Transformative Organizations Response Books_3 potx

Prior to reform, the responsibility forpower sector management and development in Orissa was vested in the followingorganizations: compre-l Department of energy, Government of Orissa; l

the organization exist (the ownership problem; the formative challenge), by whomshould the organization be defined in terms of vision and values (the integrationproblem; the normative challenge), and of whom the organization would assumeresponsibility (the boundary problem; the fulfillment challenge) These challengesare best understood in the context of the organization as a democratic citizen,seeking to sustain and further the democratic spirit of the international society.

By focusing on supporting exchange among the stockholders and other holders, multiple local institutions, and diverse contributors to the organizationalfunctioning, the transformative organization can better fulfill its formative andnormative roles, without necessarily favoring one constituency over the other,and one institutional system over the other

stake-We showed how the evolutionary perspective invokes the concept ofmutation as a God-given gift in order to explain the formative force in effectiveorganizational design We underlined that this God-given gift can be cultivatedthrough learning conversations about the mission and vision of the organizationwithin the pioneering group, and then enhanced through normative developmentthat brings the organization into the mainstream The final test of the organiza-tional effectiveness is highlighted by the summative evaluation, which capturesthe milestones achieved by the organization

Our case analysis of the Wesman Group in the State of West Bengal in Indiashowed that the firm has reached tremendous milestones in terms of its marketposition and respect by the international partners However, from a normativeperspective, the commitment of its top management was not strongly related tothe optimism about the organization’s future, though both were moderatelyand equally positive Though neither top management commitment nor topmanagement optimism were part of the firm’s formative vision, the currentCEO had become increasingly aware over time about the need to give space andfreedom to the employees, and the role of the top management in this respect

To ensure effective performance, the firm identified common values and theirshared meaning through conversations at various levels of the organization Theseinitiatives were inspired primarily by the feedback from the grassroots level,and thus resulted in strongest performance enhancement at that level The middlemanagement, which was the source of disenchantment at the grassroots levels,actually saw some deterioration in its performance While the core values reflectedthe top management vision, and their operational meaning was identified usingthe grassroots conversations, no explicit effort existed as yet to discover andintegrate the middle managerial values

In general, the role of the middle managers has come under increasing scrutinyaround the world with the rise of the downsizing and the horizontal organizationsduring the 1990s With empowerment and multi-skilling at the grassroots level,and the spread of information technology at the mass level, the control andinformation transfer role of the middle managers has lost much of its relevance.Yet, middle managers represent a valuable resource for the organizations, sincetheir distinctive expertise is to codify and balance the more abstract knowledgeand values of the top management, and the highly diffused knowledge and values

at the grassroots Such an expertise is uniquely appropriate to the role of

promoting exchange in knowledge and values, not only across different levels inthe organization, but also across different radii of commitment outside theorganization, multiple stakeholders of the corporation, and the varying localand national institutions It is only by re-discovering the relevance of eachresource, including middle managers, that the organizations can become trulytransformative and perform most effectively That is the essential challenge forthe organizations in the 21st century democratic societies.

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Impli-4 Roles of Principal Players

during Restructuring

The Orissa State Electricity Board

Thillai Rajan A l V Anand Ram

The provision of electricity has become synonymous with economicdevelopment and social progress today The Electricity Supply Industry (ESI) isone of the largest industries and it occupies an important position in the worldeconomy Over the past decade, several countries worldwide have taken steps

to implement reforms in the ESI (Joskow 1998; Berg, 1997; Munasinghe, 1997;and Bates, 1997) Most studies of these reforms have not focused on thetransformative process within an organization (Rajan Thillai, 2000a; Pollitt, 1997)

In this chapter, we study the role of principal players during restructuring using

a process framework that looks at the sequences of events, actions and activities(Rajan Thillai and Anandram, 2001)

Literature Review: Privatization Restructuring

Any privatization results in a new environment for the firm which is characterised

by changes in the markets (capital and product markets according to theirrelevance), introduction of new threats (competition and regulation), andreduction in politically imposed constraints Prominent changes expected in theexternal environment after privatization are:

1 Budget Constraint: Public ownership is based on the notion of a soft budgetconstraint (Rowthorn and Chang, 1993) The losses incurred by a corporationwere made up by the government, either by way of subsidies or direct grants.After privatization, the firm will not be able to depend on this kind of comfortfrom the government

2 Political Intervention: Under state ownership, public corporations are subject

to direct political control (Ferner and Colling, 1993) This political control givesministers more diffuse means of exerting informal pressure on the managementeither through ‘arm twisting’ methods or direct intervention in managementdecision-making over a range of issues But after privatization, the corporation

is more subject to market forces (competition or regulation as the case may be)and less influenced by political or administrative control (Ramanadham, 1988).

