faisalabad electric supply company (fesco) - Planning Commission

FAISALABAD ELECTRIC SUPPLY 

COMPANY (FESCO) 

PERFORMANCE IMPROVEMENT 

ACTION PLAN 

Produced by: 

MWP-USAID POWER DISTRIBUTION 

IMPROVEMENT PROGRAM 

APRIL 2011

PAKISTAN-US ENERGY 

PARTNERSHIP 

MWP-USAID POWER 

DISTRIBUTION IMPROVEMENT 

PROGRAM 

FAISALABAD ELECTRIC SUPPLY COMPANY (FESCO) 

PERFORMANCE IMPROVEMENT ACTION PLAN 

ENERGY II IQC CONTRACT EPP-I-00-03-00006 

TASK ORDER 13 

MWP-USAID Power Distribution improvement Program 

House 23, Street 19, F-6/2 

Islamabad, Pakistan 

Phone: +92 (51) 2270911-16 

Email: ddumford@pdip.pk 

This report was produced for review by the United States Agency for International 

Development (USAID). It was prepared by International Resources Group (IRG) for the 

Power Distribution Improvement Program (PDIP). 

Disclaimer 

This publication was made possible through support provided by the U.S. Agency for International Development, 

under the terms of Award No. EPP-I-00-03-00006-00. The opinions expressed herein are those of International 

Resources Group and do not necessarily reflect the views of the U.S. Agency for International Development or 

the United States Government.

TABLE OF CONTENTS 

ACRONYMS 3 

EXECUTIVE SUMMARY 7 

OVERVIEW OF THE PROJECT...................................................................................................................... 7 

1. INTRODUCTION 12 

1.1 OVERVIEW .......................................................................................................................................... 12 

1.2 FESCO PROFILE ................................................................................................................................. 12 

2. SUMMARY OF CONCLUSIONS FROM OPERATIONAL AUDIT 

REPORT 14 

3 VISION FOR THE PERFORMANCE IMPROVEMENT ACTION PLAN 16 

4 FESCO PERFORMANCE IMPROVEMENT REQUIREMENTS 18 

4.1 SUMMARY ........................................................................................................................................... 18 

4.2 GOVERNANCE .................................................................................................................................. 20 

4.2.1 High Priority ................................................................................................................. 21 

4.2.2 Moderate Priority ......................................................................................................... 21 

4.3 ORGANIZATIONAL STRUCTURE.............................................................................................. 21 

4.3.1 High Priority ................................................................................................................. 21 

4.3.2 Moderate Priority. ........................................................................................................ 22 

4.3.3 Long Term Priority ....................................................................................................... 22 

4.4 FINANCIAL MANAGEMENT PLAN ............................................................................................ 22 

4.4.1 High Priority ................................................................................................................. 22 



4.5 COMMERCIAL MANAGEMENT PLAN ...................................................................................... 24 

4.5.1 High Priority ................................................................................................................. 24 



4.6 HUMAN RESOURCES MANAGEMENT PLAN ......................................................................... 25 

4.6.1 High Priority ................................................................................................................. 25 

4.6.2 Moderate Term Priority................................................................................................. 25 


4.7 ENGINEERING, PLANNING AND OPERATIONS.................................................................. 26 

4.7.1 High Priority ................................................................................................................. 26 



4.8 COMMUNICATIONS AND OUTREACH ......................................................................................... 27 

4.8.1 High Priority ................................................................................................................. 27 



5. PERFORMANCE IMPROVEMENT PROJECT TRANSITION PLAN 29 

5.1 FACTORS CRITICAL TO SUCCESSFUL TRANSITION......................................................... 29 

5.2 ELEMENTS OF THE TRANSITION PLAN .................................................................................. 30 

6. ACTION PLAN BENEFITS AND COSTS 32 

6.1 PLAN BENEFITS ................................................................................................................................. 32 

6.2 PLAN COSTS ...................................................................................................................................... 32 

6.3 WORK PLAN...................................................................................................................................... 32 

7. ACTION PLAN PERFORMANCE IMPROVEMENT PROJECTS AND 

COSTS 34 

MWP-USAID PDIP | FESCO PERFORMANCE IMPROVEMENT ACTION PLAN 1

7.1 DISCO-WIDE INTERVENTIONS .................................................................................................. 34 

7.2 DESCRIPTIONS OF PERFORMANCE IMPROVEMENT PROJECTS ................................... 35 

7.3 COST ESTIMATES FOR INTERVENTIONS AND PERFORMANCE 

IMPROVEMENT PROJECTS ........................................................................................................... 37 

7.4 ESTIMATED BENEFITS OF PERFORMANCE IMPROVEMENT PROJECTS....................... 38 


ACRONYMS 

ABC - Aerial Bundled Conductor 

ACR – Annual Confidential Report 

ADB – Asian Development Bank 

AEB – Area Electricity Board (former name for DISCO) 

AMR – Automated Meter Reading 

BFP – Book of Financial Powers 

BOD - Board of Directors 

BPS - Basic Pay Scale 

CDWP - Central Development Working Party 

CE – Chief Engineer 

CEO – Chief Executive Officer 

CFO – Chief Financial Officer 

CIS – Customer Information System 

COBOL - Common Business-Oriented Language 

CP – Commercial Procedure 

CPPA -- Central Power Purchasing Agency 

CSO – Customer Services Officer 

CSR - Corporate Social Responsibility 

CT – Current Transformer 

CTC – Circle Training Center 

CWIP – Construction Work in Progress 

D&S – Design & Standards 

DISCO – Distribution Company 

DISCOs – Distribution Companies 

DOP – Distribution of Power 

DP – Distribution Planning 

ECNEC - Executive Committee of National Economic Council 


ELR – Energy Loss Reduction 

ERO - Equipment Removal Order 

ERP – Enterprise Resource Planning 

FDRANA – Feeder Analysis (Software) 

FESCO – Faisalabad Electric Supply Company Limited 

GENCO – Generation Company 

GEPCO – Gujranwala Electric Power Company Limited 

GIS – Geographic Information System 

GOP – Government of Pakistan 

GST – General Sales Tax 

GWh – Gigawatt hour 

HESCO - Hyderabad Electric Supply Company Limited 

HQ – Headquarter 

HR – Human Resource 

HT – High tension(11kV) 

IA – Internal Audit 

ICT – Information Communication Technology 

IESCO – Islamabad Electric Supply Company Limited 

IPP – Independent Power Producer 

IT – Information Technology 

KALAMZU book – Meter Reading book 

Km – Kilometer 

KPIs – Key Performance Indicators 

kV – Kilovolt 

kVA – Kilovolt Ampere 

kVAR – Kilovolt Ampere Reactive 

kVAR – Kilovolt Ampere Reactive Hours 

kW – Kilowatt 

kWh – Kilowatt hour 


LDC – Lower Division Clerk 

LESCO - Lahore Electric Supply Company Limited 

LPF – Low Power Factor 

LS – Line Superintendent 

LT – Low tension, (0.4 kV) 

M&T - Metering and Testing 

MDI - Maximum Demand Indicator 

MEPCO – Multan Electric Power Company Limited 

MIS – Management Information System 

MVAR - Megavolt Ampere Reactive 

MW – Megawatt 

MWh – Megawatt hour 

MWP – Ministry of Water and Power 

NADRA – National Database and Registration Authority 

NEPRA – National Electric Power Regulatory Authority 

NRECA - National Rural Electric Cooperative Association, USA 

NTDC – National Transmission and Dispatch Company Limited 

PC - Planning Commission 

PDIP – Power Distribution Improvement Program 

PEL – Pak Elektron Ltd. 

PEPCO - Pakistan Electric Power Company Limited 

PER - Performance Evaluation Report 

PESCO – Peshawar Electric Supply Company Limited 

PPRA – Public Procurement Regulatory Authority 

PR – Public Relation 

PRO – Public Relation Officer 

PTCL – Pakistan Telecommunication Corporation 

QESCO – Quetta Electric Supply Company Limited 

REA - Rural Electrification Administration, USA 


RORB – Return On Regulatory Asset Base 

RTC - Regional Training Center 

SBP – State Bank of Pakistan 

SCO - Service Connection Order 

SDO – Sub Divisional Officer 

SE – Superintending Engineer 

USAID – United States Agency for International Development 

USC – Use of System Charges 

WACC - Weighted Average Cost of Capital 

WAPDA – Water and Power Development Authority 

XEN – Executive Engineer 


EXECUTIVE SUMMARY 

OVERVIEW OF THE PROJECT 

Background 

Pakistan’s Power Sector is, and has been for many years, confronted by significant challenges. These include 

limited availability of reliable and affordable electric power, aging and inadequate transmission and 

distribution networks and utility policies and practices that badly lag behind those of modern utilities 

elsewhere in the world. Moreover a current-day, technology infrastructure that can enable efficient, backoffice 

operations such as handling customer service requests is not in evidence. 

For a major electric distribution utility like the Faisalabad Electric Supply Company (FESCO), these 

deficiencies translate into a level of financial performance that cannot be considered self-sustaining. And 

financial self-sufficiency is becoming critical. Pakistan’s power industry is undergoing sweeping changes, 

transitioning from wholly Government-owned utilities to fully autonomous companies that will engage in 

power generation, transmission and distribution under the Government’s aggressive reform agenda. A 

similar industry structure exists and functions smoothly in many other countries today. In Pakistan’s case 

however, badly outdated policies, procedures and work practices, as well as chronically low levels of 

investment in utility infrastructure, pose serious barriers to a successful transition. 

Purpose 

The Power Distribution Improvement Program (PDIP) is a three-year, USAID-financed project designed to 

facilitate improvements in electric power distribution utilities across Pakistan. The project began in 

September, 2010. PDIP was designed to be implemented in two distinct components: 

• Component 1 consisted of operational audits of each of the eight Government-owned distribution 

utilities (DISCOs).The purpose of these in-depth, operational audits was to establish baseline 

information that can be used to measure improvement in performance over time. Audits covered 

governance, operational, financial, human resources, communications and customer service areas and 

surfaced opportunities for fundamental improvement in all areas. These improvement opportunities 

are reflected in specific Performance Improvement Action Plans. This report contains the Action 

Plan recommended for FESCO. 

• Component 2 will focus on execution of the Performance Improvement Action Plans by each 

DISCO, including implementation of performance improvement projects to demonstrate a number 

of key operational improvements and directly measure their value to the utility. 

• FESCO has adequate investment through ADB Power Distribution Enhancement Investment 

Program (Tranche I & II) with major emphasis on transmission system expansion, up-gradation and 

augmentation. Therefore, PDIP focus is mainly on distribution system (11kV and below) 

improvement as it lacked investment. 

