I. ~~~~~~~~~~~~~~m( WORLD BAN ENERGy i: mproving 1ttl rc Power Utility Efficiency Issues and Recomtnendationqs i, , Christoph Menke and P. Gregory Fazzari IF I I;,x,,,,,-At'T";'t'l W RECENT WORLD BANK TECHNICAL PAPERS No. 173 Bymes, Water Users Association in World Bank-Assisted Irrigation Projects in Pakistan No. 174 Constant and Sheldrick, World Nitrogen Surey No. 175 Le Moigne and others, editors, Country Experiences withi Water Resources Management: Economic, Institutional, Tecrnological and Environmental Issues No. 17b The World Bank/FAO/UNIDO/lndustry Fertilizer Working Group, World and Regional Supply and Demand Balances for Nitrogen, Phosphate, and Potash, 1990J91-1996/97 No. 177 Adams, The World Bank's Treatment of Employment and Labor Market Issues No. 178 Le Moigne, Barghouti, and Garbus, editors, Developing and Improving Irrigation and Drainage Systems: Seleted Papersfomn World Bank Seminars No. 179 Speirs and Olsen, Indigenous Integrated Fanning Systems in the Sahel No. 180 Barghouti, Garbus, and Urnali, editors, Trends in Agricultural Diversification: Regional Perspectives No. 181 Mining Unit, Industry and Energy Division, Strategyfor African Mining No. 182 Land Resources Unit, Asia Technical Department, Strategyfor Forest Sector Development in Asia No. 183 Najera, Liese, and Hanuner, Malaria: New Patterns and Perspectives No. 184 Crosson and Anderson, Resources and Globad Food Prospects: Supply and Demandfor Cereals to 2030 No. 185 Frederiksen, Drought Planning and Water Efficiency Implications in Water Resources Management No. 186 Guislain, Divestiture of State Enterprises: An Overview of the Legal Framework No. 187 De Geynd t, Zhao, and Liu, From Barefoot Doctor to Village Doctor in Rural China No. 188 Silvernan, Public Sector Decentralization: Economic Policy and Sector Investment Programs No. 189 Frederick Balancing Water Demands with Supplies: The Role of Management in a World of Increasing Scarciiy No. 190 Macklin, Agricultural Extension in India No. 191 Frederiksen, Water Resources Institutions: Soam Principles and Practices No. 192 McMillan, Painter, and Scudder, Settlenent and Development in tihe River Blindness Control Zone No. 193 Braatz, Consering Biological Diversity: A Strategyfor Protected Areas in the Asia-Pacific Region No. 194 Saint, Universities in Africa: Strategicsfor Stabilization and Revitalization No. 195 Ochs and Bishay, Dminage Guidelines No. 196 Mabogunje, Perspective on Urban Land and Land Management Policies in Sub-Saharan Africa No. 197 Zymelmnan, editor, Assessing Engineering Education in Sub-Saharan Africa No. 198 Teerink and Nakashima, Water Allocation, Rights, and Pricing: Examplesfrom Japan and the United States No. 199 Hussi, Murphy, Lindberg, and Brenneman, The Development of Cooperatives and Other Rural Organizations: The Role of the World Bank No. 200 McMillan, Nana, and Savadogo, Settlement and Devlopment in the River Blindness Control Zone: Case Study Burkina Faso No. 201 Van Tuijl, Improving Water Use in Agriculture: Experiences in the Middle East and North Africa No. 202 Vergara, The Materials Revolution: What Does It Mean for Developing Asia? No. 203 Cleaver, A Strategy to Develop Agriculture in Sub-Saharan Africa anda Focus for the World Bank No. 204 Barghouti, Cromwell, and Pritchard, editors, Agricultural TechnologiesforMarket-Led Dreelopment Opportunities in the 1990s No. 205 Xie, Kuiffner, anri Le Moigne, Using Water Efficiently: Technological Options No. 206 The World Bank/FAO/UNIDO/Industry Fertilizer Working Group, World and Regional Supply and Denand Balancesfor Nitrogen, Phosphate, and Potash, 1991/92-1997/98 No. 207 Narayan, Participatory Evaluation: Toolsfor Managing Change in Water and Sanitation (List continues on the inside back cover) WORLD BANK TECHNICAL PAPER NUMBER 243 ENERGY SERIES Improving Electric Power Utility Efficiency Issues and Recommendations Christoph Menke and P. Gregory Fazzari The World Bank Washington, D.C. Copyright C 1994 The Intemational Bank for Reconstruction and Development/THE WORLD HANK 1818 H Stret, N.W. Washington, D.C. 20433, USA. AUl rights reserved Maniufactured in the United States of America First printing May 1994 Technical Papers are published to communicate the results of the Banlcs work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsbility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should notbe attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. 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The complete backlist of publications from the World Bank is shown in the annual Index of Publicatios, which conbins an alphabetical title list (with fuli ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is avalable free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, USA, or from Publications, The World Bank, 66, avenue d7ina, 75116 Paris, France. Cover photo caption.- Interior of a well-run diesel power plant in Sumatra, Indonesia. Photograph courtesy of Kreditanstalt fir Wiederaufbau (KfW), Frankfurt-am-Main, Germany. ISSN: 0253-7494. Christoph Menke is a power engmeer with Deutsche Gesellschaft fur Teduusche Zusammenarbeit (GTZ). P. Gregory Fazzari is a consultant to the Industry and Energy Department at the World Bank. libray of Congress Cataloging-in-Publication Data Menke, Christoph, 1956- Improving electric power utility efficiency : issues and recommendations / Christoph Menke and P. Gregory Fazzari. p. an. - (World Bank technial paper, ISSN 0253-7494; no. 243. Energy series) Includes bibliographical refences. ISBN 0-8213-28014 1. Electric utilities-Developing countries-Management L Fazzari, P. Gregory, 1927- . 11. Title. m. Series World Bank tehnical paper ; no. 243. IV. Series World Bank tedhnical paper. Energy series. HD9685.D452M46 1994 333.792091724-dc2O 944995 ClP Electnc Power Utility Efficiey Improvement Study Steering Committee and Sponsoring Organizations Dr. Suresh Hurry United Nations Departnent of Technical Co-Operation for Development (UNDTCD), New York Dr. David Jhirad United States Agency for Intenational Development (USAID), Washington, DC Richard Jones British Overseas Development Administraion (ODA), London Krister Loenngren Fnnish International Development Agency (F1NNIDA), Helsinki Dr. Rainer Lotz Bundesinisum ftrWirtschaftliche Zusammenarbeit (BMZ), Bonn Gerhard Oelert Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) Eschbornm Frankfut-am-Main Uwe Ohls Keditansltfor Wiederaufbau (KfW), Frankfurt-am-Main Dr. Gunter Schramm Project Manager, The World Bank (1BRD/IDA), Washington, DC Christian Sorensen Department of Intematonal Development Cooperation (DANIDA), Copenhagen United Nations Development Programme (UNDP), New York This document represents the views of the members of the Electric Power Utility Efficiency Improvement Study Steering Committee and has been adopted as an official position by the German participating agencies. However, the paper does not necessarily reflect the official opinions of all participating agencies and may not be published or quoted as representing the views of the World Bank, its affiliated organizations. its Board of Executive Directors, or the countries they represent. Contents Foreword .................................................. vii Abstract .................................................. ix Acknowledgments .................................................. x 1. Introduction ................................................... 1 2. Power Sector Development Objectives .............................................. 5 Electrification Policy ................................................... 5 Long-Termn Expansion Planning . ................................................. 6 3. Government-Utility Interaction ................................................... 9 Agreement on the Utility's Objectives .................................................. 9 Encourage Managerial Autonomy .................................................. 10 Establish Adequate Tariffs and Collection Practices .................................. 10 Ensure Access to Convertible Currency ................................................ 11 Sector Organization and the Sources of Investment Capital .......... ............... 12 4. Utility Management and Manpower Problems ........................................ 15 Enhance and Maintain Quality of Management and Staff ........... ................. 15 Manpower Development and Training Programs .................. ................... 17 5. Organizational Aspects ................................................... 19 Budget Centers and Allocation of Adequate Funds ................................... 19 Maintenance of Adequate Communication Channels ................................. 19 Equipment Standardization .................................................. 20 Provision of Adequate Spares and Supplies ........................................... 21 Need for Regular Servicing .................................................. 21 Need for Consistent Fuel Supply .................................................. 22 Handling of Liquid Effluent ........................ .......................... 22 6. Financing Agencies' Policies and Procedures ........................................ 23 Annex. Checklistfor Improving Electric Power Utility Efficiency ........ ........... 