3 Capital Market and Consumer Discipline: Privatization would expose the firm

to the discipline of the capital market as it needs to address the concerns of thenew shareholders for future resource mobilization The privatized firms wouldalso need to be more customer conscious as they are required to respond tomarket demands rather than political constraints (Clarke, 1993)

To function effectively in the new environment, appropriate changesare required in the internal mechanisms of the organization (Parker, 1993;Woodward, 1988) Literature indicates several changes in the internal environ-ment of the organization following privatization Hammer et al., (1989) say afirm under transition from a public sector to the private sector would require achange in their corporate culture Salama (1995) says that for the firms tofunction effectively in the new circumstances following privatization, the firmmust possess appropriate skills to manage in a market economy She also saysthe introduction of entrepreneurial behaviour is required to provide ex-stateenterprises with the dynamism needed for the expected transformation in thefirm’s efficiency

After privatization, a firm is forced to function differently from the stategovernment enterprise Wallis (1995) describes these changes in PowerGen, whichwas privatized from the Central Electricity Generating Board of the UK Hestates,

‘The extent of change needed was enormous Whereas the CentralElectricity Generating Board had been risk averse, PowerGen needed to

be innovative Whereas the Central Electricity Generating Board had beenengineering-led, PowerGen needed to be commercially driven Whereasthe Central Electricity Generating Board had no concept of the customer,the customer needed to be PowerGen’s main focus And whereas theCentral Electricity Generating Board had been slow moving andbureaucratic, PowerGen needed to be flexible and responsive.’

In their study on the privatization of British utilities, Ferner and Colling(1993) note that the management of privatized companies strive to adapt anorganization culture to a more market-driven environment, by making it moreresponsive to customer demands and more innovative and flexible in the face ofcompetitive pressures

Simnett (1997) also indicates that several measures were taken by NationalPower, the privatized generation entity of the UK ‘to overcome the legacy of anationalised industry workforce and inefficient plant’ Some of the measurestaken were reduction in the workforce, increased employee training, performance-related incentives for employees, and improved IT systems

Parker (1993) attempts to identify various changes in the internal ment of the organization following privatization by studying 10 organizations

environ-in the United Kenviron-ingdom that underwent privatization He says that theorganization structure changed from a rule bound bureaucratic one to one thatwas less hierarchical, less centralised and less rule bound Salama (1995) studiedthe effects of privatization on culture change in five companies that had beenprivatized in the UK and Brazil Her results indicate that it is not just ownershipthat triggers a culture change The top management’s perceptions about thechanges in the business environment were the conditions for the process ofchange in the firms investigated New CEOs were appointed to prepare theorganizations for the new environment; they modified the core mission (bringing

in profit orientation) and organization structure (decentralisation) in theorganizations The need for change was communicated to the employees at alllevels in the organization During the process of culture change, all companiesunder investigation modified their personnel practices regarding managerialcareers The study also found that after privatization, the managers started tolearn and embrace new ways of doing things

Davidson (1994), while studying the developments in two privatized utilities

in the UK, found that after privatization, the organizations move towardscontract labor from direct employment There was a separation of variousactivities into independently accountable profit centers, which must buy andsell services from and to other departments or profit centers within the organiza-tion She also notes that these organizations adopted new accounting practicesand performance-related pay for its executives

Nelson and Dowling (1998) have studied the commercialization of TasmaniaElectricity using the contextual method developed by Pettigrew (1987) andDawson (1994) They conclude that though the environmental forces do have

an impact on organizational plans for change, the difficult thing for management

is to control the unfolding events, as much as possible, as change progresses.Some studies suggest that the performance improvements that occur afterprivatization can be traced to changes in the organization following privatization.Newbery and Pollitt (1997), for instance, note that the productivity increasesthat occurred following the privatization of the British electricity sector are notjust derived from plant closures, reduction in employees and fuel switches, butalso as a response to a different management style