Selected Key Issues 

A number of important and compelling changes must occur to enable FESCO to achieve performance levels 

in line with standards set by modern, efficient and effective electric distribution utilities. These needed 

changes are broad in scope and span the range of FESCO policies, procedures and operating practices. Some 

are structural in nature – changes in governance, corporate organization, human resource management, 

organization of commercial activities and engineering planning. Others will require technology upgrades. 


Many of these changes will affect the institutional relationship between FESCO and Government of Pakistan 

institutions, the functionality of business practices that have been used for decades and the behavior of 

FESCO employees and customers alike. Among the many themes inherent in this report, four key issues 

carry overarching importance for FESCO’s improvement plan. They are discussed below. 

Governance and Institutional Autonomy 

Pakistani DISCOs have been subject to direct oversight and, in some operational areas, direct control by the 

Pakistan Electric Power Company Ltd. (PEPCO) and the Water and Power Development Authority 

(WAPDA), as has been explained in detail in the Operational Audit report. Going forward, FESCO must be 

empowered with full operational control of its business systems, expansion planning, investment 

prioritization, human resource management and commercialization of electric service. All outside 

interference by institutions external to FESCO must be eliminated – and this change must receive the full and 

unequivocal support of the Ministry of Water and Power [MWP]. Unquestionably, FESCO will still need to 

comply with National Electric Power Regulatory Authority (NEPRA) oversight and its technical and financial 

performance will be monitored by its Board of Directors on behalf of the Ministry of Water and Power, but it 

will no longer be subject to undue external influence from PEPCO/WAPDA. 

Theft Reduction 

PDIP proposes a number of interventions and performance improvement projects in this Action Plan that, 

once successfully implemented, will reduce theft, improve commercial control of FESCO operations and 

reduce technical and non-technical losses. Theft control requires improved data management, including 

ensuring that all consumers are formally registered, metered and billed. It requires an electrical interface with 

the consumer designed to minimize vulnerability to illegal connections and/or bypassing meters. Several 

interventions identified in this Action Plan are designed to contribute directly to theft reduction and loss 

control. A number of measures, implemented concurrently, are needed to improve the integrity of 

commercial practices and business systems, improve metering and data management and improve the 

interface between FESCO and the consumer. 

Revenue Enhancement 

Ensuring revenue recovery in electric distribution utilities requires establishing and maintaining highly 

effective and efficient commercial management mechanisms – in similar fashion to theft control described 

above. Specific measures recommended in this Action Plan to enhance revenue recovery include replacement 

of the FESCO meter fleet and introduction of advanced metering technologies, including Automated Meter 

Reading (AMR) and prepayment meters. In addition, re-engineering commercial practices and organization; 

improving data transfer from pay points, FESCO commercial offices, and FESCO’s bank; and perhaps most 

importantly, future implementation of an Enterprise Resource Planning (ERP) system will all contribute to 

revenue enhancement. 

Financial Sustainability 

Supporting the movement towards overall financial and institutional sustainability of participating DISCOs is 

at the core of the goals and objectives of PDIP. In similar fashion to revenue enhancement, several 

interrelated interventions and performance improvement projects will contribute to achieving this 

overarching goal. In addition to improvements in commercial practices, implementation of a Customer 

Information System (CIS), future implementation of the ERP, and reduction of theft and 

technical/commercial losses, it will also be necessary to concurrently improve human resource capacity by 

implementing changes described in this report. 

Financial sustainability includes reducing losses and improving revenues – as well as ensuring that tariffs 

reflect the cost of service. Thus, implementation of a cost-of-service allocation study ∗ to demonstrate what 

∗ 

A widely accepted methodology that disaggregates the actual costs incurred by a utility in providing electric service, allocates the 

costs to classes of customer, and determines the utility’s overall revenue requirement. The methodology is often the centerpiece 


tariff reforms are required to recover all costs associated with commercialization of electricity to residential, 

commercial, industrial and government consumers is vital. 

FINANCING THE PLAN THROUGH SAVINGS 

Projected Benefits 

The benefits of FESCO’s performance improvement plan are both tangible and intangible. Tangible benefits, 

those that can be monetized, include operational cost savings while intangible benefits, those that cannot be 

easily monetized, include such fundamental outcomes as improved quality of service and reduced fatality rates 

among line staff. Most utilities refer to tangible economic benefits as “hard dollar” savings. In FESCO’s case, 

the major source of tangible and economically recoverable savings through reduction of Technical and Non- 

Technical Losses is highly significant. 

Projected Costs 

Table 1 provides projected costs for full implementation of the program. This table presents the costs that 

will be incurred if FESCO and the MWP proceed with full implementation of the proposed Performance 

Improvement Action Plan, using internal and external funding from donor agencies. 

TABLE1: PROJECTED COSTS FOR THE PERFORMANCE IMPROVEMENT PLAN 

Description Technical Assistance Materials and Other 

Costs 

Donor 

DISCO 

Total Project 

Cost 

Governance $720,000 $100,000 $300,000 $1,120,000 

Organizational Structure $1,740,000 $560,000 $380,000 $2,680,000 

Financial Management $3,690,000 $630,000 $4,620,000 $8,940,000 

Commercial Management $10,100,000 $2,670,000 $131,370,000 $144,140,000 

Human Resources Management $6,290,000 $6,680,000 $13,540,000 $26,510,000 

Engineering Planning and Operations $5,690,000 $1,480,000 $39,230,000 $46,400,000 

Transition Team Implementation $1,950,000 $1,290,000 $380,000 $3,620,000 

Total $30,180,000 $13,410,000 $189,820,000 $233,410,000 

Overall Cost/Benefit 

Considered together, the quantifiable benefits and costs of FESCO’s Performance Improvement Action Plan 

are projected to produce break-even in less than five years on an undiscounted, or nominal, dollar basis. 

CONFIRMING VALUE THROUGH PERFORMANCE IMPROVEMENT 

PROJECTS 

Project Portfolio 

Performance improvement projects are manageably scaled and realistic tests that demonstrate the validity of a 

business intervention or improvement, e.g. a new business practice or technology solution, and confirm its 

expected value. A number of performance improvement projects have been identified by PDIP and are 

in regulatory review and adjudication of customer tariffs, helping to ensure that each class of customers pays its own fair share of 

costs without cross-subsidization. 


described in Section 7 of this report. Because projects are intended to demonstrate value, they must have 

measurable indicators whose values following the intervention can be compared with their value in a baseline, 

or preexisting condition. The availability of such before-data was carefully considered in selecting this 

portfolio of recommended projects. 

Five technical assistance activities together with four performance improvement projects are proposed in this 

Action Plan and described in Section 7. Table 2 summarizes projected costs and benefits of the portfolio of 

performance improvement projects. 

TABLE 2: SUMMARY OF FESCO INTERVENTIONS AND PERFORMANCE IMPROVEMENT PROJECTS. 

Type Description Labor Costs Material and 

Other 

Construction 

Costs 

Total 

Project 

Cost 

Non 

Disco 

DISCO 

Intervention Board Training $160,000 $20,000 $50,000 $230,000 

Intervention Accounting and Audit Manual $58,750 $20,000 $16,250 $95,000 

Intervention Low Loss Transformer Specifications $60,000 $3,000 $0 $63,000 

Intervention Two Way Utility Exchange $100,000 $10,000 $140,000 $250,000 

Intervention Business Planning $70,000 $10,000 $10,000 $90,000 

Performance 

Improvement 

Projects 

Performance 

Improvement 

Projects 

Performance 

Improvement 

Projects 

ERP Implementation Preparation 

Project 

$190,000 $50,000 $70,000 $310,000 

Integrated Commercial Office $880,000 $190,000 $2,860,000 $3,930,000 

Lineman Training $360,000 $10,000 $279,000 $649,000 

The estimated benefits that these projects will yield are presented hereunder: 

TABLE 3: SUMMARY OF PERFORMANCE IMPROVEMENT PROJECT BENEFITS 

Performance improvement Project Estimated Project Cost Life of Project Benefit 

ERP Implementation Preparation Project $310,000 $1,250,000 

Integrated Commercial Office $3,930,000 $5,100,000 

Lineman Training $649,000 $950,000 

CONCLUSION 

The PDIP review of FESCO operations has produced a Performance Improvement Action Plan that 

promises to respond to critical challenges and realize strategic opportunities. Projected impacts of the Action 

Plan have been diligently estimated and a portfolio of performance improvement projects has been developed 

to minimize uncertainty about outcomes. What is envisioned here is nothing less than a sweeping overhaul 

intended to give FESCO a direct path to becoming an efficient, effective and autonomous utility. With 


proper leadership and careful management of the culture shift that will be required across the organization to 

execute this Plan, FESCO’s probability of success will be high. 


1. INTRODUCTION 

1.1 OVERVIEW 

The Power Distribution Improvement Program (PDIP) is a USAID-financed project designed to facilitate 

improvements in electric power distribution utilities in Pakistan that was initiated in September, 2010 and will 

have a three year duration. PDIP was designed to be implemented in two distinct phases, implementation of 

operational audits at each of the eight Government-owned distribution utilities (DISCOs) and definition of 

performance improvement action plans for each DISCO. The second phase will focus on execution of the 

performance improvement action plans for each DISCO, including implementation of performance 

improvement projects to demonstrate a number of key operational issues. 

The principal challenge of successful change management for each DISCO lies in transforming the 

management practices and the culture of the distribution utility to make it an effective, efficient and serviceoriented 

organization. The process requires that virtually all employees buy-in to the new, progressive vision 

of the organization, receive training in new methods of work and have the liberty of putting into practice the 

new concepts learned. To do this requires the input of intensive, specialized expertise as well as a 

management team committed to the change management objective. It also requires the GOP to create legal 

and political space for the management of the utility to operate in the most commercially rational manner, 

especially with full transparency and streamlined funds transfer arrangements within the energy sector. 

In a previous report, PDIP presented the results of the FESCO operational audit that documented the 

policies, practices, procedures and operational characteristics employed to date. It was noted that, while 

FESCO does indeed manage some segments of electric distribution service well, there remains substantial 

room for improvement in the business practices, human resource management, engineering and operations 

and financial management of the utility. 

This companion report to the FESCO operational audit report presents a summary of proposed performance 

improvements, together with an action plan to accomplish the targets. The goal of this report is to provide a 

blueprint to modernize FESCO as an electric distribution utility; to present a vision of how it can achieve the 

high standards of electric distribution performance to which its consumers are entitled; and to present 

specific targets and actions that define the goals and objectives of the performance improvement program. 

Lastly, this report will present a chronological plan with estimated investment costs describing how FESCO 

can achieve the targets defined herein. 