27 v Foreword Over the past two decades, many publicly owned power utilities in developing countries have perfonned far below expectations on both operational and financial grounds, despite extensive technical and financial assistance from international agencies. It was the utilities' continuing poor performance that prompted the World Bank and nine other international aid agencies to initiate an investigation of power plants worldwide in 1988-89. To facilitate the work, the sponsors limited the study to diesel plants, visiting 25 diesel utilities in developing countries and evaluating data from nearly 200 others. The study team observed that the utilities suffered from their govermments' lack of clear policies and goals and were hobbled by lack of independence (especially to set financially and economically sound tariffs), lack of authority to pay competitive wages to technically qualified personnel, and inability to maintain proper training, accounting, and bill collection. The detailed findings appeared in the Industry and Energy Department (EN) "pink" energy series, as "Core Report of the Electric Power Utility Efficiency Improvement Study" (Energy Series Paper No. 46, September 1991). As part of its mandate, the study's central project team has compiled the present volume of efficiency issues and recommendations designed to assist the officers of energy institutions in developing countries and the personnel of technical and financial aid organizations. For on-site monitoring of utilities' performance, the team has also developed a checklist, presented as an annex and also available separately for field use from [EN. As the team indicates, the recommendations address basic conditions of viability and efficiency and should be seen to supplement rather than supersede the operational directives and appraisal rules of individual organizations. In addition to treating technical matters, the present volume stresses good governance and institutional and managerial performance as keys to efficiency. This emphasis reflects a growing consensus among international institutions on the importance of appropriate policy, legal, and regulatory frameworks to the development process. The World Bank, in fact, has recently codified its views in a policv paper, The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory. and Financial Reform, for which the Core Report served as an input. Richard Stern Director Industry and Energy Department vii Abstract This volume presents the issues and recommendations that emerged from the Electric Power Utility Efficiency Improvement Study conducted by the World Bank and nine other international technical and financial assistance organizations during 1989-91. The main repor, detailing investigations of diesel power plants in 17 developing countries, was published as "Core Report of the Electric Power Utility Efficiency Improvement Study" (Industry and Energy Deprtment Working Paper, Eewgy Series Paper No. 46, September 1991). The present volume extracts from the main study a set of efficiency guidelines for power utility planners and policymakers emphasizing the objectives of developing the power sector (including appropriate demand-side management) while sustaining the financial/commercial viability of the utilities; rationalizing the organizational and fiscal interactions between utilities and governments; enhancing the utilities' insdtutonal capacity for governce and staff man scuing utility o ons for operational efficiency; and coordinating utility activities with financing agencies' policies and procedures. A checklist, presented as an annex, provides point-by-point review of quantitative and qualitative factors that can be used to rate the performance of a utility. Quantitative measures are accompanied by target values where appropriate. lx Acknowledgments The underlying study on which this issues and recommendations volume is based was conceived by the World Bank's Energy Development Division in collaboration with the other international sponsors of the effort. Gunter Schramm, the division chief at the time, was the overall coordinator. Messrs. Amo Tomowski of GTZ in Germany and Granville (Pete) Smith of USAID were the study team's managers during the two years of investigative and analytical work. Both also participated in or led a number of the field studies. Mr. Christoph Menke was the manager during the final stage, supported part time by Mr. P. Gregory Fazzari. Mr. Jose R. Escay was in charge of data management for a two-year period. The team's overall efforts and large communications and filing requirements were supported by Ms. Vonica Burroughs. Professor Erwin Diewert of the University of British Columbia, supported by his own research team, undertook the extensive econometric analysis of the collected data. His work was fnancially supported by the World Bank's Research Committee. Additional data sets were supplied by the Institute of Diesel and Gas Turbine Engineers. The new data made it possible to extend the econometric evaluations to a sample of close to 200 power plants. The results of this additional study will be published as a separate paper under the authorship of Professor Diewert, along with Messrs. W. Teplitz-Sembitzky and Gunter Schramm. Particular thanks are due to the members of the Steering Committee of the Electric Power Utility Efficiency Improvement Study. The members of the committee not only guided the overall research effort closely but also spent a great deal of time and effort in formulating the content of the recommendations. Thanks are also due to the experts, too numerous to mention individually, who participated in the 17 individual country missions and who helped to collect original data from 20 others. Similarly, thanks go to Mr. Paul Wolman, who managed the editorial'work on the document, and to Ms. Carole-Sue Castronuovo, who carried out the final fonnatting of both the manuscript and the checklist x 1 Introduction During the past ten years, multilateral development banks have financed some US$35 billion in power projects. According to a World Bank review of lending for electric power, installed capacity grew during this period at an average annual rate of about 8 percent in 51 developing countries. But other measures of progress in the sector showed disturbing signs of inefficiency. Network energy losses and accounts receivable increased, economic rates of return declined, and debt service ratios dropped. Performance was especially poor in Africa. where many power plants required rilitation after just a few years of operation. This poor performance was also observed by many bilateral donor agencies. Motivated by these disturbing findings, UNDP and the World Bank, along with financial and technical assistance agencies in Denmark, Finland, Germany, the United Kingdom, and the United States, agreed in September 1988 to fund an investigation of power sector performance. For this purpose, the Electric Power Utility Efficiency Improvement Study was organized. The study's approach and findings are descrbed fully in the Project's Core Report, which was published as World Bank Industry and Department Energy Series Working Paper No. 46 in September 1991. The objectives of the program were to (a) identify the causes of poor utility performance; (b) prepare remedial programs; and (c) prpare recommendations for use by financing agencies, electric utilities, and govemments. These policy recommendations are intended to meet the policy aspects of objective c. The recommendations were prepared with the understanding that their users agree on a common set of objectives in regard to power plant operation and sector development in developing countries. The objectives are as follows: a. Aim for the least-cost solution compatible with technology appropriate for local conditions. The solution should not overlook efficiency improvements, rehabilitation, and demand-side management. 1 2 Improving Electric Power Utility EfTiciency b. Build and maintain institutions capable of planning and implementing programs that guarantee the availability, efficiency, and sustainability of each power project over its designed life span. c. Ensure the financial viability of the operating utility. d. Ensure protection of the environment. e. Ensure cooperation among financing agencies and the utility to achieve shared development goals. These recommendations are designed to assist decisionmakers concerned with planning and financing power projects and with improving and sustaining efficient utility operations. These decisionmakers include the officers of utilities and institutions in developing countries, officers of multilateral and bilateral financing organizations, and technical assistance agencies. The prject chose diesel power plants as the vehicle for investigating the efficiency and performance aspects of utility operations because diesel plants are found worldwide and their performance is known to be robust and efficient with proper maintenance but to deteriorate rapidly with poor maintenance. Also, diesel power plants are geneally smaller and less complex than thermal and hydro plants, both from a technical and from a management point of view; the causes of inefficiency in the operation of the utility also car. be identified more easily analyzing the simpler diesel plants. It should be noted, however, that although the project focused on diesel plants, these recommendations are intended to apply generally to all types of utility plants and operations; only where specifically stated do they apply exclusively to diesel plants. The recommendations address five