Research Design

Case study is an appropriate strategy when there is no control over behavioralevents and the research focuses on contemporary events (Yin, 1984) Therestructuring of the Orissa State Electricity Board (OSEB) in India has beenused as a case in this research study The restructuring of OSEB was a part of thelarger reform program that was implemented in the Orissa power sector.Restructuring of OSEB was chosen for the study because:

1 OSEB was the first utility in India and South Asia to undertake reform andrestructuring

1 Circular No 7786/E, Department of Energy, Government of Orissa, Bhubaneswar, dated April

20, 1995.

2 The restructuring program had the active involvement of multilateral lendingagencies like World Bank, DFID, Asian Development Bank, and severalleading management consultants

3 Several other utilities in India and elsewhere were planning to restructuremore or less on the lines of OSEB Therefore the experience of Orissa would

be important to other states, in policy or practical terms

ORISSA POWER SECTOR REFORM PROGRAM:

A BRIEF OVERVIEW

Orissa was the first state in India and also in South Asia to implement a hensive power sector reform program Prior to reform, the responsibility forpower sector management and development in Orissa was vested in the followingorganizations:

compre-l Department of energy, Government of Orissa;

l Orissa Power Generation Corporation; and

l Orissa State Electricity Board (OSEB)

OSEB obtained the required power for distribution either from its owngenerating stations, generating stations owned by the department of energy, orfrom other power generators By using its transmission and distribution network,

it supplied power to the end consumers

The process of power sector reform started in November 1993 when theOrissa government had discussions with the World Bank to improve theoperational and financial performance of OSEB to enable Orissa to attract privateinvestment for power development These discussions resulted in an agreementbetween the Orissa government and the World Bank to implement power sectorreform to secure funding for the sector The reform program was subsequentlyreviewed and approved by the chief minister and council of ministers of Orissa.1 

The Orissa power sector reform program comprised the followingcomponents (World Bank, 1996):

l Restructuring of OSEB by corporatization and commercialization: dling and structural separation of generation, transmission and distributioninto separate services to be provided by separate companies

Unbun-l Privatization: Private sector participation in hydro generation and gridcorporation, and privatization of thermal generation and distribution

l Competition: Procurement of new generation through competitive bidding

l Separate Regulation: Development of an autonomous power sector regulatorycommission

l Tariff Reform: Reforming of electricity tariffs at the bulk power, transmissionand retail levels

OSEB was vertically unbundled into separate companies for generation,transmission and distribution All the hydro power generating plants were vestedwith Orissa Hydro Power Corporation The transmission assets were vestedwith Grid Corporation of Orissa Though the Orissa government initially ownedGrid Corporation and Orissa Hydro Power Corporation, they were graduallyexpected to attract private participation.

New legislation was enacted to govern the power sector of Orissa afterreform An autonomous regulatory commission, called the Orissa ElectricityRegulatory Commission, was constituted to ensure operational, managerial, andfinancial autonomy of the new utilities and to promote transparency, efficiency,and economy To ensure autonomy of the regulatory commission, the commis-sion members were chosen on the basis of their ability, integrity, knowledge,and experience in dealing with various problems relating to the power sector.After the regulatory commission was constituted, the role of the Orissa govern-ment was restricted only to policy making and planning for the sector.Four zones were created for power distribution in Orissa As a first steptowards privatizing distribution, Grid Corporation of Orissa entered into amanagement contract called the Distribution Operations Agreement, withBombay Suburban Electricity Supply Company, a private sector utility, to takeover the power distribution in one of the zones on October 1, 1996 Under thisarrangement, the private utility was responsible for distribution of energy,maintenance of the distribution system, and collection of electricity dues in theCentral zone Though the initial distribution agreement was for three yearsfrom October 1996, Grid Corporation of Orissa cancelled the agreement inApril due to drawbacks in certain contractual provisions in the DistributionOperations Agreement