1.2 FESCO PROFILE 

Faisalabad Electric Supply Company (FESCO) is a wholly Government owned distribution company with 

headquarters located in the city of Faisalabad in the province of Punjab. This is the third largest city in 

Pakistan with a population of over 2 million. FESCO’s service territory is located in the western part of 

Punjab province. It has boundaries adjoining PESCO in the west, MEPCO in the south and LESCO and 

GEPCO in the east and north respectively. As Figure 1 illustrates below, FESCO territory covers the districts 

of Faisalabad, Toba Tek Singh, Jhang, Sargodha, Mianwali, Khushab, Chiniot and Bhakkar, in all eight 

districts, covering 44,247 square kilometers. 


FIGURE 1. FESCO SERVICE TERRITORY 

FESCO serves almost 2.9 million consumers, commercializing 8,300 GWh of electric energy per year, with a 

peak demand of 2,300 MW. It operates approximately 35,500 kilometers of medium voltage distribution line 

and 23,200 kilometers of low voltage distribution circuits. FESCO is one of the largest and most advanced 

DISCOs in the Pakistan power sector. A more detailed description of the utility’s operating statistics are 

presented in the FESCO Operational Audit Report. 


2. SUMMARY OF CONCLUSIONS FROM 

OPERATIONAL AUDIT REPORT 

FESCO services a mixed urban/rural system with a moderate sales density of 135MWH per km of 

distribution line, less than half that of FESCO at 333MWH/km. Nonetheless, FESCO has a healthy mix of 

industrial to residential load. Losses in general are among the lowest in the system, and the company has 

been quite successful in reducing non-technical losses. All the same, it faces challenges that have proven 

difficult to address. 

GOVERNANCE 

ORGANIZATION 

ENGINEERING 

FINANCIAL 

FESCO’s governance system has not yet made the transition to a business-like 

electric utility focus. It remains subject to political intervention, and the Board 

of Directors has not been empowered to oversee a true corporate entity. 

Recent reconstitution of the Board by the Government is a positive step 

toward greater professionalism and operating autonomy; however, additional 

changes will be required to enable the BOD to exert the strategic influence the 

company will need to succeed in the restructured Pakistani power sector, and 

to improve its operating and financial performance to more acceptable levels 

FESCO’s current organization is not structured along functional lines as seen 

in most modern electric distribution utilities worldwide but primarily by 

geographic areas. Commercial functions responsible for cash flows within the 

utility should not report to Superintending Engineers whose responsibilities 

focus on power system stability and reliability. The current arrangement also 

creates potential conflicts of interest in the performance of key jobs within the 

utility. 

Preliminary loss analysis on four (4) sample feeders using GIS mapping & 

modeling technique with a load flow software shows that technical loss for 

FESCO’s distribution system is 7.1%. In contrast, FESCO reported total 

system loss is 10.8% in FY 2009-10. The reported distribution loss was 9.7%. 

So the difference between the distribution technical loss of 7.1% and a 

reported total distribution loss is a non-technical (commercial) loss of 2.6%. 

Construction and maintenance work practices in widespread use among 

FESCO employees are inconsistent, rely on makeshift and stopgap approaches 

and suffer from lack of available equipment and transportation access. The 

consequences of these failures are profound—employee safety is routinely 

jeopardized; worker productivity is low; response to customer requests can be 

exceedingly slow; and equipment failures occur more frequently than 

necessary. All of these direct consequences have significant financial impacts 

for FESCO. 

DISCO power supply is pooled; that is, FESCO does not have an individual 

relationship with its power supplier. The amounts FESCO pays for power are 

consolidated and parceled out to generators without regard to the volume of 

power actually supplied to it. This puts FESCO, which is capable of paying the 

unsubsidized portion of the power bill from its own revenues, in the same 

class as other DISCOS who cannot, and ensures that FESCO cannot take 

unilateral steps to improve its power supply picture. The company employs 


manual financial and management reporting systems resulting in inefficient, 

slow and sometimes inaccurate or incomplete information. Past due trade 

debts age without effective efforts for collection. FESCO is currently paying 

approximately Rs 10.5 million for outdated legacy based software applications. 

Cash flow generated by operations is satisfactory only for meeting short term 

needs, making the utility essentially an operations-oriented entity. FESCO also 

shoulders certain cost burdens that are rarely, if ever, seen among leading 

utilities worldwide. As a result, investment in both distribution system assets 

and employee equipment is hampered by low capital availability and operating 

performance impacted by poor cash flows. A new, rationalized financial 

framework—covering both internal and external relationships and 

transactions—is needed to assure better bottom-line performance. 

COMMERCIAL 

HUMAN RESOURCES 

COMMUNICATIONS 

& OUTREACH 

Statistics indicate that FESCO is functioning reasonably well. However, 

commercial activities need improvement and transparency. The meter reading 

practices currently employed are subject to influence by operations 

management. 

Progress toward a modern billing and collections systems is frozen at the most 

basic level of automated processing typical of the 1970’s in other countries’ 

utilities. The entire revenue cycle, from the setup of a new customer account to 

meter reading to receipt of customer payments and ultimate revenue 

recognition, remains a highly fragmented and manual process. Inadequate 

monitoring of all steps in the revenue cycle at FESCO virtually assures 

negative cash flow impacts, higher than necessary levels of payment arrearages, 

low customer satisfaction and delays in completing even the simplest jobs. 

FESCO’s corporate culture is akin to that of a government agency in which 

lifetime employment without performance expectations is balanced by low 

salaries. This environment makes it difficult for it to recruit skilled candidates 

for open positions because the best candidates command higher salaries in 

private industry. As a consequence, FESCO is both overstaffed by any 

reasonable benchmark and under-resourced, with serious shortages of 

employees possessing the right mix of technical training, experience and 

motivation to accomplish its mission. Moreover, the corporate culture requires 

a complete overhaul to instill in all employees the strategic message that quality 

of work, responsiveness to customer needs and constant attention to safety are 

among the company’s highest values. 

FESCO is still following the outdated and tedious communications and 

outreach practices of its historical predecessor, which employ extensive and 

laborious processes, including much paper pushing. Computer penetration is 

abysmally low. Since major mass media campaigns are carried out by PEPCO, 

FESCO’s outreach remains limited to a few piecemeal public relations 

activities, mostly related to company announcements, procurement and shut 

down notices and messages for energy conservation. Customer satisfaction is 

hampered not just by poor service delivery, but also by untrained, substitute 

staff which works on an ad-hoc basis. 


3. VISION FOR THE PERFORMANCE IMPROVEMENT 

ACTION PLAN 

The purpose of this report is to present a road map of performance improvement actions that will result in 

significant progress towards achieving long-term financial sustainability, reduction of technical and nontechnical 

losses and ensuring high quality service delivery to FESCO consumers. The Action Plan will 

present a global strategy to achieve short- and long-term goals, with an estimate of the investment that will be 

required. 

The PDIP team proposes a vision of the future of FESCO as an electric utility that has addressed its issues in 

the following way: 

Governance: 

• Governance will be based on sound and objective business principles, as opposed to political 

pressures, and will generate confidence in the investment community that allows FESCO to attract 

reasonably priced long term capital on the strength of its balance sheet and income statement, relying 

on government resources only for clearly identified and carefully priced social investments. 

Organization: 

• FESCO will be reorganized along functional lines, with all personnel involved in commercial 

operations, no matter where they are, reporting to a newly formed commercial department; and other 

adjustments made to the organizational structure resulting from a careful review of the best approach 

for managing FESCO’s utility obligations. 

Engineering: 

• Engineering and planning activities will be modernized to include development of mapping and long 

term plans that can be implemented in an integrated fashion. 

• Although FESCO has achieved an admirably low level of non-technical losses, these losses will be 

further reduced to less than 1% overall through a combination of improved meter security, improved 

loss segregation techniques and eventual replacement of electromechanical meters with more secure 

and accurate electronic meters. In the interim a calibration, testing and meter security program will 

be implemented as a means of enhancing the capability of the existing electromechanical meter fleet. 

Commercial: 

• FESCO will identify and pursue power supply resources on the basis of its own least cost planning 

and will be empowered to execute contracts to acquire power resources as needed supported by the 

strength of its balance sheet. 

• Commercial loss will be reduced to less than 1% overall through a combination of improved meter 

security, improved loss segregation techniques and eventual replacement of electromechanical meters 

with more secure and accurate electronic meters. In the interim a calibration, testing and meter 

security program will be implemented as a means of enhancing the capability of the existing 

electromechanical meter fleet. 

Human Resources: 

• Employee staff and skill levels will be based upon the demonstrated needs of the utility; employees 

will be transparently recruited and compensated at a level that is consistent with the value of the skills 


in the overall marketplace. By the same token, performance expectations for employees will be 

increased to levels consistent with the overall marketplace, and employees will be evaluated and 

promoted on the basis of fulfillment of such enhanced performance expectations. 

• Employees will be recognized as an investment, and will be provided with adequate training and tools 

to enhance productivity; and enhancing employee safety will become a standard business practice. 

Information Technology 

• Information technology will be employed to replace and modernize the manual business processes 

currently in place. Initially the focus will be on development of improved standalone IT tools that 

enhance the accuracy, productivity, transparency and reliability of business practices. That is, new 

processes such as implementation of ERP solutions and IT tools will be developed to carry out the 

commercial, accounting, human resource benefit management, fleet management, material 

procurement and control, mapping and engineering planning and the other tasks essential to utility 

operations. The objective of this development will be not only to streamline the standard utility 

processes, but also to enhance confidence on the part of the consumers that they and their neighbors 

are paying neither more nor less than their fair share. 

Communications and Outreach 

• Customer and employee communications, through a defined and developed strategy, will be 

used to create an essential education and information link and build trust between the Company 

and its customers and employees. This will include promoting and building the image of the 

Company as well as adopting and implementing certain technological resources and processes to 

adequately support this initiative. 

This vision will be realized over a period of years and in a phased manner. The strategy proposed by the 

PDIP team is that , rather than attempt to implement all the changes proposed at a utility level scale, they all 

be carried out on a selective basis, creating a utility within a utility to demonstrate and “debug” the processes 

at a smaller scale than would be called for by such a complete change in corporate structure and culture. The 

process would then be rolled out across the remainder of the utility. It is anticipated that a period of up to 

five years would be required to achieve the full extent of the vision. 


