for coordinating with 5

operational Divisions; Deputy Commercial Manager for coordinating up with CSD and down with 5

Divisional Revenue officers on billing & collection affairs. Each Division under the Circle Manager has 5

operational subdivisions, one Revenue Officer(representative of CSD for billing & collection of data)

and one Divisional Accountant(representative of FD for financial matters).The subdivision is the

fundamental SBU which is responsible for all the operational functions such as recording & billing ofenergy, installation & replacement of meters, maintenance of network, collection of payments and

augmentation of network, surveillance & monitoring , resolution of Consumer Complaints and CRM

which are implemented through Line Superintends and their crew(Line-men).

Strengths of hybrid Organizational Structure (Functional + Divisional) in LESCO:

1. The division managers and the functional managers have equal authority within the organization,and employees report to both of them and most of the employees will have dual assignments and

dual reporting relationship. The subdivisions record and report the energy consumed to Revenue

Officer(RO) with Divisional head(Deputy Manager) acting as an integrator. Line

superintend(recovery) ensure timely collection of payments and report both to SDO & RO forvertically bottom up reporting to CSD through DCM.

2. Resources can be flexibly distributed and shared between functions and divisions in the form ofscheduling or priorities to meet multiple demands. Deputy Managers (P&D) in coordination with

sub divisional staff and by utilizing their resources work for future planning and network capacity

enhancement. Similarly, Deputy Manager(S&I) uses the subdivisional resources for carrying out

anti-theft practices.

3. This structure is well suited to complex decisions and frequent changes in unstable environment.Since functions such as billing & collection and Finance require extremely effective linkages in

both vertical and horizontal directions, therefore this set up helps the employees to be exposed to

range of activities either functional or general management skills and at the same time provide a

well defined functional career path.

4. There is a dual authority structure from two dimensions i.e function and region enabling to instilla balance of power. DCM is answerable to both Circle Manager(operations) and CSD while RO

is accountable to Divisional manager and DCM on billing & collection affairs.

5. The divisional structure at the middle and lower level tiers of management help to improveaccountability, budgeting, planning and responsiveness. The Circle Managers and Division

Managers are responsible for quantifiable Key performance indicators for each function and they


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The structure narrated above needs to be fine tuned and aligned with the goals of LESCO by

eliminating the inherent weaknesses i.e Grow Revenues and shrink all forms of loss


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A Vision of Organizational Health:

At the heart of an organization is a vision and core set of values. That vision and those values help shapethe organizations mission, which, in turn, informs its program strategies, systems and structures. Anorganizations effectiveness depends on a shared understanding of, and commitment to, the vision, valuesand mission.

In effective organizations, the vision, values and mission derive from the convictions of people in the

organization and inform all other components of the organization. When the core components listed

below are in alignment with the vision, values and mission, they are more likely to be in alignment with

one another and lead to effective work and a sustainable organization.


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LESCO identified the following core components of effective organizations which need to be

revisited and aligned with the business strategy.

Vision, Values and Mission

Governance Strategic Thinking and Planning

Program Development and Implementation Evaluation, Learning and Accountability

Human Resource Management

Organizational Culture Management Systems and Structures

Legal Compliance, Fiscal Management and Public Accountability

Resource Development

Constituent Relationships

Collaboration


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Organizational Analysis

7-S Model developed by Mckinsey & Company can be a useful framework for analyzing and improving

LESCO because in order to be effective there must be a strong fit and alignment among all the seven Ss

so that a change in one will have a ripple effect on all the others. The Consultant is required to examine

all the Ss and try to gauge the gap and not only suggest but also formulate a road map towards the

effectiveness.

During the planning phase, all 7 factors should be analyzed and the eventual plan should address each

one. This project should, at the very least, have a formal stakeholder analysis and a communication plan.

Both must consider internal and external stakeholders. If the decision phase revealed significant Change

Management challenges, then the plan should include real and concrete deliverables to address these

issues. Some examples would be:-

Creation of materials to explain the new model, culture or vision.

Opportunities for senior management to visibly sponsor the change and demonstrate it through role

modelling.

Time and opportunity for staff at all levels to learn about and work through the proposed changes.

The use of pilot groups. A plan that is more exploratory than linear, each step building on the lessons of the previous step.

Regular temperature readings on the state of the factors through such mechanisms as surveys, focus

groups, meetings, absenteeism, customer satisfaction and process efficiency.

A mechanism to spot and report early successes.

A mechanism to spot and deal with problem areas.


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While doing the SWOT analysis, it is suggested to please keep in view the following:

o Has our organization been financially competitive? Scrutinize financial statements

o Were our strategic marketing objectives achieved? Strategic corporate objectives

o Are our prices and costs competitive? Value chain analysiso What are our distinctive competencies & resources?

Personnel, structure, physical resources, departmentso How strong is our competitive position relative to other DISCOs?