After the failure of the Distribution Operations Agreement, the Orissagovernment decided to privatize distribution forming the four zones as separatedistribution companies The four companies were incorporated as subsidiaries

of Grid Corporation in November 1997 and four new managing directors wereappointed for these companies in March 1998.2  Privatization was introduced indistribution by offering 51 per cent of the equity in these companies to privateinvestors The investors were selected through international competitive bidding

on the basis of their financial and technical capability, track record and ment to the improvement of the electricity distribution system Though theinvestors were to be given full managerial autonomy, they were required tohonor the terms and conditions of employment of employees of the distributioncompanies After privatization, Grid Corporation held 39 per cent of the equity

commit-in the distribution companies, while 10 per cent of the shares was held by theemployees trust The privatization process for the distribution companies wascompleted in the first half of 1999

There was an unfortunate setback to the process of reforms when Orissawas ravaged by two devastating cyclones in quick succession following the

2 The GRIDCO Newsletter, March 1998.

privatization of distribution The damage caused to the transmission lines andsub-stations in the state had been estimated at Rs 3000 million ($ 65 million).However, there have been some indications of improvement in the quality ofservice and revenue collections3 .

The data collection methods for the study included documentation, fieldobservations, and from in-depth interviews Such multiple sources of evidencehelped in developing converging lines of inquiry Any finding or conclusion in

a case study is likely to be much more convincing and accurate if it is based onseveral different sources of information, as this leads to a “within-method”triangulation (Denzin, 1978:301)

Documentary evidence was collected from various sources such as:

l letters, memoranda, and other communiqués;

l agendas, announcements and minutes of meetings, and other written reports

of events;

l administrative documents—proposals, progress reports and other internaldocuments;

l newspaper clippings and other articles that appeared in the media

These documentary sources helped to construct the chronology of events

in the reform program, and also provided information about various decisionstaken during the period and the rationale behind those decisions The gaps afterthe study of documentary evidence also provided further insights that wereprobed in greater detail during the interviews

As indicated by McCutcheon et al., (1993), observations made during fieldvisits serve as another important source of evidence in a case study The mainform of data collection for this study was through in-depth interviews with keypeople involved during different stages in the restructuring process The partici-pants for the interviews were chosen based on their involvement and contribu-tion to the implementation and planning of the Orissa power sector reformprogram The interviews were semi structured where the broad area of informa-tion needed from each respondent was determined before the interview wastaken On an average each interview lasted between 90–120 minutes

A processual framework developed based on the various events that took placehas led to an emergence of three conceptual phases in the restructuring process,with each phase being characterized by different sets of activities and tasks (RajanThillai and Anand Ram, 2001)

3 Anecdotal evidence on this is given in the various Grid Corporation of Orissa newsletters between the period May–December 2000.

The three conceptual phases and their definitions are as follows:

1 Impetus Phase It is defined as that period during which the momentum forchange originated and got strengthened, thereby providing a definite thrust forreforms An analysis of the causal factors of Orissa power sector reform programhas been published elsewhere (Rajan Thillai, 2000b)

2 Reorganization Phase It is defined as that phase of the reform program thatwas characterised by structural changes in the power sector, resulting in a newindustry structure

3 Consolidation Phase It is defined as that phase during which the new tions created by restructuring were strengthened to make them financially andcommercially viable companies A description of the different strengtheningmeasures undertaken has also been published earlier (Rajan Thillai, 2000c).Impetus phase, Reorganization phase, and Consolidation phase incorporatesthe temporal element of the restructuring process It starts with a phase duringwhich the momentum for change originates, and ends with a phase during whichthe new organizations are strengthened to make them financially and com-mercially viable organizations (Rajan Thillai, 2000a)

organiza-PRINCIPAL PLAYERS IN UTILITY RESTRUCTURING

The principal players in the restructuring process are the government, topmanagement of the utility, the lending agencies, and the consultants The reasonsfor identifying them as the principal players are as follows:

Since the government has a statutory role in overseeing the power sector,therefore, any change in the sector will, ipso facto, involve it The restructuring

of the ESI and its subsequent privatization will require several changes in theinternal environment of the organization The top management will play animportant role in implementing these changes The poor financial position ofthe utility and the inability of the state government to support the sector results

in the utility seeking external assistance In such conditions, the lending agencieswill stipulate reforms before providing assistance to the power sector Consultantswill assist the host utility during the restructuring process They would also co-ordinate with the host utility in implementing the restructuring process.The following paragraphs summarise the role played by the principal players

in the three phases identified in the restructuring process

IMPETUS PHASE

The power sector of Orissa accounted for a significant and increasing share ofthe state government’s resources, both in terms of planned investment andsubsidies Such large spending on investments and subsidies in the powersector had contributed to the fiscal deficit of the state and had also affected the

government’s spending in social sectors like health and education To reversethis situation, the government had taken a number of initiatives and policychanges since 19914 .