4. FESCO PERFORMANCE IMPROVEMENT 

REQUIREMENTS 

4.1 SUMMARY 

FESCO is one of the three largest distribution utilities in Pakistan, serving a diverse population of residential, 

commercial, agricultural, industrial and government clients. While FESCO has maintained non-technical 

losses at an admirably low level, and has achieved reasonable collection rates, there are a number of important 

and compelling changes that are needed to enable it to achieve performance standards that are more in line 

with a modern, efficient and effective electric distribution company. These changes span the range of 

FESCO policies, procedures and operating practices. Some of the changes that are needed are fundamental 

in nature – such as changes in governance, corporate organization, human resource management, 

organization of commercial activities and engineering planning; while others will require less drastic 

adjustments, such as some of the changes required in its financial management. 

The changes that are recommended in this Action Plan can be grouped into four principal categories that 

include governance/institutional autonomy; theft reduction/loss control; revenue enhancement; and overall 

DISCO financial sustainability. Many of these changes will affect the nature of the institutional relationship 

between FESCO and Government of Pakistan institutions; the operational functionality of business practices 

that has been used for several decades; and, the behavior of FESCO employees and customers alike. While 

these changes will be elaborated in greater detail in succeeding sections of this report, they are summarized 

below in order to clarify the changes that are needed and how they relate to the principal problems that the 

utility faces. 

Governance and Institutional Autonomy: To date, all DISCOs have been subject to direct oversight, and 

in some operational areas to direct control, by PEPCO/WAPDA as has been explained in detail in the 

Operational Audit report. Going forward, FESCO must be empowered to have full operational control of its 

business systems, expansion planning, investment priorities, human resource management, and 

commercialization of electric service. All outside interference in FESCO operations must be eliminated – and 

this change must receive the full and unequivocal support of the Ministry of Water and Power. FESCO will 

be subject to regulatory oversight by NEPRA with respect to tariffs and customer service, and its technical 

and financial performance as a business will be monitored by its newly appointed Board of Directors on 

behalf of MWP, but it will no longer be subject to influence or require approvals from PEPCO/WAPDA. 

MWP needs to provide a mandate for the board of directors to allow it to function as the supreme and 

independent authority of the FESCO, without the requirement for approvals from MWP for any actions 

except those that require shareholder approval under the Companies Act. 

In addition, the MWP needs to: 

1. minimize public members, even as representatives of public entities; 

2. establish terms for board members and put in place a schedule for their replacement that is staggered 

so that not all board members can be replaced at once; and 

3. delegate to the board the authority for hiring and discharge of the CEO. 

MWP has recently constituted new BODs for all the DISCOs, and the number of public representatives has 

been significantly reduced to 2, and that is a welcome sign. However, MWP needs to work on points two and 

three above to allow the new BODs to function independently. 


PDIP will support this fundamental change by working with MWP to address and resolve transitional issues 

that may arise during the process of change, and to provide support to the Ministry to develop the approach 

that will allow it to adequately monitor DISCO performance, while concurrently supporting the level of 

autonomy that is needed to facilitate improved financial and technical performance. 

Theft Reduction/Loss Control: FESCO has achieved an admirable level of non-technical loss control, but 

PDIP proposes a number of interventions and performance improvement projects in this Action Plan that, if 

successfully implemented, will reduce both technical and nontechnical losses. The utility’s main opportunities 

for loss control are in the reduction of technical losses. Reducing technical loss will require the introduction 

of mapping/GIS in concert with short- and long-range engineering planning to pinpoint the sources of loss 

and develop projects that reduce them. Other interventions, such as replacement of bare LT line with 

covered multiplex and reduction of LT network length will reduce both technical loss and theft and improve 

commercial control of FESCO operations. . Theft control requires improved data management, including 

ensuring that all consumers are formally registered, metered and billed. It requires an interface with the 

consumer that is designed to minimize vulnerability to illegal connections and/or bypassing meters. 

Interventions that contribute directly to theft reduction and loss control include introducing new Customer 

Information Systems (CIS); introduction of AMR technology for large commercial and industrial customers 

and redefinition of commercial practices and procedures; as well as reorganization of the commercial 

department at FESCO. No single intervention will, in and of itself, completely address the changes that are 

needed to reduce losses; rather, a number of measures are needed to improve the integrity of commercial 

practices and business systems, to improve metering and data management and to introduce low loss 

technologies to the constructed system.. 

Revenue Enhancement: Ensuring revenue recovery in electric distribution utilities has to do with 

establishing and maintaining highly effective and efficient commercial management mechanisms – in similar 

fashion to theft control described above. Specific actions recommended in this Plan that will enhance 

revenue recovery will include replacement of the FESCO meter fleet; introduction of advanced metering 

technologies including prepayment meters and automated meter reading. In addition, reengineering 

commercial practices and organization and improvement of data transfer between pay points and FESCO 

accounts shall be carried out. 

Sustainability: Supporting the movement towards overall financial and institutional sustainability of 

participating DISCOs is at the core of the goals and objectives of PDIP. In similar fashion to revenue 

enhancement, several interrelated interventions and performance improvement projects will contribute 

towards this overarching objective. In addition to improvements in commercial practices, implementation of 

a CIS and other information technology solutions and reduction of theft and technical/commercial losses, it 

will also be necessary to concurrently improve human resource capacity through training; substantially 

improved recruiting practices and procedures; improved key staff retention through a more progressive and 

objective performance-based management system; and overhaul of the compensation framework. Financial 

sustainability includes reducing losses and improving revenues – as well as ensuring that tariffs reflect cost of 

service. Thus, implementation of an allocated cost of service study to demonstrate what tariffs are required 

to recover all costs associated with commercialization of electricity to residential, commercial, industrial and 

government consumers is vital. 

Below is a summary of the major interventions recommended: 

1. To establish, through formal agreement with MWP, that the Board of Directors is the supreme 

authority for FESCO with autonomous responsibility for governance of the utility, free from 

requirements for approval or interference in day to day operations from the Ministry. 

2. To enhance FESCO’s autonomy by establishing a direct FESCO power supply contract with CPPA, 

one which also allows FESCO to pursue other options to acquire power resources. 


3. To reorganize FESCO along functional lines as opposed to geographic divisions in accordance with 

the results of an in-depth organizational study. 

4. To introduce 10 year forecasting and financial modeling as a business planning strategy so as to be 

able to forecast capital requirements. 

5. To carry out an allocated cost of service study in order to identify the contributions to cost by all 

categories of consumers. 

6. To implement a new Customer Information System (CIS) with capacity for accepting electronic 

metering data input; implement improvements in meter reading and meter security; and introduce 

automated metering (AMR) for selected high-end consumers and applications. 

7. To redefine human resource management within FESCO, beginning with a staffing study to 

determine staff requirements; preparation of position descriptions; and development of new 

performance based promotion / compensation plans and enhanced benefit offerings. 

8. To implement improved power factor control for distribution lines, particularly those serving mixed 

domestic and commercial consumers. 

9. To significantly strengthen FESCO engineering and information technology capacity by: 

a. Implementing a geographic information system (GIS) to create and maintain system maps 

that are flexible and complete for modeling and planning. 

b. Modernize system modeling software and procedures, prepare long term power requirement 

forecasts and develop long range plans for transmission, substation and distribution system 

rehabilitation and expansion. 

c. Migrate construction activities to contractors and enhance the quality management and 

construction inspection capacity of the utility’s technical staff. 

The following sections discuss the details and specific interventions that are needed to support increased 

profitability, long-term financial sustainability and significantly improved performance from the standpoint of 

quality of service and institutional efficacy. The PDIP team feels that all of the interventions suggested are 

of significant importance, but that some interventions will be of higher immediate value and will be more 

critical than others. These interventions form the core of an investment program towards performance 

improvement, and accordingly, we shall present an estimate of the investment cost of the interventions in 

Chapter 6 of this report. The interventions in each area will be characterized as one of the following priority 

levels: 

High Priority: which means that the intervention is of critical importance to the future success of FESCO 

and should be implemented rapidly; 

Moderate Priority: which means that the intervention, while still significant, either cannot be characterized 

as critical or cannot realistically be implemented in the short term; and 

Long Term Priority for those interventions whose importance in terms of loss reduction is likely to be 

lesser than either of the other priority levels, or which will require a significant implementation period. 

4.2 GOVERNANCE 

Governance within the meaning of this report may be defined as the structure of authority and accountability 

of the Board of Directors for the performance of the utility and its freedom of action with respect to 

involvement of the Ministry of Water and Power. Boards of directors in a corporate environment are 

required to provide for operations of the company in such a way as to enhance the ownership value of the 

shareholders, but are not subject to replacement or interference from the shareholders, except for 


malfeasance. The board specifically is empowered to establish and enforce policies that guide company 

management in the businesslike operation of the enterprise, establish and review performance targets for 

management and hold management accountable for fulfilling profitability goals Because 100% of shares of 

FESCO are held by the government, it is difficult to separate the political interests of the current government 

from the long term public interest. Accordingly, the following actions should be undertaken by FESCO: 

4.2.1 High Priority 

• Agree with MWP on a mandate for the Board that provides it clear delegation of authority to allow it 

to function as the supreme and independent authority of FESCO, without the requirement for 

approvals from MWP for any actions except those requiring shareholder approval under the 

Companies Act. In addition, the agreement would seek to minimize public members, even as 

representatives of public entities; establish terms for Board members, and put in place a schedule for 

their replacement that is staggered so that not all members can be replaced at once; and delegate to 

the Board the authority for hiring and discharge of the CEO. 

• Provide training of Board members in corporate board responsibilities and establish certification 

requirements for completion of such training by new Board members. 

4.2.2 Moderate Priority 

• Prepare a comprehensive set of board policies governing board functions: endorsing the concept of 

improved financial performance to allow for acquisition of financing on the strength of the balance 

sheet; establishing clear delegations of authority to the CEO; providing for hiring and contracting of 

the CEO; restructuring the Board to remove the CEO from the Audit Committee; and providing for 

performance targets for the CEO and mechanisms for their evaluation. 

4.3 ORGANIZATIONAL STRUCTURE 

The operational audit noted the need to reorganize FESCO along functional lines, as opposed to geographic 

subsets. The principal purpose of this restructuring is twofold: first, to separate the functions of the utility 

into more identifiable groupings, so that responsibility for specific activities is not dispersed and will therefore 

depend on fewer authorizations; and second, to separate commercial operations from system operations and 

place these functions under dedicated management. Other changes would also be required. 

It is outside the scope of this report to recommend a final organizational structure for FESCO. A final 

organizational structure should be the subject of an analysis that considers the most effective and efficient 

means of administering utility management tasks. 

Such a reorganization also assumes that an agreement has been reached with MWP to allow for independent 

operation of the Board of Directors with a focus on the commercial and financial success of FESCO. 

Accordingly the following actions should be taken by FESCO. 