groups of issues that are integral to the operation of any electric utility: a. Power sector development objectives b. Goverment-utility interactions c. Utility management and manpower problems d. Organizational aspects e. Financing agencies' policies and procedures. The recommendations do not consider environmental impacts because most developing countries and financing agencies appraise projects according to their own particular environmental criteria. The recommendations are intended to supplement, not supersede, the rules and policies of financing organizations, such as World Bandk operations directives or bilateral donors' appraisal manuals. The recommendations suggest specific criteria for assessing the viability of a project and for defining the minimal conditions that must be met for a project to be successful. Introduction 3 Note that these conditions are necessary but not sufficient to ensure success. Although it is impossible to foretell whether such conditions will continue to be satisfied following plant completion, decisionmakers can usually assume with some confidence that a utility's performance, staff competence, and corporate culture will not change rapidly uniess specifically forced to do so. Therefore, an examination of the record of similar plants within a utility will give a good indication of the kind of performance that can be expected. The annex incorporates these issues into a checklist of criteria for efficient operation of utilities. By reviewing the ways in which an individual country or specific utlity has handled operating issues in the past, or by examining how existing projects are performing according to the checklist, one can get a good indication of what to expect from a new project. No recommendations can substitute for the good judgment and experience of the decisionmakers. What they can do is provide a point of reference against which decisions can be measured and against which the probability of a project's success can be systematically assessed. 2 Power Sector Development Objectives These recommendations emphasize the organizational, institutional, and human- related aspects of utility operations. They are framed within the following objectives, which are imperative for sound power sector planning: a. Investments in the power sector should be a vehicle for promoting economic growth and social well-being in developing countries. b. Power sector projects must compete with other investments aimed at contributing to this overall objective and should be executed only if they prove optimal in terms of intersectoral allocation of scarce funds. c. Investment projects must show advantages against competing projects that provide the same services, and they must result in the least lifetime-cost solution compared to other projects. d. Projects are to be compared using a total system approach, which requires a comprehensive definition of the alternatives for system expansion. Some of the principal issues for power sector planning are discussed below. Electrification Policy The most important consideration in planning power sector development should be the extent to which electrification contributes to economic growth by supporting industrial, semi-industrial, commercial, and agricultural activities in the country in question. Rural electrification should be undertaken only if it contributes to economic growdt To contain costs, all feasible alternatives must be examined; in addition to the conventional solutions using diesel plants, or extending existing electricity grids, various forms of renewable energy should be considered. Where electricity would be used mainly for lighting or for nonproductive purposes, photovoltaic systems or even kerosene may provide a least-cost solution of adequate quality. When a particular expansion project is not financially viable, and is likely to entail losses for the utility or for the agency that would implement it, the project should not be 5 6 Improving Electric Power Utility Efficiency undertaken unless clear and enforceable arrangements have been made to compensate for the losses. These losses could be covered by one or both of these: a. Direct payment by the government b. Cross-subsidies up to a certain extent; (i.e., the utility shall charge higher tariffs to certain categories of users to make up the losses). If subsidies are granted for projects or project components that are not financially self-sustaining, transparency is essential. It should be clearly shown that a subsidy is granted, of what amount, who will pay it, what benefits are expected, and who the beneficiaries will be. Further, when the subsidy is created, a time limit should be set after which it will be abolished, either automatically or on fulfillment of certain conditions. Long-Term Expansion Planning Any proposed project whose capacity is large compared with overall system capacity should be undertaken only under a long-term system planning approach. This is essential to make it possible to judge the merits of a particular project compared with other alternatives. Physical expansion of system capacity should be undertaken only when all other approaches to attaining the fixed supply level have been unsuccessful or determined to be more costly. As a rule, physical expansion is preferable only if it is infeasible or less costly to reduce demand or increase supply and available capacity through the following: a. Demand-side conservation measures b. Demand-side management, such as time-of-day load shifting c. Reducing technical losses for all system components d. Improving existing system availability, operating efficiency, and reliability e. Rehabilitating existing physical assets. Expansion planning should be based on well-defined availability and reliability standards. The cost of unserved energy and unreliability of supply should be balanced with the cost involved in guaranteeing a specific loss-of-load criterion. This approach may in many cases result in lower reliability standards for isolated areas, which would be balanced by lower investment and operating costs.' Demand forecasts on which future expansion plans are based should not be presented as firm esfimates but as a range of likely future scenarios. Particular attention 1. A separat study sponsored by the World Bank, the Asian Development Bank, the Inter- American Development Bank. and the British Overseas Development Association was undertaken by London Economics under the title 'Project to Develop a Methodology for Estimating Outage Costs in Developing Countries." The findings will be published in 1994. Power Sector Development Objectives 7 should be given to crucial parameters, such as changes in the overall economic rate of growth or the potential effects of needed tariff increases. In planning the system expansion components, due attention should be given to potential risk elements on both the demand and the supply side (e.g., cost overruns). Preference should be given to plans that allow for flexibility and adaptability in response to changing conditions. 3 Government-Utility Interaction Autonomy from government and consistency of objectives were seen in the Core Report of the Electric Power Utility Efficiency Improvement Study as keys to determining a utility's operating efficiency. This section discusses the crucial issues within that context. Agreement on the Utility's Objectives When governments control utilities, through ownership or otherwise, they must, as a minimum: a. Define clear, nonconflicting objectives for the utility's performance b. Allow the utility to operate with a high degree of autonomy C. Allow the utility to charge adequate tariffs d. Ensure the availability of convertible currency according to the needs of the utility e. Refrain from interfering in staffing questions by limiting intervention to appointing competent top managers who are then held accountable for the utility's performance. These critical conditions for govermnent-utility interaction are discussed below. Govemment and the utility must agree on the statutory and performance objectives upon which the utility can base its long-term investment planning and by which it can measure its operational performance. As a minimnum condition, thcre should be agreement on a target rate of return for the utility. This rate should be calculated in real terms, net of nominal price increases, and should take account of exchange-rate fluctuations, revaluation of assets, and price distortions such as subsidies on fuel. It is particularly important to ensure that the government's sectoral policy regarding new customer connections is compatible with financial cost recovery. Financial autonomy and fuel cost recovery for the utility are fundamental objectives; to that end, the utility generally should not be given funds on preferential terms. Funds received by the government from foreign donors should be on-lent at appropriate 9 10 Improving Electric Power Utility Efficiency (commercial) market rates, with the utility in principle being obligated to bear the foreign exchange risk. Financing agencies should monitor on-lending terms for aid to the power sector, including aid provided for technical assistance. Some special exceptions may be considered for rural electrification projects, provided the conditions listed under the heading Electrification Policy in chapter 2 are fully met. Encourage Managerial Autonomy Conceming the level of autonomy, the Core Report found a close