The leading role played by the Conservative Thatcher government in 1979during UK privatization and the government of Konrad Adenauer in FederalRepublic of Germany during the privatization in 1961 in West Germany aretwo well known instances of the government playing a prominent role inimplementing privatization (Megginson et al., 1996)

The Orissa government had demonstrated similar commitment to implementthe power sector reforms The commitment expressed by the chief ministertowards power sector reforms in Orissa was so strong that the World Bank didnot demand any further assurances on the government’s commitment to reformand interest in obtaining World Bank assistance to implement its reformprogram5 

The commitment to the reform program had also been demonstrated bythe government by implementing difficult and unpopular measures, like tariffincreases, which is a prominent feature of power sector reform programs indeveloping countries (Joskow, 1998)

The Orissa government made a series of tariff adjustments, which raisedaverage tariff revenue by about 67 per cent from April 1992 As a policy measure,the government adopted a policy of annual tariff adjustments of 15 per cent.The series of tariff adjustments prevented abrupt tariff increases following reform,which could have made the implementation of the reform program politicallyimpossible

The steering committee was chaired by the chief secretary to the government

of Orissa and had as its members, the secretaries of finance, law and energy Thetask force was chaired by the energy secretary and had representatives from thefinance and law department Such high level representation ensured adequategovernment monitoring and support for the program

The World Bank has been actively engaged in power sector development in thedeveloping countries both as a financier and advisor (Haugland et al., 1997) It

is the single largest source of capital for power projects in these countries It setstrends in private sector lending and through its economic advice and loanconditions shapes energy policy in many developing countries (Strickland andSturm, 1998)

In recent years, the World Bank had played a leading role in implementingpower sector reform in developing countries (Nelson, 1996) For example, inthe four-year period between 1992–1996, the World Bank made $9.5 billion inloans to 61 power projects with a total cost of almost $40 billion Virtually allthe 61 power sector projects required reforms by the borrowing country Most

4 World Bank Aide Memoire, dated November 28, 1993.

5 This had been indicated in the World Bank Aide Memoire, dated November 28, 1993.

required the restructuring of the concerned electric utility in some form and 48

of them required the borrowing country to raise or rationalise electricity prices(Strickland and Sturm, 1998)

In 1993, the World Bank formulated new policies for power sector lending(World Bank, 1993) According to this policy, the World Bank provided loansonly to those utilities, which functioned on commercial lines, or which werecommitted to improving the performance of the power sector through reform

It had been previously noted that, such policy conditions attached to multilateraland bilateral assistance had played an important triggering role in initiatingand implementing reform in many developing countries (Commander andKillick, 1988)

The World Bank’s view was that the situation in India was fully consistentwith the worldwide trend Therefore, conforming with the 1993 World Bankpolicies, even in India, the World Bank had put forth power sector reforms as anecessary condition for future assistance to the power sector These policy changesand conditionalities of the World Bank were one of the motive factors forimplementing the power sector reform program in Orissa The Orissa powersector reform program was also designed with the aim to secure private sectorparticipation in the power sector

The importance of the chief executive being a good leader for initiating thechange process has been well-recognized (Kotter, 1995; Nutt and Backoff, 1997a;Nutt and Backoff, 1997b) The OSEB chairman played an important role ininitiating the reform process Though the initial efforts were not quite similar

to the final version of the reform program, they nevertheless represented thefirst steps taken towards the more comprehensive reform program planned duringthe subsequent months Two prominent initiatives were in investment practicesand tariffs To remedy the situation, the chairman made efforts to increase theinvestment in transmission and strengthening the distribution network.Another initiative taken by the OSEB chairman was in regular revision ofelectricity tariffs, to improve the financial performance of OSEB Previously,the tariffs of OSEB were not increased to reflect the increases in costs Thestudy of tariff increases of OSEB in the past indicates that tariffs were not usuallyrevised for three–four years, followed by a sudden revision of about 30 per cent.Apart from being a poor commercial practice, it had become difficult to forecastthe price of power Power being an important component in many manufacturingprocesses, accounting for such ad hoc increases was getting difficult for businesshouses So, the chairman ensured that the tariffs were revised at the rate of five–seven per cent at yearly intervals so as to keep the tariff increases in manageablelimits The chairman persuaded the government about the necessity of suchregular tariff increases to improve OSEB’s financial performance Such tariffreforms later became an integral component of the reform program