• Carry out an organizational evaluation to determine the most efficient method for organizing 

FESCO to fulfill its duties as an electric utility, generally in line with the principles established in the 

results described in the FESCO Operational Audit report. 

• Establish a revised organizational chart based upon the functional organization developed on the 

basis of the analysis carried out. 


4.3.2 Moderate Priority. 

• Carry out a staffing analysis to identify the number of staff members and the skill sets necessary to 

staff the functional organizational chart. 

• Prepare positions’ descriptions for the positions identified. 

• Establish a chart of approval authorities for the various levels of the organization such that the 

number of approvals required for execution of any task is the minimum necessary consistent with the 

impact of the action on the financial position of FESCO. 

• Establish internal control policies that provide for appropriate checks and balances to ensure that 

decisions are appropriately documented and justified, consistent with the potential impact of the 

decision on the financial position of FESCO. 

4.3.3 Long Term Priority 

• Establish a training and familiarization program for existing staff so that they can understand their 

duties under the revised organization structure 

• Implement the revised organizational structure. 

4.4 FINANCIAL MANAGEMENT PLAN 

FESCO’s financial management is characterized by relatively effective bank account and cash management 

practices. However, its external auditor has noted that “the accounting function of FESCO relies on manual 

systems and it takes excessive time and effort in data entry and information retrieval. There are certain stand 

alone software applications such as inventories, payroll and billing which require manual entries to the general 

ledger. Data generated from these applications is used for manual entries in the general ledger. FESCO, due 

to its size and multi-location operational units, needs a proper ERP system.”. An ERP system can 

consolidate information from a number of applications within FESCO and minimize the needs for manual 

data transfer and the errors that inevitably ensue. 

FESCO began investigation of ERP applications in 2006, but will need to restart the activity as technology 

has advanced considerably since then. Also, the ERP vendor normally provides basic modules for some 

functions which are then customized by the client to fit its particular situation. Other modules that are truly 

business specific must exist within the client’s operation and are then modified to supply information to the 

ERP. A case of this sort is the customer billing system, which is not included in the ERP as supplied. The 

billing system used by FESCO is a legacy system that is obsolete and inadequate, as described, and should be 

replaced rather than modified to form a module of the ERP. 

Accordingly, the following actions should be undertaken by FESCO: 


• Carry out a feasibility study aimed at identifying an ERP application that will consolidate the various 

financial reporting requirements of FESCO, keeping in mind that it may be necessary to investigate 

improved general ledger software as well as the ERP system itself. 

• Redraft the existing accounting manual to fully comply with the Pakistan accounting practice, 

adjusted to meet NEPRA revised uniform accounting system requirements, and develop revised 

FESCO internal financial control manuals to accommodate the changes in accounting practice. The 

scope of the financial controls and audits would extend to the commercial and customer service areas 

and include policies, procedures, reporting requirements, business processes and other items to 

support a comprehensive organizational accounting resource. 


• Redefine the activities of the FESCO internal audit function. The PDIP team recommends a 

thorough revision of its internal audit process and organizational chart reporting relationships to 

ensure an independent and unbiased opinion for effectiveness in achieving functional and 

performance objectives with respect to financial controls, risk management, governance and 

compliance with organizational procedures. This will require updating the FESCO Audit Manual as 

well as changing internal supervision from the CEO to the Board of Directors. 

• Clear the tariff differential subsidy intercompany balances due from the Government of Pakistan 

(GOP) and due to CPPA. The total amount involved is approximately Rs 216 billion and has been 

due from GOP since 2004-2005. This amount was recently funded by Power Holding Company 

(PHL) which assumed these GOP debt obligations. The elimination of these intercompany balances 

will have the effect of reducing both assets and liabilities on the balance sheet by the same amount. 


• Establish a program to more aggressively pursue recovery of government trade debts. Negotiations 

with government debtors should focus on offsetting amounts owed by retaining revenues normally 

transferred by FESCO to the particular government agency. 

• Develop a ten year financial forecast model that incorporates the results of a long term power 

requirements study and an integrated system expansion plan to forecast the need for capital and the 

likely impact on tariff requirements. This will require active cooperation with the System Planning 

Department, and it is recommended that this be carried out through development of a dedicated 

team whose responsibility is to monitor/ guide the development of the required subsidiary studies. 

• Prepare a fully allocated cost of service study, regardless of whether it is required by NEPRA. Such a 

study would require field surveys of consumer load characteristics, both real and reactive power, and 

the development of system data that allows isolation of costs to specific consumer groups. The 

study would determine the economic value of more stringent power factor penalties. Such an 

analysis would segregate costs and contribution not only by the traditional consumer classes 

(domestic, commercial, agricultural, industrial) but also by service voltage level. The execution of this 

analysis would also require intimate coordination with the System Planning Department. 

• Establish a direct FESCO/CPPA contract for supply of power to FESCO’s common delivery points, 

under which FESCO would pay CPPA directly for the portion of the power bill that is not covered 

by any government subsidy. This will establish the utility as a client of CPPA, with contractual rights 

and obligations, and would also permit it to pursue other resources to supplement the capacity of 

CPPA. Additionally, FESCO would benefit from the contract as it would have a fixed supply 

contract, and will allow it to effectively manage its load during periods of load shedding (as opposed 

to the Load Dispatch Center informing FESCO on an hourly basis how much electricity FESCO will 

receive from its quota under the load shedding regime). 


• Revise the guidelines for procurement with the objective of increasing the size of individual 

solicitations and reducing their quantity annually. Institute a procedure allowing for completing 

material requirements through small purchases that are not subject to the requirements for 

solicitations. 

• Once the feasibility of the concept has been demonstrated, FESCO should undertake 

implementation of an ERP, as called for by the external auditor. The objective of the ERP would be 

to integrate information from all parts of the company and make it available for immediate review. 


The Management Information System would be modified to extract data from the ERP necessary for 

maintaining FESCO management fully informed and up to date on the performance of the company. 

4.5 COMMERCIAL MANAGEMENT PLAN 

FESCO’s commercial management system is a legacy from the 1980’s and is seriously obsolete. In addition, 

the current system of combining commercial operations with system operations has diluted responsibility for 

completion of the checks required by archaic WAPDA commercial practice. The recommendation that 

FESCO be reorganized to separate commercial from system operations responsibilities is an effort to restore 

commercial discipline and reduce non-technical losses. Nonetheless, the growth in the number of consumers 

had outstripped the ability of any basically manual process to achieve an acceptable commercial result. 

Accordingly the PDIP team recommends that FESCO undertake the following activities: 


• Establish a separate Commercial Department with responsibilities for all commercial activities, either 

as part of an overall corporate reorganization or as a separate activity. This restructuring would 

remove commercial activities from the purview of the Operations Department and would establish a 

separate line organization with a direct reporting relationship to the CEO. This action can and should 

be undertaken independently of any other organizational changes that might or might not be carried 

out in response to this report. 

• Implement a new Customer Information System(CIS) based on modern information technology, and 

incorporating the following capabilities: 

o Ability to accept meter readings from all manner of meter reading devices, ranging from 

manual entry and handheld meter read tablets to automated meter reading systems 

o Management of the connection application process and its fulfillment 

o Meter installation/removal work order and inventory control 

o Consumer location and system component (feeder, transformer) linkage 

o Multi-month metering databases for error checking and trend analysis 

o Security organized by levels of authorization, with audit tracking of adjustments in value 

o Error checking and detection of anomalies 

o Automated exception reporting 

o Establish new practices for service requests, meter installations, meter inventory control, 

meter route definition and other business procedures, consistent with the use of the CIS 

system installed. 

• Implement methods that improve the quality of manual readings and reduce the potential for 

unauthorized access to the consumption data. This could be carried out using handheld reading 

recording devices or other strategies to be identified. 


• In conjunction with the Engineering and Operations Departments, develop a system of master 

meters using AMR technology that would be installed on the LT side of distribution transformers so 

as to provide meter data from within the system with which to validate the completeness of revenue 

meter readings. 


• Implement a program to test and upgrade the existing meter fleet to include development of a meter 

testing facility for electromechanical meters and replacement of slow, defective and tempered meters 

with electronic units. 

• Development of a secure service drop incorporating the ability to enclose the meter and its bottom 

connections in a sealed container and incorporating this design on new installations as well as 

retrofits. 


• Develop a planned replacement program aimed at replacing all electromechanical meters with secure 

electronic units within a timeframe of ten years. Such a program would implement increasing 

penetrations of automated meter reading technology, beginning with high value consumers and 

continuing until the cost of the additional technology is no longer offset by increases in revenue. 

• Carry out testing of prepayment metering technology as a means of evaluating its applicability to 

FESCO. 

• Increase the quality of the meter auxiliary equipment, such as the current transformers, so that they 

can be relied upon for long term service, thus reducing the need for redundant customer metering. 

4.6 HUMAN RESOURCES MANAGEMENT PLAN 

The PDIP operational audit identified a number of areas in which human resource policies, practices and 

procedures would require significant modifications for FESCO. In order to create an environment that is 

conducive to recruiting, developing, motivating and retaining skilled and committed staff members, FESCO 

will need to redefine its approach to human resources. This is perhaps the area in which the greatest break 

with WAPDA legacy practice will be required. The changes that are required will do nothing short of 

redefining FESCO as a place of work. This section of the FESCO Performance Improvement Action Plan 

describes those changes that are recommended in the Human Resource framework to assist FESCO to effect 

the transformation to a modern electric distribution utility. 


• Establish a program of lineman training aimed at training line staff in the actual equipment that will 

be used on the lines. Such line training would cover use and care of tools and personal protective 

equipment as well as installation practices in accordance with established standards. Training 

programs would provide certificates/diplomas that are recognized by government authorities and 

would be taken into account in promotion. 

• Upgrade the Regional Training Center and all Circle Training Centers (CTCs), equipping it with 

better facilities for classrooms, modern information and communication aids and infrastructure for 

training, including tools. This initiative would include training of trainers and other instructors 

involved in delivering training, as well as development of improved curricula. 

• Establish, in conjunction with the System Operations Department, a Lineman’s Safety Program that 

includes the development of a safety manual and safety instruction material, regular safety meetings 

and refresher training, a program for safety monitoring of job sites and uniform reporting of all 

personal injury events, not just fatalities. 

4.6.2 Moderate Term Priority 

• Prepare a compensation analysis to identify the levels of compensation that would be consistent with 

the market for staff of various skill levels and responsibilities in similar organizations. Such a 


compensation analysis would best be carried out by a consultant with access to multiple databases for 

different types of organizations. 