correlation between a utility's level of autonomy and its efficiency of performance and made two specific recommendations-namely, that financing and donor agencies should, during appraisal, (a) assess the level of autonomy of the recipient utility, and (b) if the latter is found to be low, attempt to increase the utility's autonomy before providing financing.2 Utility managers must have substantial control over their operations in matters concerning personnel, salaries, incentives, overall financial management, and contracts. At the same time. autonomous managers must accept full responsibility for their decisions and for overall performance. Financial and technical assistance agencies have an important role to fulfill in promoting managerial autonomy. Technical assistance agencies can provide the necessary training and expertise, and financial agencies can delay committing funds for new investments until an acceptable operating environment is in place in the utility. Disbursement of funds should be linked to the progress achieved in reducing government interference and in creating autonomous management structures. When qualified local personnel are not available to assume increased responsibilities, other ways to increase autonomy should be sought, such as a. Hiring expatriate personnel in line functions b. Contracting out specific activities. such as plant maintenance or billing and collection. to qualified private firms. The costs and benefits of such measures should be compared to find the optimal solution for each case. Establish Adequate Tariffs and Collection Practices Utilities cannot, and do not, operate efficiently when their revenues do not cover their costs. Genemlly this situation arises in one or both of these cases: a. The government prevents the utility from charging adequate tariffs. b . The utility is unable to collect outstanding bills in a timely manner either because of inefficiencies in the billing and collection system or because political expedience prevents the utility from forcing its customers (particularly government or government-owned entities) to pay their bills. 2. Seealso"CoreReporn.'Annex3tochapter 1. Governnient-Utility Interaction 11 In principle, tariffs should be set to achieve an economically efficient allocation of available resources. The recommendation therefore is that tariffs should reflect the long- run marginal costs (LRMC) of system expansion. Donors, the utility and government should all agree on the long-run marginal costs, and the tariff structure should be set accordingly. If LRMC pricing conflicts with other goals, such as the financial viability of the utility, or if other considerations, such as widespread price distortions, call for a modification of strict LRMC pricing, the level and structure of the tariffs should ensure that the utility as a whole achieves the target rate of return. The financial condition of individual units of a utility system can be weaker, as long as LRMC pricing applies to the utility as a whole. Local or regional plants or distribution units that are unable to cover their own operating and maintenance costs must receive adequate financial support from the central administration. There is no compelling reason why tariffs should be the same everywhere in the country: they may differ, for instance, between interconnected and isolated systems. No loan, credit, or aid disbursements for new projects should be made, except for direct remedial measures, unless existing tariff, billing, and collection deficiencies have been remedied. The following minimum targets should be applied: a. Total accounts receivable from governments or govemment-owned entities do not exceed 2 months of billing. b. Total accounts receivable from private customers do not exceed 3 months of billing. c. Total losses (defi.xed as energy sent out minus sales as a percentage of sent-out energy) do not exceed 20 percent. d. All customers (government or private) with outstanding payments of 3 months or more have been disconnected. Even if these minimum conditions are met, programs to reduce losses and accounts receivable should be in place before new projects are financed. Disbursements during execution could be linked to the progress achieved. Ensure Access to Convertible Currency Utility management must have access to convertible currency to maintain efficient operat.on. Diesel plants in industrialized countries required about US$16 per kilowatt a year in 1988 prices for spare parts and consumables, in addition to fuel and lube oil costs. In developing countries, utilities require about US$20 to 25 per kilowatt a year. A major issue that must be dealt with decisively and permnanently is the frequent delay in obtaining central bank or import licensing agency approvals for needed spare parts acquisitions, particularly in emergency situations. To ensure timely availability of convertible currency for spare parts acquisition, governments can make use of several mechanisms: 12 Improving Electric Power Utility Efficiency a. Public auctions of limited amounts of foreign exchange, and authorization for the utility to pass on increased foreign exchange costs through automatic rate increases. b. Creation of a disposition fund as part of initial project financing. To ensure access to foreign exchange, the fund would be credited with the amount of foreign exchange contributed by the donor to finance local capital expenditures. The central bank or an offshore trustee would receive foreign exchange from the donor during the investment phase, with the obligation to release the funds to the utility during the operation phase if the need arises. c. Authorization for the utility to charge specific customer groups (e.g., expatriates, embassies, export industries, international hotels) fully or partially in foreign exchange rather than in local currency, and to keep this foreign exchange for its own needs. These mechanisms should be seen as interim solutions until improved economic conditions and a changed monetary policy allow local currency to be converted or foreign exchange to become freely available. The extemal financing agency must take into account that in countries with a chronic scarcity of foreign exchange, the ability of government to set up such mechanisms may be limited. In such a case, a project that will require substantial amounts of convertible currency for its operation should not be undertaken unless reliable access to foreign exchange can be ensured over a reasonable period of time. Sector Organization and the Sources of Investment Capital Electric power systems are highly capital intensive and require substantially more investment capital than a utility is able to accumulate internally. As a number of recent studies by the World Bank and others have shown, utilities are experiencing a huge financmg gap that can no longer be covered by government grants and loans to the utilities based either on outside borrowings or the inflationary internal expansion of the domestic money supply.3 Other sources of investment capital for utlities must be found. Financing options should include a. A self-financing ratio by the utility of not less than 30 percent b. Direct private sector participation through i. Partial or full privatization of the utility or certain portions of the utility ii. Build-Own-Operate and Transfer (BOOT) schemes iii. Joint ventures between public and private partners 3. World Bank, -Draft Power Sector Policy Paper." 1992 (now published as The World Bank's Role in the Electric Power Sector: Policies for Effective nsuitutional, Reguatory, and Financial Reform. Washington, D.C.. 1993). Government-Utility Interaction 13 iv. Developnient of regulatory structures that allow privately owned co- generation plants to sell surplus power to utilities at prices that reflect the utilities' own opportunity costs of generation. For governments and utilities to consider such options seriously, laws, rules, and regulations must be developed and put into place that encourage private sector participation in the power sector. The rules of the game should include security of tenure and rate regulations that allow private enterprises to operate profitably. Ideally, the government's role in the sector should be restricted to that of an effective regulator of economic activities in the power sector. Its contribution should be to create a suitable legislative framework and to set mandatory standards for operation and environmental protection. 