Competitive assessment with key success factorso How well are our present strategies working?

Competitive, corporate, functionalObjectives for Organizational Development:

1. Align the organization through shared objectives which include increasing capacity and financialstrength; building talent and our reputation.

2. Cascade objectives across the organization.3. Build supporting action plans.4. Assessment of exceptions.

Following model may be useful in establishing the direction:

Capability:What processes must be optimized to ensure future success? Which Strategies would be tied to the

capability? Which key success factors would be indicative of success and failures? How the factors wouldbe measured and managed?

Growth:How do we strengthen our financial position? What strategies would be formulated for business growth?

What would be the KPIs and how would they be managed?


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Relationships:How do we improve stakeholders satisfaction? What strategies would be undertaken to foster reputationand relationship? What would be the KPIs and how would they be managed?

Human Capital:How do we fill leadership gaps? How the leadership skills and knowledge would be institutionalized in

current employee base? How to identify the high potential employees? What development plans would beput in place?

Competencies may kindly be mapped. Profile the company ,functions and jobs. Define the desired state. Define the current state. Suggest how to build required competencies. How to encourage excellence ?

Human Resource Management:

A complete overhaul of the HRM functions would be proposed addressing each component and functions

of Human Resource Management:

1. Recruitment & Placement:i. The Legal Environment: It includes clearly outlining the laws and regulations that

significantly shape HRM policies. Many of these laws enshrined human rights acts,

Labour code etc

ii. Human Resource Planning: It determines and forecast the staffing needs by category ineach department besides knowing the operational and strategic goals. Effective HR

planning facilitates replacement and succession planning, recruitment and selection

strategies, as well as contributes to the attainment of organizational mission.iii. Job analysis: It includes determining the skills, knowledge, abilities other essential

characteristics required for effective job performance.

iv. Recruitment: Locating, attracting and obtaining the qualified individuals in adequatenumbers, at the right place and time , to enable the organization and individual to select

eachother.

2. Training And Development:i. Orientation, Socialization and Training would be designed to increase employee

engagement and satisfaction.

ii. Management Development: Programs may be suggested for high-potential managers sothat they acquire skills and abilities to effectively manage and lead in highly competitiveand dynamic business environment.

3. Compensation , Protection and Motivation:i. Motivational factors are supposed to be identified.ii. Compensation: Financial rewards are to be determined to induce desired behavior.


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iii. Performance Rewards may be designed to enhance productivity, increase efficiency andjob satisfaction.

iv. Employee benefits should be fine tuned to provide protection against risks such asattrition and health hazards.

v. Quality of Work Life Programs may be designed to improve life style of employees.

4. Employee Rights, Safety and Representation:i. Employee and Management contractual rights may be revisited.ii. Employee Health and Safety standards may be reviewed and upgraded.iii. Labour-Management relations platform would be developed to settle affairs.

5. Performance Appraisal and Career Management:i. Evaluation of the individuals past and future development potential activities would be

streamlined.

ii. Define appropriate channels of career managementsuch as planning, development andmanagement to facilitate the attainment of employees career aspiration.

Performance Appraisal System

Performance Appraisal is critical to improving motivation at work. Apart from administrative

considerations, it is suggested that employment development considerations should be considered while

crafting a new or improved system. Following factors would be central to the appraisal system:

i. Who should do the appraising?ii. What performance standard is expected?

iii. Which tools would suit the given environment? Such as Graphic rating scale, Forced distribution,Behaviourally Anchored Ratings Scale (BARS), Management by Objectives(MBO) or somehybrid form.

iv. A special care would be taken to avoid halo effect, the central tendency, the leniency or strictnessproblem, the recency effect, the similiarity effect and supervisory bias.

v. Critical incidents can also be recorded to cater for specific explanations.vi. Arrangement be made so that the subordinates view the appraisal fair.

vii. Specific method for conducting performance appraisal interview may be defined.viii. Standard operating procedures may be defined for the interview for giving an equal chance to the

subordinate.

ix. 360 degree kind of appraisal systems may also be discussed with the employees and responsewould be determined.

x. Improvement goals should be clearly embedded in the appraisal system.


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Reward and Pay System

i. Determining of Pay level according to job and skill evaluation.ii. Pay for performance may be employed but careful consideration should be given to

a) Measurement of performance in some acceptable way.b) Defining performance inclusively.c) Difference in pay between good and bad performance be substantial.

iii. Pay for performance systems would be based on individual , group and organizationperformance. Determine which one of them would suit LESCO? Whether profit or productivity

sharing would be employed?

iv. How the gains would be divided? Who would share in the gain? What percentage would go tovarious groups?

v. Who should participate in the design of the system? What level of participation would be desiredto maintain transparency?

vi. \What would be the size of the unit and whose performance is being judged?

Documents

TOR for LESCO Consultancy: Yousaf Hashim Khan