• Develop an employee recruitment program that is transparent and free of external influences, aimed 

at filling the positions defined in the staffing plan with the best possible candidates. Legacy 

employees would be considered for new positions alongside outside candidates but would not be 

given any preferences. Redundancies would be dealt with by enhanced severance or retirement 

incentives, but no attempt would be made to find space for all legacy employees. 

• Establish a performance based evaluation system that establishes goals and objectives for each 

employee, and objective measures of performance ranging from attendance to training and 

fulfillment of specified job requirements. The program would establish progression tracks for some 

positions, such as assistant linemen, who would have to progress to lineman status within a certain 

time or face discharge. 

• Develop training programs to introduce staff to the performance based evaluation program and 

explain how it can affect their compensation and promotion potential. 


• Establish a revised medical plan that covers both in-patient and out-patient services and provides for 

treatment at a number of participating hospitals within the service area, not only the WAPDA central 

hospital. Payments would be on a shared basis with employees, except that injuries resulting from 

job related accidents would be paid for by the company directly rather than reimbursed. The 

program would be independent of the WAPDA system and administered by a private healthcare 

provider. Ideally, it would provide medical benefits for dependents of employees as well. 

• Design and implement a utility exchange program with leading utilities in the US and comparable 

Asian countries where FESCO Engineers and Managers will be sent on various hands-on training 

courses. This will enable FESCO employees to learn how utilities facing challenges similar to 

FESCO’s have been able to effectively overcome these and turn their utilities into profit centers. 

4.7 ENGINEERING, PLANNING AND OPERATIONS 

The engineering and planning process at FESCO needs to be reoriented towards carrying out long range 

planning as opposed to problem resolution only. The recommended actions for planning, construction and 

operations are as follows: 


• Establish a GIS mapping function that would eventually map the entire network. The most efficient 

method for carrying this out is to focus on sequential benefits, that is to carry out work that is of 

immediate benefit, though perhaps limited in scope, and then to refine it over time. 

• Prepare a long range power requirements study, based upon demographic information from the 

census as to growth patterns, and data prepared by other sources on the existence of commercial or 

industrial growth poles. The results would be a forecast of power and energy sales, disaggregated by 

subareas within the service area for use in engineering and financial forecasting. 

• Prepare a long range system plan for the FESCO distribution network that evaluates existing system 

voltage drop and loss performance, outage data by feeder and performance under projected system 

load. This would be used to forecast the requirement for new grid substations and feeder upgrades 

and eventually for transmission requirements. Such a long term plan would form the basis for a 


financial forecast of the utility. Carrying out such a study would require the acquisition of advanced 

system analysis software. 

• Implement AMR metering at all common delivery points and for all distribution feeders. Meters 

would be capable of recording data on a billing interval basis for both real and reactive power. This 

information would be used to reconcile transmission loss and provide information on feeder power 

factor as well as feeder loading. 

• Alter construction standards for LT circuits to specify multiplex instead of bare conductor on all new 

LT circuits and implement a program to retrofit multiplex conductor on all existing LT circuits over 

time. 

• Revise and update standards for dropout fuse links so that existing sub standard fuse assemblies on 

distribution transformers are replaced with standardized dopout fuse links. Additionally, 

specifications need to be prepared for replacing sub standard fuse links installed (for sectionalizing) 

on HT lines with standardized gang operated isolating switches/disconnectors, supplemented with 

the installation of fault passage detectors on the HT lines to detect faults and reduce outage periods. 


• Depending upon the results of the power factor study carried out as part of the allocated cost of 

service study, investigate the application of capacitors to improve power factor; particularly on rural 

11kV feeders, the LT side of urban distribution transformers, and on tubewells. 

• Enhance distribution transformer standards to require higher efficiency in supplied units and 

introduce testing equipment in the transformer shop to limit the loss of efficiency of repaired units. 

• Transition the construction function from internal staff to contractors that are competitively selected 

and trained by FESCO in the execution of quality work. Establish a Construction Inspection 

function whose purpose would be to monitor the contractors and ensure that standards are adhered 

to. 


• Application of compression connectors for most taps and other joints and improvement of 

connections to LV bushings of transformers so as to eliminate jumper burnouts. Points at which 

sectionalizing is done would be retrofitted with bolt-on connectors to facilitate disconnection. 

Replacement of wrapped joints would reduce callouts for jumper failures and improve service quality, 

though the impact on losses would be small. 

4.8 COMMUNICATIONS AND OUTREACH 

Corporate image building and consumer awareness regarding functions and responsibilities of FESCO are 

important areas of interventions identified by the operational assessment. There is need to engage and 

educate electricity consumers by providing them timely and comprehensive information about the role and 

services of the utility. The proposed actions are as follows: 


• Design a corporate communications and outreach strategy and develop capacity within FESCO to 

take lead in implementation of the strategy. The relevant PR staff will be engaged in the design of the 

strategy and empowered to put it into practice through a set of guiding principles for executing 

audience-specific communications with various stakeholders. The strategy will introduce the purpose, 

objectives, stakeholders, target audiences, tools, techniques and an action plan starting with a core 


manageable group of interventions aimed at corporate communications and engaging in constructive 

dialogue and consumer outreach. 

• Developing consumer awareness information products for FESCO that can be used by their relevant 

staff and departments to effectively inform and educate the electricity consumer about the role and 

services of FESCO. The kit will help simplify the complexity of information about the energy sector 

for the end consumers to help them understand and participate in the change process as FESCO 

undergoes reform. 

• In order to improve FESCO’s external communication and outreach with general public, PDIP will 

assist FESCO in re-vamping of its website through training and capacity building of the relevant staff 

so that a process of in-house information management and outreach is instituted and strengthened. 


• Outreach activities will be designed and conducted in partnership with FESCO to enhance its 

credibility with its clients. The objective is to ensure client awareness and public outreach through 

information dissemination, dialogue and relationship building with the end consumer to establish a 

foundation for long-term communication and public participation, ensuring the credibility of 

FESCO. 


• Support in communications and outreach through capacity building and outreach activities will be 

continued on ongoing basis for strengthening of FESCO’s communications and outreach with 

stakeholders and the end consumer 


5. PERFORMANCE IMPROVEMENT PROJECT 

TRANSITION PLAN 

This report presents a vision of the shape and structure of the future FESCO as an autonomous entity with 

its own capacity for planning and financing necessary improvements; a governance system that insulates it 

from the vagaries of political life; that operates a reliable and well constructed system in accordance with 

sound business practices; and that is staffed with a motivated cadre of highly productive employees selected 

and promoted on the basis of merit, and who are compensated at a level consistent with the value of their 

skills in the larger private marketplace. This vision will not be achieved overnight, and any attempt to do so 

would create a huge level of resistance from those who have been laboring under the constraints of the legacy 

system for decades. There is therefore a need for a transition plan that moves the utility toward the ultimate 

goal without traumatizing it. Implementation of the transition plan would be considered a High Priority 

activity in line with the categorizations proposed in the previous section. 

5.1 FACTORS CRITICAL TO SUCCESSFUL TRANSITION 

When dealing with an organization as large and complex as FESCO, there are various requirements for a 

successful transition plan: 

• Enthusiastic support at the top management level. Without the committed involvement of 

upper management, there can be no assurance that any employee will take the risk of endorsing an 

improved work style. In the case of FESCO and other Pakistani DISCOS, the top level of 

management is not the CEO, or even the Board of Directors, but the Secretary [Power] at the 

Ministry of Water and Power. This is because the DISCOS are still operating as appendages of the 

government, and MWP exercises the power to establish and suspend not only the Board, but also to 

relocate utility management. 

• The involvement of external experts with perspectives oriented toward the transition to 

businesslike operation of the utility. Legacy managers rarely have the level of vision or the 

exposure to other organizations that are necessary to create a vision of change in the organization. 

In many cases they are also very senior, approaching retirement themselves and unwilling to risk any 

disturbances. There are several models under which external expertise has been incorporated into 

legacy organizations, ranging from insertion of external candidates as top level managers, to the 

appointment of shadow managers who provide advice and oversight to legacy managers selected in 

the normal fashion. Neither of these approaches has a history of success. Outsiders installed as 

upper level managers have the necessary authority to impose change, but run the risk of becoming 

isolated from the organization and generating resistance rather than acceptance. Without a history of 

contact with staff they frequently fail to understand where the real, critical issues lie. At the other 

extreme, shadow advisers do not have the authority necessary to implement any change and are 

likewise unlikely to succeed in supervising the desired institutional transition. 

• Lower level staff participation must be ensured in some fashion. In all organizations, even the 

most sclerotic, there are staff members with entrepreneurial instincts who combine an understanding 

of the details of the operation with a willingness to seek improvements. These staff members are the 

ones who know the details of how processes operate and are the best equipped to identify means of 

changing them. All too often however, these voices are ignored in top-down change management 

and they end up leaving the institution, usually under broadly based reductions in force that are 

intended to reduce staff levels without closely examining staff requirements. 


5.2 ELEMENTS OF THE TRANSITION PLAN 

The approach proposed in this report will combine the necessary components in a way that has been 

demonstrated to produce change in large, traditional organizations. The most familiar manifestation of the 

approach was the transformation in the 1990’s of Florida Power and Light, a US electric utility that was facing 

new challenges resulting from the explosive growth of Florida at the time, while operating under legacy 

management procedures dating from the 1930’s. The approach being suggested here will need to be filled out 

in greater detail, but consists essentially of the following elements: 

• It will be necessary for the MWP to actively support, though a written agreement, the concept of 

change in the DISCOS. It is also necessary that this be part of the Implementation Agreement signed 

between MWP and USAID, because in the past such agreements between MWP and the DISCOs 

have not been followed in letter and spirit (e.g. in the case of the MWP obligations in the 

performance contracts). Such an agreement would require provisions that effectively 

o Endorse the concept of performance improvement as outlined in this report and notify all 

ministries of such support with the objective of preventing external interference. 

o Notify NEPRA and NTDC of its support for the effort and arrange such preferential access to 

power resources and such accelerated tariff treatment as may be necessary for the success of the 

transition. 

o Cede operational authority to the utility’s Board of Directors for implementation of the 

transition plan and establish minimum tenures for the Directors such that they would not be 

removed during the course of the tenure. 

o Agree to refrain from interference such as assigning or reassigning employees, or interfering in 

the process of hiring and discharge of employees. 

o Establish targets for improvement that are realistic and achievable and assign the Board of 

Directors the responsibility and authority necessary to achieve the targets. 

• External experts will be identified and contracted in the major utility areas of engineering and 

planning, commercial operations, financial management, human resources management and 

communications and outreach. It is proposed that these personnel will be identified from the PDIP 

team, and be funded under Component 2 of the project. Collectively they will be referred to as 

Management Improvement Specialists and will report directly to the CEO, but will not replace any of 

the legacy managers, nor will they act as shadow advisors to them. Their purpose will be to lead 

teams composed of in-house employees selected competitively to participate as “change agents”. 