4 Utility Management and Manpower Problems Good hardware and organization are indispensable to the operation of a utility, but the quality of its staff is paramount for success. This section is concerned with management, staff, and training issues. Enhance and Maintain Quality of Management and Staff Autonomy, financial independence, and new or rehabilitated hardware are not enough to make a utility operate efficiently. To bring about efficient operation, it is necessary to create an environment in which qualified, competent, and dedicated mannagement and staff work together to make long-term efficient performance the norm. To bring about the necessary corporate culture, govermments must take special care to appoint competent top managers and to hold them accountable for utility performance on the basis of agreed-upon standards and objectives. The appointment of second- and lower-level managers should generally be handled by top managers who are directly responsible for their performance. For government-owned utilities, four policies should be followed: a. Government approves the composition of the utility's governing board (which should include representatives of power consumers). b. Govemment appoints the managing director of the utility upon the advice of the utility's governing board. c. The managing director appoints the major department heads with approval of the utility's governing board. d. To ensure continuity, the appointments should be for a minimum term of 3, but preferably for 5, years. It may not always be possible to obtain the services of competent higher-level managers or technical experts within a country, even if employment and remuneration conditions are made highly competitive in the context of the local labor market. This problem can often be remedied in the short run by hiring expatriate advisers or managerial staff, if necessary with the assistance of outside agencies. Such arrangements are often 15 16 Improving Electric Power Utility Efficiency intended both as a stopgap and as a transition to greater reliance on local personnel after these personnel receive appropriate training. Making that transition and determining its timing and duration are important, because it takes time for remedial measures to take effect. Other means of overcoming managerial problems could be management contracts, twinning agreements, or other technical assistance arrangements to bring in outside expertise. Privatization or out-sourcing of some activities (billing, collections, maintenance contracts) or outright privatization of the utility itself, with direct participation by competent outside utility operators, may provide additional options for overcoming management problems. Where serious management problems exist, the design of assistance packages by outside agencies should always focus on resolving those problems firt, before financing is provided for system expansion activities. A utility's compensation structure should be commensurate with conditions in the country and the utility's needs. Salary and overall compensation packages must be competitive within a country's labor market, particularly for skilled managerial, financial, and technical staff. It is important to note, however, that simply comparing salaries with those of the private sector rarely reveals the appropriateness of compensation. Fringe benefits, security of employment, and intangible factors are also important. It should be kept in mind that total job security based on rigid civil service rules usually is counterproductive to good job performance. Compensation, particularly at the managerial level, should include tangible incentives for superior performance and clearly articulated sanctions for poor performance. Overall, a mixture of tangible and intangible incentives and benefits, such as a positive corporate culture, cohesion of the work force, and confidence of the work force in management, are most conducive to high employee morale and the successful operation of the utility. Overstaffing, particularly in unskilled job categories, is an endemic problem in many government-owned utilities, which are often misused as state employment agencies. The study found a high correlation between the number of employee hours per megawatt- hour with efficiency, suggesting that overstaffing can significantly decrease overall plant efficiency. Not only is overstaffing financially costly to the utility, it also effectively destroys the discipline and morale of staff members who observe paid colleagues with little or nothing to do. Such overemployment practices must be strongly discouraged. Utility management must have the right to adjust the number and composition of the utility's staff according to the work load, and the right to discharge unneeded or unqualified employees according to established criteria and standards. The utility should be organized and structured so as to clearly define the responsibilities of each staff and management position. There should be no parallel or duplicate areas of decisionnaking or responsibility. Clear communication channels should be established among different departments and between utility headquarters and external Utility Management and Manpower Problems 17 opemting units. Only then can managers be judged according to their perfonnance and held responsible for mismanagement. Managers and staff must be given an appropriate frarnework within which to work. This shall include: a Clear corporate objectives o. Appropriate management information and reporting systems c. Well-defined performance indicators by which the achievement of objectives will be measured. Corporate planning in the utility should not be restricted to the technical design of the system, but should include financial and manpower planning. Adequate accounting and budgeting procedures should be in place or be scheduled for implementation before new investments are undertaken. Manpower Development and Training Programs Technical competence and adequate training, as well as the constant upgrading of skills, are crucial for achieving efficient operations. The Electric Power Utility Efficiency Improvement Study has identified as a basic lesson that an institutional training program is an essential component of an efficient and sustainable power operation. Therefore, each utility must have a long-tern manpower development and training program. Where such a programn does not exist or is found to be inadequate, it should be developed. It should also be an integral part of any new project. The program should include institutionalized training schemes, and may also include the development of detailed job descriptions and career-oriented promotion schemes. Recruitment and promotion should be based on job qualification and perfornance rather than on other, less objective criteria. Manpower development must assess training needs. In addition to the training of technical staff, the assessment should cover training in managerial and commercial operations and in accounting. Classroom training, on-the-job training, manufacturer's training, unstructured hands-on training by technical assistance personnel, training based on suitable educational media, or some cumbination of these are all useful and appropriate. There is no single way to meet all training needs. Approaches can be combined depending on specific conditions. Like technical assistance, training should not be seen as a one-shot affair, but rather as an ongoing process. The cost of training must form an integral part of the utility's recoverable cost base. A comprehensive analysis of training needs should be prerequisite for any power project, and outside technical assistance may be needed to ensure long-term success. Training needs for newly recruited personnel may differ according to the quality of the general education system of the country. Unless there is a vocational school in the country, the utility will have to run its own training program to produce skilled staff. Short-term, one-of-a-kind programs are likely to be ineffective, especially if the courses are given overseas under conditions different from those of the developing country. Short- 18 Improving Electric Power Utility Efficiency term refresher -ourses for qualified and experienced personnel, however, can be valuable. For technical staff, refresher courses can be combined with technical assistance from the manufacturer's staff during major overhauls. 5 Organizational Aspects This section will identify ways in which distinct institutional anrangements between a plant and a utility can affect a plant's operational efficiency and sustainability. Budget Centers and Allocation of Adequate Funds Isolated diesel plants or comparable operating units should be managed as separate budget centers that are autonomous in operation. The operating unit should have sufficient funds at its disposal to cover its cash operating costs, and appropriate cost accounting, budgeting, and auditing procedures should be in place or in the process of being put in place. Funds should be made available to the operating unit from the revenues accruing from operation-that is, only surplus revenues over operating costs should be channeled back to utility headquarters. Misappropriation of funds should be prevented by appropriate auditing and supervisory arrangements. Where locally collected funds are insufficient to cover operating and maintenance costs, additional funds must be provided by headquarters. Locally collected funds will always be insufficient in utilities with centralized billing and collection systems, and frequently in systems that apply country-wide uniformn tariff structures that do not take into account differences in local costs. Procurement of major inputs to the operation, such as fuel, lubricants, and spare parts can be handled centrally and distributed from headquarters, but all purchases of material needed for daily operation should be managed by the plant. Maintenance of Adequate Communication Channels The management principles and organizational criteria that apply to the utility as a whole apply at the plant level as well. Because isolated plants are often located in remote areas, there must be a clearly defined organizational set-up and an institutionalized communication system. Wherever the operating units are located, they require timely and adequate supplies of fuels and spares. Similarly, headquarters requires a flow of data on technical