REORGANIZATION PHASE

The reorganization phase witnessed a lot of political activity in Orissa TheOrissa power sector reform program was initially approved by the council ofministers during April 1994 The state went into elections subsequently, whichresulted in a new party assuming power following the elections in 1995 However,the newly elected party (Congress-I) as indicated in its election manifesto notonly continued to support the implementation of power sector reforms butalso announced its intention to accelerate the process The new governmentissued a formal statement of its power policy in April 1995 indicating itscommitment to continue the reform program As the OSEB chairman remarked,

‘Orissa was fortunate to have two governments which did not reverse thepolicy decisions of the earlier Government.’

During the reorganization phase the Orissa government supported thereform program in all its critical moments This included for example, defendingthe reform bill at the center to obtain the assent of the President, in its ownassembly, in implementing the Act, in funding the regulator, and in transfer ofpersonnel

Apart from the general support of the government, the chief ministers ofboth governments provided an especially strong support to the reform program.The chief ministers created conditions that ensured that the implementation ofthe reform program progressed as planned First, through the appointment of asuitable chairman of OSEB during the reorganization phase M.Y Rao, whowas appointed as OSEB chairman during this phase of the power sector reformprogram, was widely known as a non-political person with strong administrativecapabilities Second, the chief ministers ensured that the chairman of OSEB [thechairman of OSEB during restructuring later continued as chairman of GRIDCO]and other key personnel involved in implementing the reform program werenot transferred or replaced during the crucial period of implementation Thusstability was ensured during the reorganization

Further, for a period during the reorganization phase, the chief ministerhad the energy portfolio This arrangement resulted in obtaining faster decisions

as the reform program had the direct attention of the chief minister

As a measure to improve the financial viability of GRIDCO, the governmenttook the first step of being a good consumer of power It decided to pay itsoutstanding power bills and settle its other financial obligations to GRIDCO

The OSEB chairman and subsequently the chairman and managing director ofGRIDCO, Mr M.Y Rao, provided strong support and direction to the program.Though there were several people who had played a key role in the reformprogram, almost all the respondents during the interview acknowledged the keyrole played by M.Y Rao

The chairman organized various meetings to explain the importance ofreform and restructuring to the field offices During the reorganization phase, alot of information was required from the divisions and field units But the datawere not forthcoming from the field units He issued a letter to the field units,instructing them to provide the necessary data And when some of the divisionsdid not adhere to the request, the chairman intervened directly to expeditesubmission of the required information.

The consultants played a key role in the restructuring process The mainobjectives for hiring consultants were two fold: First, the consultants broughtthe experience of having done it before Second, they brought dedicated resourcesfor the project For example, OSEB had to undertake its routine functions ofgenerating and selling power to the consumers It was not able to allocatededicated staff for the project, as there was a shortage of qualified staff.The consultants assisted in formulating of a reform plan, creating separateentities, developing a financial model for the new corporations, valuation of theassets of OSEB and the Orissa government, drafting the Orissa electricity reformact, and transfer of personnel to different corporations

To aid in the strategic exercise, the consultants initially obtained valid andrelevant information from the organization starting from the field units Multi-faceted technical and managerial data were collected including the number ofemployees, number of consumers, distribution of various consumers, revenuedata, and generation station data These data were used to process the reformplan subsequently

Most of the consultants involved in the reform program were foreignconsultants There was no Indian firm experienced in utility restructuring, asOrissa power sector reform was the first instance of such an exercise in India

By hiring foreign consultants, the Orissa reform program gained from theexperience of those who had actually worked in the reforms in other countries.However, while formulating the reform plan, the consultants worked closelywith reform project management group Though the consultants had experience

in international utility restructuring, they lacked knowledge about the Indianpower sector A senior general manager explained how the Indian power sectordiffers significantly from the power sector in developed countries