The Management Improvement teams thus formed will be charged with overseeing the 

implementation of the improvements recommended in this report and others that may become 

apparent. The Management Improvement teams will also be updating PDIP team leaders on their 

activities. 

• In-house staff will be selected to participate on the Management Improvement Teams under a 

competitive solicitation. Each team would be composed of five to ten staff members whose 

participation would place them in a special position within the company. Interested candidates 

would first be subjected to a battery of tests that would cover both their understanding of their 

content area, their analytical abilities, their aptitude for working with other staff members with 

differing points of view on loosely structured teams; and their psychological profile with respect to 

their willingness to engage in substantive interactions with staff members who may be senior to 

them. Following the testing, the most promising candidates would be interviewed by the external 

experts and the most promising of those interviewed would be selected for participation in the 

Management Improvement Teams. While there is no ideal profile for such staff members, most will 

be young, at least in terms of their years of service in the utility, and will have self-identified over 


time as proponents of alternative approaches. Since they will be entrusted with large responsibilities 

in the implementation of change, it is also important that they have sterling reputations for honesty 

and integrity. 

Once established, the Management Improvement Teams will act essentially as representatives of the owner 

(MWP), empowered to examine every aspect of FESCO operations, and barring legal, contractual or other 

serious impediments, their recommendations would have the force of instructions issued by the highest levels 

of authority. They would be responsible for overseeing the process improvements outlined in this report and 

will be charged with measuring the results of the changes undertaken. They would not act as the project 

managers of the process improvements, but will guide the efforts of those groups who are charged with such 

execution, and will be empowered to recommend changes in staffing if necessary to achieve the targeted 

results. 

A significant issue with respect to the transition of FESCO from its current status to the envisioned status is 

the matter of employee compensation. As has been noted, compensation levels at the government pay scales 

in place at the DISCOS are well below the levels enjoyed by professionals in private industry, and are even 

less than the compensation levels prevailing in some other government enterprises such as NESPAK. While 

there is no question that one of the objectives of the transition plan is to introduce a more equitable and 

market based compensation system, it is necessary to take into account the impact on the electric utility 

function. For instance, evaluation of the total salary amount paid by FESCO is 64.7% of operating expense 

less purchased power cost. This is a standard metric for utility systems and can be compared to the 

experience of the US rural electric systems in which salary expenses are 26.9% of total expense less purchased 

power cost. This means that the total salary burden of FESCO staff as a share of the cost of power to the 

consumer is already higher than that for a well run rural utility. As a consequence, the total salary cost pool 

of FESCO will need to be held constant during the transition. Put another way, any increases in general 

salary levels for FESCO staff will have to be balanced by increases in productivity which allow for reduction 

in the total number of staff. 

To some extent, staff reductions will occur through attrition as staff members age, particularly at the highest 

levels of the utility, though it may be desirable to structure some sort of easing-out program for staff 

members that are near retirement age. Additionally, a major portion of FESCO’s overall staff are involved in 

non-core utility operations (i.e outside of the core functions like finance, commercial, HR, operations, 

maintenance, etc.) and involved in activities like schools, stores, construction, etc., which could effectively be 

outsourced. This leads to the conclusion that in the past the DISCOs have been used by successive 

governments as employment centers without regard for their core utility operations. The greatest challenge in 

the transition will be preventing the acquisition by the utility of unnecessary new staff at the lowest levels, 

where redundancy measures will have to be employed in the event these prove to be excessive. 


6. ACTION PLAN BENEFITS AND COSTS 

6.1 PLAN BENEFITS 

The benefits of the performance improvement plan include both the tangible and intangible. The tangible 

benefits include reduction in losses while the intangible include improved quality of service and reduced 

fatality rates among line staff. For purposes of this analysis, the calculation of benefits will focus solely on the 

tangible and recoverable benefits. The Operational Audit calculated the non-technical losses to be 2.4%. A 

reasonable estimate for recovery is 60% of these losses, reducing overall non-technical losses to 

approximately 1%. FESCO purchased 9,291 GWH in FY2009-10 and the real cost of power to the sector 

was 14Rs/kWH. This translates to a recoverable amount of $US 20 million per year. Obviously, this 

amount cannot be recovered in the first year of the project, but assuming full implementation within three 

years, this recovery should be achievable during the fourth project year. Over a fifteen year life, this would 

translate into a total program saving of $US 300 million. 

6.2 PLAN COSTS 

The table below provides an approximate budget for the full implementation of the program. In keeping with 

the designation of priorities, the rightmost three columns of the table provide a summary of the costs of the 

plan. 

TABLE 6.1: PROJECTED COSTS FOR THE PERFORMANCE IMPROVEMENT PLAN 

Description Technical Assistance Materials and Other 

Costs 

Total Project 

Cost 

Donor DISCO 

Governance $720,000 $100,000 $300,000 $1,120,000 

Organizational Structure $1,740,000 $560,000 $380,000 $2,680,000 

Financial Management $3,690,000 $630,000 $4,620,000 $8,940,000 

Commercial Management $10,100,000 $2,670,000 $131,370,000 $144,140,000 

Human Resources Management $6,290,000 $6,680,000 $13,540,000 $26,510,000 

Engineering Planning and Operations $5,690,000 $1,480,000 $39,230,000 $46,400,000 

Transition Team Implementation $1,950,000 $1,290,000 $380,000 $3,620,000 

Total $30,180,000 $13,410,000 $189,820,000 $233,410,000 

The total cost of the performance improvement plan, over three years, is $US 233 million. Because FESCO’s 

non-technical losses are relatively low, the payback period for this investment is quite long, in the order of 15 

years. Nonetheless, it is a necessary investment due to the need to modernize FESCO’s operating systems. 

6.3 WORK PLAN 

The work plan for improvement constitutes the timetable for implementation of the recommended changes. 

None of these will be instantaneous, but will have to be developed over time. The project would commence 

with the execution of an agreement with MWP along the lines indicated, and would likely extend for four 

years. Much of the organizational work has to be done in the first two years in order that the second two 

years can be used for implementation. 


The schedule for the project should be developed as part of the Transition Team’s activities and would need 

to be finalized once the priorities of the various activities were finalized. For that reason, no work plan is 

proposed in this report. 


7. ACTION PLAN PERFORMANCE IMPROVEMENT 

PROJECTS AND COSTS 

A series of potential interventions and FESCO-specific performance improvement projects have been 

identified and evaluated for implementation at FESCO and are presented herein. Interventions are defined 

as activities that will contribute directly to FESCO performance improvement, and which will be 

implemented at all participating DISCOs in PDIP Component 2: implementation. Performance improvement 

projects are defined as performance improvement projects aimed at showing the potential value of a 

particular intervention, the results of which will be shared with other DISCOS for future implementation. 

Because performance improvement projects are intended to demonstrate value, they must have measurable 

indicators whose values following the intervention can be compared with their value in a baseline, or 

preexisting condition. Because of the need for the measurable indicators of impact with known before and 

after values, a number of interesting and potentially useful interventions were excluded. 

7.1 DISCO-WIDE INTERVENTIONS 

Given that the DISCOs use a nearly identical set of operational policies and procedures for finance and 

accounting, commercial management, distribution system design and operations, human resource 

management and communications procedures, PDIP proposes to define a number of interventions to 

address performance issues that will be rolled out to all DISCOs, including FESCO. This would consist of 

the following interventions: 

1. Board training development and testing. Standard board training programs include multiple 

sessions lasting for several months, require completion of case studies and participation in mock 

problem solving and culminate in issuance of certificates of satisfactory completion. Nonetheless, 

satisfactory fulfillment of the training requirements is a prerequisite for continued service on the 

board. Development of such a substantial training program requires a process during which 

materials are formulated that are in accordance with applicable law and tested under real constraints 

of scheduling and participation. Measurement of baseline and outcomes for the performance 

improvement would be carried out by administering a test and sample case study to the participants 

before the training and subsequent to it. 

2. Updating the accounting and audit manual. This will include review of the existing accounting 

and internal audit manuals and bringing them in line with modern accounting, auditing and internal 

control procedures used by successfully run utilities. It will include an extensive training and capacity 

building initiative, whereby all of FESCO’s financial team will be trained on the new accounting 

procedures prepared under the program. Additionally, for the internal audit the program will include 

updating the existing manual, training and capacity building, followed by extensive monitoring to 

review the success of the intervention. 

3. Improved distribution transformer specifications. This project would consist of preparation of a 

specification for distribution transformer with losses low enough to be consistent with international 

best practices, rather than local practice. It is likely that such transformers would have to be 

imported, and the specification will address the need to verify loss performance prior to acceptance. 

4. Two way utility exchange program. This project will include sending FESCO’s senior 

management to hands on study tours in the US and Asian countries to allow them to learn about 

utility best practices, new technologies, etc. Similarly the project will arrange for visits by senior utility 

staff from other Asian and US utilities to FESCO as a means of exchanging experiences and 

building initiatives. The components of the project will be: 


a. Identify and engage utilities in the US that have hosted utility exchange programs in the past 

similar to what is being proposed under PDIP. Additionally, identify and engage Asian 

utilities who have faced similar challenges as FESCO, and have been successful in launching 

initiatives (organizational, technological and engineering) to overcome these. 

b. For the FESCO – Other Utility Exchange Program: 

i. Carry out a complete short-listing through detailed interviews and assessments of 

the proposed FESCO staff nominated by the senior management for the exchange 

program. 

ii. Implement each utility exchange program. 

iii. Monitor the success of each utility exchange to see whether the FESCO managers 

have benefited from the program, and to what extent the KPIs for each exchange 

are achieved. 

c. For the Utility – FESCO Exchange Program: 

i. Identify key positions/ job descriptions (along with objectives, roles, etc.) for 

positions that would benefit from external input. 

ii. Identify the external utility staff who will fit the criteria. 

iii. Implement the exchange program. 

iv. Carry out regular monitoring and evaluation of the success of each exchange, 

evaluating it against the KPIs prepared. 

5. On-going support to improve FESCO business plans. As FESCO proceeds with performance 

enhancement activities, including implementation of ERP, expansion of information technology for 

engineering planning, financial planning and other applications, business planning will evolve to more 

sophisticated planning processes. PDIP proposes to assist FESCO in ongoing business planning 

endeavors as an integral part of the performance improvement process. 

7.2 DESCRIPTIONS OF PERFORMANCE IMPROVEMENT 

PROJECTS 

The descriptions in this section present the fundamentals of the performance improvement projects that have 

been identified and are proposed for implementation at FESCO. An effort has been made to specify the 

steps in the development of the projects, but it is understood that for those projects selected a more detailed 

design process would be undertaken. 