and commercial operations from the plant, as well as a transfer of funds if the 19 20 Improving Electric Power Utility Efficiency plant generates a surplus from operation. Frequent and cordial interaction between plants and headquarters is essential; a lack of information exchange can easily impair plant perforTnance. Plant operating data, inputs, and outputs must be recorded and processed to produce quantitative measures of performance. This data should be standardized to allow a comparison with data of other operating units inside and outside the utility.4 Comparative data should be communicated to plant managers and used for setting performance targets and for medium-term budget planning. The processing and exchange of data are necessary to enhance the plant manager's and the staffs understanding of the rationality of the standards by which they are being measured. The existence and appropriateness of plant-headquarters interactions can be judged by the following principles: a. There should be one division or staff position at headquarters responsible for supervising operations in outlying areas; the responsibility should not be shared by several units or delegated to subordinate levels. The responsible party should report directly to the general manager of the utility. b. There should be regular meetings between headquarters representatives and plant managers; the utility's budget should provide adequately for travel expenses for such meetings. c. There should be institutionalized communication links, such as circular letters. d. Reports from plant managers should follow a standardized format that addresses all important aspects of the plant's performance: operation, production record, maintenance activities, accidents, outages, voltage fluctuations, equipment failures, financial cost accounting, revenue collections, and staffing issues. e. Reports from plant managers should be written in such a way that the information they contain can be readily processed and analyzed by their supervisors. f. Plant managers should receive prompt feedback on their reports and should be assisted by visiting specialists from headquarters in resolving technical, commercial operation, and staffing problems. Donors should assess compliance with these principles at the appraisal stage. Equipment Standardization Most power generating plants, particularly those based on diesel engines, require that a relatively large number of spare parts be available for both regular and emergency maintenance work. This work is made more difficult if different makes or Wpes of engines are installed at the same plant, because a wider variety of parts must be kept on hand and 4. A checklist of performance data is given as an annex. Organizational Aspects 21 because the staff must be trained to work on different machines. As the study has found, these differences in the majority of cases significantly increase a plant's overall operating and maintenance costs, and can also reduce unit availability. Standardizing a plant with the engines of one manufacturer, or at least with engines of the same type, offers substantial benefits in the long run, although a decision to standardize could reduce the economic benefits of international competitive bidding. To uvoid the drawbacks of a quasi- monopolistic situation, a reasonable policy might be to restrict tenders to an appropriate number of suppliers, even though doing so might run contraiy to the immediate interests of donors and of suppliers who are excluded from bidding. Provision of Adequate Spares and Supplies Reliable provision of spares and supplies is essential for reliable operation. A scarcity of foreign exchange is bound to create serious problems in this regard, especially if it is compounded by inefficient procurement, delivery, and stores systems within the utility. To reduce the probability and duration of breakdowns and outages caused by lack of spares, the utility can a. Stock more spares than needed under normal conditions: this raises costs, may create storage problems in terms of space and degradation of spares, and may not guarantee that the appropriate parts are on hand when needed. b. Conclude special arrangements with suppliers to provide technical assistance and spares in case of emergency: this presupposes that spares procurement is an internal problem of the utility and that foreign exchange is available. C. Create foreign exchange disposition funds: this may circumvent the problems of scarce convertible currency and slack intemal procurement routines. The actual approach will be contingent on the specific bottlenecks identified in spare parts supply. Technical assistance should be considered to assist the utility in assessing spare parts requirements and to support procurement. A combination of technical assistance and financial support is usually more successful than partial actions. An integral part of any spare parts management policy is adequate and secure storage and proper inventory control. Outside assistance may be needed to establish such systems. Need for Regular Servicing Similar considerations apply to servicing. Inspection visits by factory servicemen are advisable for major overhauls every one or two years or when an accident has occurred. For these visits, foreign currency and a stock of spare parts are required. If funds for servicing and parts are not available when needed, the equipment will stay out of service. In addition, equipment operating and maintenance manuals and other important technical data should be available to plant employees in a language they understand. 22 Improving Electric Power Utility Efficiency Serious consideration should be given to entering into long-term service and maintenance contracts with equipment manufacturers or specialized service companies. Such arrangements are already quite common in developed countries. Need for Consistent Fuel Supply It is normally the responsibility of utility headquarters to ensure that fuel reaches the plant. In cases of shortages of (usually imported) fuel, the quantities sent to an isolated plant may be curtailed or suffer some shrinkage, usually in transit. Fuel might also disappear at the plant. Under such conditions, the performance of the plant is bound to be poor. An efficient procurement and control system must be established and maintained to guarantee sufficient supply of fuel and other consumables in quantitative and qualitative terms. In countries in which availability of imported fuel supplies is a recurrent problem, serious consideration should be given to whether the construction of a heavily import-fuel dependent plant is the most suitable option. For this option to be feasible, additional foreign exchange resources may have to be made available by outside financing agencies to ensure adequate fuel supplies on a long-term basis. Handling of Liquid Effluent The disposal of spent lubricating oil can cause localized but acute problems if not handled properly. The same applies to fuel leaks and to the disposal of the residues from fuel centrifuges of heavy fuel plants. Trhe available options for safe disposal, such as the use of incinerators, recycling for other - es, or internediate storage and central collection for disposal elsewhere, should be evaluated, and the disposal technique most appropriate for the site should be adopted together with necessary monitoring procedures. 6 Financing Agencies' Policies and Procedures The objective of these recommendations is to assist decisionmakers, and to complement the existing directives and policies of each contributing institution. This section reviews the recommendations presented, and discusses their implications for the interaction between financing agencies and the recipient utility. The major objective of financing agencies' assistance to developing country power sectors is to bring about overall economic development and growth through the financing of new power projects. The results of the Electric Power Utility Efficiency Improvement Study and other evaluations have shown, however, that the financing agencies' traditional reliance on economic, technical, and financial evaluations of new investments (supplemented lately by environmental assessments) are not enough to ensure the success of such investments, because the underlying assumptions about the future operational performance of these new electric power projects frequently turn out to be wrong. As the present study has shown, the major causes of economically wasteful utility performance in many developing countries are poor governance and inadequate institutional and management structures and arrangements, usually combined with inadequate revenue flows and a lack of timely access to foreign exchange. The most critical factors affecting sustainability and successful operation of utilities are as follows: a. Autonomy of the operating institution b. Clear, nonconflicting goals shared by the utility and the supervising body c. Good top management d. Adequate human resources e. Institutionalized and effective training f. Adequate technical resources g. Access to foreign exchange h. Financial transparency i . Sufficient revenues 23 24 Improving Electric Power Utility Efficiency j. Appropriate financing agencies' policies. The study has concluded that these factors must be satisfactorily addressed (as discussed in the previous sections) and that all necessary changes must be brought about, if new investments and financial