‘In the west, for example in cities like London there are very low outages,may be about 8–10 hours a year But here we have about 8–10 days a year

In India, there have been cases where there was no power supply for 24hours In London, if there is no supply for 24 hours then the company has

to pay a compensation to the consumer If a complaint is not answeredwithin one hour, then the company has to pay a fine These things wecannot adapt here easily There the growth rate is very low, as already

most of the consumers have got electricity connection But our growthrate is high, as significant electricity connections are yet to be made.’Consultants had to take these factors into consideration while formulatingthe reform plan Moreover development of reform act and reform bill neededknowledge of local laws and customs During this phase, apart from formulatingthe reform plan, the consultants also exposed the managers of OSEB tointernational practices and trends in the electricity industry.

The World Bank was the largest lending agency assisting the reform program.The role of the lending agency during this phase was to ensure that there was noreversal of the initiatives taken towards power sector reform in Orissa

To ensure the Orissa government’s commitment to the reform program,the World Bank insisted that the government took certain irreversible decisionsbefore finalising the loan agreement Box 1 lists the conditions that needed to bemet before availing the assistance for power sector reforms

Box 4.1: World Bank Conditions to be Met Before Availing Loan

l The Orissa government had to issue a formal statement on its power sector policy to the World Bank.

l The Orissa government to implement power sector reform program as specified in its power policy statement.

l Registration and transfer of assets made to OHPC and GRIDCO.

l The state government had to formally approve the reform legislation and submit its final draft bill to the Government of India for clearance.

l The Orissa government had to put in place a management contract acceptable to the bank that transferred at least one of OSEB’s distribution circles to private management.

l The regulator formally established and its regulatory procedures acceptable to the bank, adopted and published.

The task leader of the World Bank team responded,

‘This is the first time that a program of this nature has been attempted inIndia We insisted on these conditionalities before availing the loan becauseour experience in the past has not been very good The governments used

to make a lot of promises, but finally would not do anything Therefore,

we needed to start with something instead of just promises.’

CONSOLIDATION PHASE

The Orissa government was completely supportive of the reform program First,

it ensured that the key people who were entrusted with the responsibility forimplementing the reform program actually supported it

Second, the government fully backed the GRIDCO chairman for menting the reform program even for many contentious issues Previously, theOSEB chairman derived his powers from a resolution of the OSEB board whichwas also backed by a government order This meant that the government decidedthe SEB chairman’s powers For important decisions, he had to get the approval

imple-of the state government But after corporatisation imple-of GRIDCO, the CompaniesAct and Articles of Association of the company gave the broad parameters ofthe chairman’s powers

In keeping with the spirit of the reform program the Orissa governmentstopped the subsidies to GRIDCO Usually, the SEBs are supported by theirrespective state governments The state governments provided subsidies to theSEBs to enable them to achieve the mandatory 3 per cent return on net assets asstipulated by the Electricity Supply Act The SEBs did not face any constraint

in achieving the mandated return as the state governments bridged the revenueshortfall

After restructuring, Orissa imposed a hard budget constraint on GRIDCO

by stopping the practice of providing subsidies to it The hard budget constraint6 

has been one of the widely used measures in state enterprise reform (WorldBank, 1995) This indirectly forced GRIDCO to concentrate on improving itsperformance The state government continued to support GRIDCO in otherways As it was owned by the state government, the loans raised by it had a stategovernment guarantee for repayment This guarantee helped GRIDCO to raisefunds at lower rates of interest

The state supported GRIDCO’s efforts to advance the privatization of thedistribution business, after the failure of the initial Distribution OperationsAgreement According to the initial reform plan, the distribution zones of Orissawere supposed to be privatized only by December 2000, which was later advanced

to April 1999 following the failure of the Distribution Operation Agreement.The main reason behind this being that GRIDCO was incurring large losses indistribution and was not in a position to absorb these losses in the absence ofassistance from the state government Therefore, GRIDCO proposed to thegovernment that distribution be privatized sooner than envisaged, which wassupported and announced by the chief minister

6 A state enterprise is said to have a hard budget when,

1 It gets no subsidies, transfers, or special privileges, such as tax exemptions.

2 Its access to credit is decided by independent banks on the basis of commercial principles, without government guarantee and on market determined terms.