1. Perform preparatory steps towards implementation of an ERP application that will consolidate 

the various financial reporting requirements of FESCO. The components of this effort would be as 

follows: 

a. Evaluate the level of IT awareness within the segments of the FESCO staff that will be 

required to deal with an ERP system. 

b. Evaluate the need for upgrades and improvements in the software systems that would feed 

information to the ERP system, such as the general ledger, HR database, inventory control / 

procurement and CIS. 

c. Prepare a functional specification for an ERP application specifying the capabilities desired 

and the modules to be provided. 


d. Prepare a training plan for the staff members that would be involved in operating the 

system. 

e. Develop a cost estimate for implementation and training of an ERP application that would 

meet the needs of FESCO. 

2. Integrated Commercial Office – Feeder Optimization Project subdivision level. This project 

would simulate on a small scale the independent commercial operations concept proposed in the 

reorganization, combined with significant improvements in the distribution system. The scale of the 

project would be in the order of 20,000 consumers to limit cost and complexity. Components of this 

effort would be: 

a. Identification of a suitable performance improvement project area. Criteria would include 

the presence of a mix of consumers typical of FESCO as a whole, as well as the availability 

of suitable and willing staff members. 

b. Mapping using a GIS of the facilities in the selected service area, both HT and LT 

c. Modeling of the performance of the system to determine the level of technical loss existing 

in the area as a baseline. 

d. A new CIS at small scale would be implemented with the capability of accepting readings 

from electronic reading devices and AMR systems and producing bills. Initial data would be 

populated from the legacy CIS. 

e. A census of consumers would be carried out to ensure that all consumers receiving power 

are registered in the CIS. Consumers would be located by pole number from the GIS so 

that they can be linked to the transformer serving them. 

f. Develop meter database to track age, location, repair/calibration history to identify meters 

that are due for calibration and where the meters are supposed to be. The database structure 

would be designed to be circulated to the other DISCOs. 

g. Meters would be repaired, calibrated and placed in more secure sealed boxes, but would not 

be replaced unless they were damaged. 

h. Master meters would be installed on each distribution transformer to assist in isolating areas 

of high loss. These would be AMR meters if economically feasible, given the cost of the 

communications and host software. 

i. Carry out a system plan for the subdivision aimed at reducing losses and increasing service 

quality. Items that may be undertaken include replacement of some conductors, 

improvement of power factor with capacitors, inter-setting of transformers to reduce LT 

system length and installation of multiplex LT conductor to reduce opportunities for 

unauthorized connections. 

j. Meter reading would be outsourced and meter reading staff would be issued hand held meter 

reading devices for recording their readings. Meter readers would not have access to prior 

readings, and would be assigned new routes based on transformer service areas. 

k. Existing staff in the performance improvement project area would receive training and 

support to allow them to administer the system, and would be supported and monitored to 

ensure that the system is working. 

l. Evaluation would include a baseline assessment of total losses within the performance 

improvement area, carried out following the census and mapping of the area; and would be 

based on the units input to the area from feeder metering and sales as recorded by the legacy 


consumer information system. Improvement if any would be similarly evaluated based upon 

input and sales. 

3. Lineman training using advanced training techniques and improved safety equipment. The 

purpose of this project is to link lineman training with lineman work practices in a division or group 

of sub-divisions, using the same types of equipment for both purposes. Components of the project 

are: 

a. Selection of a division or group of subdivisions as pilot work areas. Criteria would include 

the willingness of the line staff to receive training and adjust work practices, and the 

demographics of the line staff in the division, with a focus on line workers with a significant 

career period remaining. 

b. Protective equipment and tools would be procured that provide improved capability for 

carrying out the task, are easier and more comfortable to use and are likely to be available to 

the company for future acquisitions 

c. Upgrading of the equipment and infrastructure at the appropriate training venue 

commensurate with adequate classroom facilities and a practice field, equipped with audio 

visual aids and modern information and communication technology allowing for distance 

learning and interchange of experience. 

d. New work rules that emphasize safety, planning, preparedness and minimizing of consumer 

outages would be developed to guide the training effort. 

e. Line training would be carried out using the new equipment and would be aimed at 

inculcating the revised work rules. 

f. Baseline measurements would consist of assessment of customer outage frequency and 

duration data and evaluating what portion depends upon outages for maintenance or trouble 

restoration. Similar data would be maintained during and subsequent to the training to 

evaluate the impact of the project. 

7.3 COST ESTIMATES FOR INTERVENTIONS AND 

PERFORMANCE IMPROVEMENT PROJECTS 

Cost estimates were prepared for the interventions and performance improvement projects as described 

above. These estimates were based on an assumed structure of the performance improvement projects as 

follows: 

• The intervention/performance improvement project would be treated as a specific activity, and 

DISCO project team members would be assigned or seconded to the project as a principal activity. 

In some cases a project assignment would be a full time activity. 

• External advisors would act as team leaders and external technical experts with specialized expertise 

would be heavily involved in the development of the project. By definition, these are projects 

outside the mainstream of DISCO activities and will require specialized attention. 

• For those projects involving construction, external contractors would be engaged to carry out 

installation rather than using the internal DISCO project construction staff. 

Cost estimates are of necessity approximate and based on many assumptions. Cost estimates for equipment 

are based on previous experience or published information and are therefore reasonably definite, but time 

estimates for participation by staff are subject to many variables. 

Table 7.1 below presents information on the cost of the interventions and performance improvement prjects. 


TABLE 7.1: SUMMARY OF FESCO INTERVENTIONS AND PERFORMANCE IMPROVEMENT PROJECTS. 

Type Description Labor Costs Material and 

Other 

Construction 

Costs 

Total 

Project 

Cost 

Non 

Disco 

DISCO 

Intervention Board Training $160,000 $20,000 $50,000 $230,000 

Intervention Accounting and Audit Manual $58,750 $20,000 $16,250 $95,000 

Intervention Low Loss Transformer Specifications $60,000 $3,000 $0 $63,000 

Intervention Two Way Utility Exchange $100,000 $10,000 $140,000 $250,000 

Intervention Business Planning $70,000 $10,000 $10,000 $90,000 

Performance 

Improvement 

Projects 

Performance 

Improvement 

Projects 

Performance 

Improvement 

Projects 

ERP Implementation Preparation 

Project 

$190,000 $50,000 $70,000 $310,000 

Integrated Commercial Office $880,000 $190,000 $2,860,000 $3,930,000 

Lineman Training $360,000 $10,000 $279,000 $649,000 

7.4 ESTIMATED BENEFITS OF PERFORMANCE IMPROVEMENT 

PROJECTS 

Each performance improvement project offers direct and measurable benefits to FESCO in and of itself, and 

each project also will provide FESCO and other DISCOs the opportunity to realize multiplicative benefits 

should FESCO/other DISCOs choose to expand the application to a greater population of the distribution 

system. For purposes of this Action Plan, benefits are limited to the performance improvement project itself. 

Each benefit analysis has been performed by identifying the most tangible and measurable performance 

improvement. In the case of the ERP feasibility study and the digital archival projects, we project that the 

projects will offer FESCO the opportunity to reduce administrative staff positions through improvements in 

productivity. Productivity gains themselves will save significant person-hours of time and improve 

commercial performance through improved work place productivity. However, the benefits in reduced 

personnel costs are significant so the benefit analysis will be limited to this aspect alone. The savings from 

gains in productivity have been measured in reduction of one staff person in each revenue office for the ERP 

feasibility study; and one person in each sub-division office for the digital archiving office. In both cases, the 

positions are unskilled or semi-skilled positions at the lowest compensation level. The savings in the case of 

the digital archiving project are surprisingly high at approximately $10,800 per month (115 sub-division 

offices, one person per office) or $1.95 million over a fifteen year period. While the savings for the ERP 

feasibility study are lower (each revenue office serves 5-6 sub-divisions, so there are about 20 revenue offices 

at FESCO), the monthly savings are still about $7,000 per month or $1.25 million over a fifteen year period. 

Lineman training will result in improved lineman safety. FESCO lost 38 linemen in FY 2010 due to 

workplace accidents. The utility pays significant death benefits to survivors of linemen deaths, and while 

there are significant productivity benefits through improved work practices that will also accrue through 

lineman training (through reductions in outage hours, for example), the death benefits that are paid are quite 

significant, so the benefit analysis will be limited to evaluating these benefits. FESCO pays a death benefit of 


Rs 500,000 for each lineman death and invests a significant amount in each highly qualified lineman over the 

length of his tenure at FESCO. Therefore, if the lineman training program reduces linemen deaths by one 

half through improved safety training, safe work practice implementation and improved tools and equipment, 

the benefit will be approximately $50,000 per year or $950,000 over a fifteen year period. 

Distribution system infrastructure improvements will result in significant benefits to FESCO primarily 

through reduction in non-technical losses. The benefits will be realized primarily through improved revenue 

recovery; FESCO’s technical losses, as reported in the Operational Audit, are reasonably low, but there are 

segments of the FESCO distribution with significantly high total losses. Through introduction of 

transformer metering, replacement of revenue meters, introduction of multiplex for LT circuits and reducing 

feeder and LT line segment lengths, a performance improvement project will result in significant overall loss 

reduction – resulting in savings/revenue enhancements for FESCO. 

For the proposed performance improvement project, we assume that the subdivision selected for the project 

will be one that has high overall losses; while FESCO has relatively low overall losses, an examination of 

division-wise losses shows a significant number of divisions with losses in excess of 18%. Assuming that 

these divisions are dominated by residential and commercial consumers in rough proportion to the overall 

proportions of these consumers in the DISCO, we assume that the project will demonstrate a reduction of 

7% of technical and non-technical losses from 18% to 11%. FESCO’s reported overall losses being 9.5%, -- 

the total monthly benefit would be approximately $28,500, resulting in a fifteen year total benefit of 

approximately $5.1 million. 

The savings are summarized in Table 7.2 below. 

TABLE 7.2: SUMMARY OF PERFORMANCE IMPROVEMENT PROJECT BENEFITS 

Performance improvement Project Estimated Project Cost Life of Project Benefit 

ERP Implementation Preparation Project $310,000 $1,250,000 

Integrated Commercial Office $3,930,000 $5,100,000 

Lineman Training $649,000 $950,000 


U.S. Agency for International Development 

1300 Pennsylvania Avenue, NW 

Washington, DC 20523 

Tel: (202) 712-0000 

Fax: (202) 216-3524 

www.usaid.gov

faisalabad electric supply company (fesco) - Planning Commission

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