assistance strategies are to succeed in achieving the desired objectives. Therefore, these recommendations advise that ex ante agreements should be reached among financing agencies, governments, and utilities to remedy the identified shortcomings. To assess whether such changes are required as a precondition for planning or financial support, the past and current operational performance of the utility must be evaluated. The various issues and conditions involved in evaluating utility performance have been discussed in the previous sections of these recommendations. A short checklist of assessment criteria is attached as an annex. It must be noted that these criteria are necessary but not always sufficient to ensure a project's success. These criteria supplement those mentioned in chapter 1. The question of the operational sustainability of a project or series of projects over its designed lifetime must be central to any planning and assistance strategy. A life-cycle approach must be used for this purpose. Where severe foreign exchange difficulties are anticipated, outside financing agencies should not support a project until more conducive economic conditions have been created. Otherwise the expected performance of the project is unlikely to materialize. On-lending terms for aid or subsidized loans, including tiliuse for technical aid, should be monitored to meet the conditionality of full (commercial) cost recovery. Agreement among government, the utility, and donors should be reached on the procedures for calculating and updating long-run marginal costs, so that they can serve as a basis for establishing and maintaining cost-recovering tariffs. Power sector projects should be appraised realistically. Projects should not be undertaken if they do not prove efficient in terms of intersectoral allocation of scarce funds and if they do not represent the least-cost solution. A condition of aid should be that management information systems be established so performance objectives can be set and progress toward them monitored. Planning of new system components should be undertaken in close cooperation with utility staff as well as with local groups affected by the operation of the planned facility. Insistence on competitive bidding should be softened if the negative impacts on the standardization of equipment outweighs the cost reduction achieved by open tendering. Likewise, tied-aid financing should not be imposed if it entails diversification of the equipment at a power plant. Duplication of efforts by different donors should be avoided by coordinating the programs of all donors in a recipient country. Financing Agencies' Policies and Procedures 25 Agreement should be reached among governments, utilities, and all donors on the imposition of conditionalities prior to funding power projects. Responses to breaches in conditionality should be coordinated among the donors. In general, in systems with poor operational performance and inadequately performing plants and equipment, assistance measures should initially emphasize remedial action and rehabilitation of existing plant and equipment, before new system components are financed (subject, of course, to altemative cost evaluation criteria). If all the conditions identified in these recommendations cannot be met, judgments will have to be made whether to proceed with a new support activity. If a significant number of conditions are not met, the chances that a project will succeed are very limited. In general, where serious deficiencies are identified in one or several categories, technical or other types of assistance should be provided to remedy these shortcomings before new projects are financed. Assistance should not be provided to utilities that do not meet the revenue and self-financing objectives identified in these recommendations. Agreed-upon tariff rules must provide for the automatic pass-through of costs determined by forces beyond the control of the utility (e.g., foreign exchange rates, mandated wage rates, local inflation rates). Donors should be wary of over-optimism in the economic appraisal, especially in forecasting demand, loss reduction, and improved financial performance. Full sensitivity analysis and assessment of financial and technical risks should be incorporated, and general preference should be given to alternatives that are less risky, have shorter gestation periods, and allow greater flexibility in implementation. Annex Checklist for Improving Electric Power Utility Efficiency Contents Instructions for use of the choeWlst ................................................ 29 Level of autonomy ................................................ 31 Qualitative indicators ............................................... 31 Top managemnt ................................................ 32 Qualitative indicators ............................................... 32 Human resources: Manpower planning and incentive maurme .......................... 33 Qualiative indicators ............................................... 33 Quantitative indicators ............................................... 34 Commwerl operation and accounting ................................................ 35 Qualitative indicators ............................................... 35 Quantitative indicators ............................................... 35 Financial perforwmance ................................................. 36 Quantitative indicators ............................................... 36 Technical perkomance and maintenance ................... ............................ 37 Qualitative indicators ............................................... 37 Quantitative indicators ............................................... 37 Supply and materids management ............................................... 39 Qualtative indicators ............................................... 39 Quantitative indicators ............................................... 39 For copes o th e hecki abn, wri toe . Woad Bunk hduyedEnrgy D t Joint Enegy Fil Room 05-100 1818 H StU N.W. Wuehington, DC 2433 Phone: 2473616 27 Checklist for Improving Electric Power Utility Efficiency Policy guldelines for Improving the efflcincy of electric power utilities prepared by the Steering Committee of the Electric Power Utility Efficiency Improvement Study (EPUES) Instructions for use of the checklist The checklist summarizes some of the most crucial factors that could be used to rate the past performance of a utility. These factors fall into two categories: * Qualitative factors to which no numerical values can be assigned * Quantitative factors that are measured on a numerical scale and for which a target value can be given. For qualitative factors, performance can be rated on an ordinal scale of five categories ranging from "good" to "bad" (respectively from "yes" via "partly" to "no" in the case of dichotomous criteria). For quantitative factors, the performance can be rated on this same scale and in some cases in comparison to the target values provided. Thus, the overall performance can be conveniently visualized. Although this approach does not provide an unambiguous rating of the utility's performance, it conveys a general overview of the areas where the utility fares well and where it may require improvements. The factors to be assessed in this checklist are those that refer to the electricity business. When utilities handle other businesses as well, such as gas, water, or telephones, care must be taken to segregate the electrical business from the others. Note: The numerical target values given are designed to be applicable universally. They do not present "best practice" values but rather minimum acceptable conditions that should only be relaxed under very special circumstances. Policy Guidelines for Improving the Efficiency of Eletric Power UWhls Checklist Performance rating cae Good >> Bad Level of autonomy (Yes) - (Partly) ______ (No) Qualittive Indlcators 1. Does the utility have clear and consistent objectives? a. Are the long-term corporate objectives clearly established? b. Are they likely to ensure adequate operational and financial performance? c. Has management sufficient autonomy to operate the utility according to corporate objectives? 2. Are daily operations of the utility insulated from external political pressure? 3. Has management the right to hire and fire employees and to negotiate conditions of employment? 4. Does the utility control its employees' salaries? = 5. Has the utility the right to adjust tariffs according to costs to produce sufficient revenues? 6. Does the utility have timely access to sufficient foreign exchange? Performance rating scale Good ccoc Medium >>>> Bad Top management (Yes) (Partly) (No) Elualitative Indicators A. Is there a department in charge of corporate planning? 2. Are there appropriate and consistent annual operating objectives? 3. Is there an appropriate management information and reporting system? 4. Is there a system of appropriate performance indicators to measure achievement of objectives? 5. Are operational and performance reports processed and analyzed properly? 6. Are there clear communication channels between upper and lower management levels? 7. Are budgetary procedures and corporate planning coordinated properly? 8. Is there continuous and adequate monitoring of ongoing projects? 9. Are there action plans to remedy shortcomings? 