3 Its prices are set by the market, or if the enterprise is a monopoly, through regulation.

Broadly the consultants had two objectives during the consolidation phase.First, to ensure that the various change measures that were planned actually getimplemented Second, to sustain the changes in the organization even after theconsultants leave The various measures taken by the consultants in achievingboth the objectives are discussed below.

To ensure that the various change measures get implemented in GRIDCO,the consultants worked very closely with the employees Several consultantswere sent on secondment exercises to GRIDCO, where they worked as employees

to facilitate the change process

The consultants were seconded at various levels in the organization Forexample, in the finance department in each of the four distribution companies,senior consultants were deputed to GRIDCO to act as zonal finance managers.They remained with the distribution company for the last 18 months Underthe zonal finance managers, there were assistant general managers In the corporateoffice, a senior consultant was seconded to function as assistant director of finance

As a part of the revenue improvement activity, each divisional engineer andsub-divisional officer also had a consultant counterpart

Another measure to ensure the implementation of the change efforts was todesign the initiatives appropriate to the context and needs of GRIDCO In most

of the cases, the consultants took the existing practices of GRIDCO and tried toimprove upon them rather than bring in totally new practices They hired localconsultants to understand the local context They ensured the involvement andparticipation of GRIDCO in the entire process The consultants also took 30 ofthe top managers of GRIDCO on professional development tours abroad toobserve some of the companies where electricity sector reforms were undertaken.These tours sensitized the top management to the best practices for managingthe reforms in Orissa, leading to their support

The second objective of the consultants was to ensure that the changeprocesses are sustained by adequate transfer of skills to the employees ofGRIDCO The secondment exercise to a certain extent facilitated this process

By this way of working closely with the consultants, which one of the consultantsrecounted as ‘a hand holding exercise’, the GRIDCO employees learnt the newprocesses when the consultants were around Once the consultants left aftercompleting the project, it was not difficult for the employees to continue theprocesses Another activity was to produce manuals that documented step bystep procedures of the new processes As a consultant remarked,

‘The basic idea of this was that, even a person who has been trained when

he is not sure of something, can refer to the manuals and when new people arerecruited it would help them to learn the effective procedures.’

There was new recruitment of professionals to top management posts (chiefgeneral managers and directors of departments) following restructuring Themain purpose of recruiting professionals at the top was to provide necessary

direction and guidelines for their respective departments As the chief generalmanager of HRD remarked,

‘There was no new recruitment made in the middle or lower management

We were working with the same people Our role was to provide a shot in thearm for the department.’

The top management’s commitment ensured that the rank and file alsosupported the reforms

The GRIDCO chairman recounted the nature of the various activitiesperformed by him during the reform program:

‘ During the period when the working groups were functioning, my role wasmore of that of a facilitator Half of the time I was functioning as the chairman

of OSEB and the remaining as a chief executive who was heading anorganization in transition There was a theoretical concept of reform thatwas put forth by the World Bank and consultants and then there were theground level realities of reforming the organization I acted as a link betweenthem This went on practically up to 1996

But after restructuring most of my activity was concentrated on thenitty gritties I was engaged in realising the electricity dues, metering theconnections so that we can get money into the system I had spent about

70 per cent of the time on the operational issues.’

ROLE OF WORLD BANK

A significant change in the stand of the World Bank could be noted during thisphase Before the loan agreement was signed the World Bank stipulated severalcompliances before the award of the loan But after the loan was signed, theWorld Bank was more encouraging about the progress of the project As theOrissa power sector reform was the first such program to be implemented inIndia, the World Bank wanted the program to become successful Failure of theOrissa reform program might have had an adverse effect on the reform initiatives

in other states

The World Bank, through its mission teams, monitored the project regularlyand was keen to make it successful to set an example for other states There wascontinuity in various World Bank missions This developed mutual trust betweenGRIDCO and the World Bank During this phase, they discussed variousproblems and their solution in detail with the GRIDCO people

The World Bank task force leader explained the objective behind the WorldBank monitoring as,

‘Our objective in continuous monitoring of the project was to ensure thatthe project succeeds Though we are not bothered about the repayment ofthe loan, as we make the loan directly to the Government of India, we didnot want to make loans that burdened the nation Our objective throughthese missions was to ensure that the reforms yielded a positive net flow

to the state government.’