10. Is management held accountable for its performance? _ Human resources: Manpower planning Performance rating scale and incentive measures (YsGood >>> Bad and incentive measures ~~~(Yes) (Partly) __(No) Qualitative indicators 1. Is there a system of performance-based incentives in place? If yes, is this system in line with the social environment? _ 2. Is the remuneration commensurate with that in other sectors of the economy? If no, do the fringe benefits (housing, family contributions, etc.) make up for the difference? 3. Is the utility's training program judged to be adequate? = =_= = The assessment could be based on the following factors: a. Are sufficient resources devoted to training? b. Is the time spent on training measurs adequate? =_ = _ c. Is the training structured? d. Are there qualified and motivated trainers? e. Are there adequate incentives for staff to participate in training measures? Human resources: Manpower planning and Performance rating scale incentive measures Good <<<< Medium >>>> Bad Target incentive measures ~~~(Yes) (Partly) (No) vafue Quantitative Indicators = = = = 1. Turnover of manpower per year as a percentage of average work force < 10% 2. Rate of absenteeism 3. Staff vacancies by employee classification (in particular with regard to skilled jobs) _ __ 4. Comparative salary and compensation levels 5. Share of unskilled workers in the total work force _ 30% 6. Training costs by employees and by qualification level _ _ = = _ 7. Number of employees per megawatt-hour sold - _ _ Performance rating scale Commercial operation and accounting oes) elduym) (Bad TOaget Qualitative Indicators 1. Overdue accounts: a. Are surcharges applied for overdue accounts? b. Is there a firm and enforced disconnection policy in place for nonpayment? c. Are there extra fees for reconnection? __l Quantitative Indicators 1. Outstanding accounts receivable (in months of billing): a. Private customers < 3 months b. Government and government-owned customers < 2 months 2. Accounts receivable older than three months of total accounts receivable l c 20% 3. Bad debts (unpaid energy) as a percentage of accounts receivable l S 10% 4. Billing lag c_ 30 days 5. Variance between planned budget and actual expenditures = = I_=_= 6. Number of customers per utility employee 7. Salaries per utility employee 8. Lags in providing service connection = = = = 6a Pen'oirnance rating scale Gwd <<>>Bad Ta Financial performance (Per) < (Uedy) (No) va uc Quantitative Indicators 1. Rate of return on revalued net fixed assets (after consideration of exchange rate fluctuations) 2 8% 2. Average revenues from electricity sales 2 LRMC 3. Debt service coverage of net revenues 1.5 4. . Cash generation as percentage of investment expenditures (self- > 30% funding mtio) 5. Debt-equity ratio S 2.5 ____Performance raing scale Technical performance and maintenance Good _<<<< Medium Bad T7et Qualitative Indicators 1. Are there appropriate procedures to check the quality of fuel and lubricants? 2. Is maintenance perforwm.d according to set schedules? 3. Is dispatch performance optimized? Quantitative indicators 1. Reliability of power system: a. equivalent forced outage rate b. spinning reserve 2. System unserved energy = = = = c1% 3. Reserve margin (available capacity/peak demand) _ _ 1.25 4. Planned outage rate L = = = = 5. Time availability of plant per year (hours per yearl8760) __>75% 6. Fuel and lube oil consumption of thermal plants compared to I 10% manufacturer's standard 7. System fuel cost (Quantltatlve Indicators continued on next page) Performance rating scale Technical performance and maintenance G <<<< Mpdiu >>>> Bad Tart ___________________________________________________ _ (N_) value, Quantitative indicators (continued from previous page) 8. System cost of energy delivered 9. Staff years per MWh generated _ _ l__ 10. System load factor 0.45-0.75 11. System losses (transmission, distribution) dO% 12. Technical system losses (if grid configuration allows) <15% 13. Station service and own use (kilowatt-hours used per kilowatt-hour S5% generated) _ 14. Nontechnical losses 15. Thermal (diesel) generation cost in US$ per kilowatt-hour 16. Lifetime of diesel engines (in hours) = = = = 275,000 Supply and materials management Performance rating sle (Inventoty control, stores control, purchasing, and Good ccc. Medium >>>> Bad Target transportation) (Yes) (Pardy) (No) value Qualitative Indicators 1. Are there appropriate inventory control and order policies? 2. Is there a reliable fuel supply? = =_= = Quantitative Indicators 1. Percentage of inventory scrapped 2. Percentage of inventory stolen 3. Procurement procedures: a. Average time from placing of order to receipt of material 4. Inventory turnover in months = = = = Distributors of World Bank Publications ARGENTINA TMiddldE ObEw ITALY PORTUCAL Carlol HludSRL 44SW1. Sh eet kUUO UiIi Smm wA Liv. aftrtpl Caerca Ccm aemi RulDC r1 Car.. 70.4 Florida US,4th Ploor.Wfc 4910 CClb POuWa = I20 ls =8uneALm FIL ANFD 51FIU AM.kt nenl Kll'|kruses SAUDI ARAIA. QATAR AUSTRALIA. 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ARAB REPUBCOF 02416 Wareawa Altoe, HamprddmCL42PG Al Atne Eiglad Al Cla St Caun RECENT WORLD BANK TECHNICAL PAPERS (continued) No. 208 Bindlish and Evenson, Evliuntion of tle Perfornncce of T&V Exte,ision in Kenya No. 209 Keith, Property Tax: A Practical Manualfor Angloplone Africa No. 210 Bradley and McNamara, editors, Li'itng withl Trees: Policiesfor Forestry Manageneut in Zimbabrw No. 211 Wiebers, Integrated Pest Mnaragenenit and Pesticide Regulation in Developing Asia No. 212 Frederiksen, Berkoff, and Barber, Water Resources Management itt Asia, Volinme 1: Main Report No. 213 Srivastava and Jaffee, Best Practicesfor Movin2g Seed Tedciology: New ApproachiLs to Doing Busin,ess No. 214 Bonfiglioli, Agro-pastoralism in Clad as a Strategy for Survivial: An Essay on the Relationship between A ntilropology and Statistics No. 215 Umali, Irrigation-Induced Salinity: A Growing Problemifor Development and the Environment No. 216 Carr, Jmproving Casit Crops in Africa: Factors Influencinig the Productivity of Cotton, Coffee, and Tea Grown by Smallholders No. 217 And-iolt, GettingReadyfor the Twenty-First Century: Tedchical Cmange and Institutional Modemization in Agriculture No. 218 Mohan, editor, Bibliograpiy of Publications: Tecihinical Department, Africa Region, fily 1987 to December 1992 No. 219 Cercone, Alcoltol-Related Problems as an Obstacle to the Developmeent of Human Capital: Issues and Policy Options No. 220 Ferguson, Kingsley, Bower, and Dice, Managing Urban Environmental Quality in Asia No. 221 Srivastava, Tamboli, English, Lal, and Stewart, Conserving Soil Moisture and Fertility in tihe Warm Seasonally Dry Tropics No. 222 Selvaratnam, Innovations in Higher Education: Singapore at the Competitive Edge No. 223 Piotrow, Treiman, Rimon, Yun, and Lozare, Strategiesfor Family Planning Promotion No. 224 Midgley, Urban Tranisport in Asia: An Operational Agendafor the 7 990s No. 225 Dia, A Governance Approach to Civil Service Reforn in Sub-Salh rai Africa No. 226 Bindlish, Evenson, and Gbetibouo, Evaluation of T&V-Based Extension in Burkina Faso No. 227 Cook, editor, Involuntary Resettlement in Africa: Selected Papersfrom a Conference on Environment and Settlement Issues in Africa No. 228 Webster and Charap, 7the Emergence of Private Sector Manufacturing in St. Petersburg: A Survey of Firms No. 229 Webster, The Emergence of Private Scctor Manufacturing in Hungary: A Survey of Firms No. 230 Webster and Swanson, The Emergence of Private Sector Manufacturing in the Former Czech and Slouak Federal Republic: A Survey of Firms No. 231 Eisa, Barghouti, Giliham, and Al-Saffy, Cotton Production Prospectsfor the Decade to 2005: A Global Overview No. 232 Creightney, Transport and Economic Performance: A Survey of Developing Countries No. 233 Frederiksen, Berkoff, and Barber, Principles and Practicesfor Dealing with Water Resources Issues No. 234 Archondo-Callao and Faiz, Estimating Vehicle Operating Costs No. 235 Claessens, Risk Management in Developing Countries No. 236 Bennett and Goldberg, Providing Enterprise Developmen t and Financial Services to Womeen: A Decade of Bank Experience in Asia No. 237 Webster, The Emergence of Private Sector Manufacturing in Poland: A Survey of Firms No. 238 Heath, Land Rights in Cdte dlvoire: Survey and Prospectsfor Project Intervention No. 239 Kirmani and Rangeley, International Inland Waters: Conceptsfor a More Adive World Bank Role No. 240 Ahmed, Renewuble Energy Technologies: A Review of the Status and Costs of Selected Technologies No. 241 Cemea and Adams, Development Sociology and Anthropology: An Arnotated Bibliography of World Bank Publications and Documents in Sociology and Anthropology No. 242 Bames, Openshaw, Smith, and van der Plas, What Makes People Cook with Improved Bio mass Stoves?: A Comparative International Review of Stove Programs The World Bank Headquarters European Office Tokyo Office *1 1818 H Street, N.W. 66, avenue d'lena Kokusai Building Washington, D.C. 20433, U.S.A. 75116 Paris, France 1-1 Marunouchi3-choine Chiyoda-ku, Tokyo 100, Japan N Telephone (202)477-1234 Telephone (1)40.69.30.00 -I Facsimile: (202)477-6391 Facsimile: (1)40.69.30.66 Telephone: (3) 3214-5001 Telex: wn 64145woRLDnANK Telex: 640651 Facsimile (3)3214-3657 RCA 248423 WORLDBK Telex: 26838 Cable Address: INnnFRAD WASHUNGCONDC rD Cover photograph courtesy of Kreditanstalt fiir Wiederaufloau (KfW),ISN02 281 Frankfurt-am-Main, Germany