Power Sector Reform a New Way of Corporate Governance - A Thesis Submitted to Utkal University for Ph.D Degree by Priyabrata Patnaik

Power Sector Reform: A New Way of Corporate Governance

(A Case Study of Orissa)

A Thesis Submitted to the Utkal University in Partial Fulfillment of the Requirement for the Degree of

DOCTOR OF PHILOSOPHY

IN BUSINESS ADMINISTRATION

By

MR. PRIYABRATA PATNAIK Registration No. 12-Business Admn. (2002-03)

Under The Supervision of

DR. BIDHU BHUSAN MISHRA

P.G. Department of Business Administration

UTKAL UNIVERSITY

Bhubaneswar 2010

2

Power Sector Reform:

A New Way of Corporate

Governance

(A Case Study of Orissa)

3

A Thesis Submitted to the Utkal University in Partial Fulfillment of the Requirement for the Degree of

DOCTOR OF PHILOSOPHY

IN BUSINESS ADMINISTRATION

By

MR. PRIYABRATA PATNAIK Registration No. 12-Busi.Admn. 2002-03

Under The Supervision of

DR. BIDHU BHUSAN MISHRA

P.G. Department of Business Administration

4

DECLARATION

I hereby declare that this thesis entitled Power Sector Reform:

A New Way of Corporate Governance (A Case Study of

Orissa) submitted to the Utkal University in fulfillment of the

requirements for the award of the Degree of Doctor of

Philosophy in Business Administration is a bonafide record of

original Research work done by me under the supervision and

guidance of Professor (Dr.) Bidhu Bhusan Mishra and the thesis

has not been submitted to any other University or Institution for

the award of any degree or diploma.

(Priyabrata Patnaik) Registration No. 12-Business Admn. (2002-03)

5

Dr. Bidhu Bhusan Mishra P.G. Department of Business Administration Utkal University, Bhubaneswar

RESEARCH AREA CERTIFICATE

This is to certify that the thesis titled Power Sector Reform: A

New Way of Corporate Governance (A Case Study of

Orissa) submitted to the Utkal University, Bhubaneswar in

fulfillment of the requirements for the award of the Degree of

Doctor of Philosophy belongs to the area of Business

Administration. This is a bonafide record of original research

work done by Mr. Priyabrata Patnaik, under my supervision

and guidance and this thesis has not been submitted to any other

University or Institution for the award of any degree.

Dr. Bidhu Bhusan Mishra

6

ACKNOWLEDGEMENT

Undertaking Research Work after about two decades of executive jobs

is in all measures an arduous work. I express my profound gratitude to my

supervisor Prof. (Dr.) Bidhu Bhusan Mishra without whose benign guidance

the present work would have not been possible. He has been source of

constant inspiration to me in finishing this work.

I cannot express my gratitude in words to my father Prof. (Dr.)

Gorachand Patnaik and my mother Mrs. Anjali Patnaik whose blessing have

always been with me throughout this work.

I convey my heartfelt gratitude to my father-in-law Prof.(Dr.)

Nityananda Swain and my mother-in-law Dr. Prativa Sen for constantly

encouraging me to complete this present work in time. It is needless to

mention about my wife Dr. Meeras contribution in each and every step of

this research work for which she has willingly extended her cooperation.

The two blossoms my children Tutul and Mitul need special thanks

for sparing their demand of time on me during the preparation of Thesis.

It is my pleasure to acknowledge the contribution of Computer Asst. of

Orissa Electricity Regulatory Commission Mr. Radhakanta Samal who has

painstakingly typed this Thesis neatly and adhering to the time schedule.

Priyabrata Patnaik

7

Table of Contents

Chapters Page No.

Declaration i Research Area Certificate ii Acknowledgement iii List of Tables x List of Graphs xii Abbreviation xiii 1. Introduction

1.1 Constitutional Provision for Electricity 1.2 Backdrop of Power Sector Reforms 1.3 What is Reform? 1.4 Corporate Governance and its Relationship with

Power Sector Reform 1.5 Review of Literatures 1.6 Objective of the Research 1.7 Hypotheses 1.8 Research Design

1.8.1 Characteristics of Qualitative and Quantitative Research

1.8.2 Qualitative Research Design and Strategies 1.8.2.1 Data Collection and Field works strategies 1.8.2.2 Analysis of Strategies 1.8.3 Types of Qualitative Research 1.8.3.1 Phenomenology 1.8.3.2 Phenomenological Methods 1.8.3.3 Ethnography 1.8.3.4 Grounded Theory 1.8.3.5 Case Study

1.9 Research Methodology adopted in the present study

1.10 Scope 1.11 Limitation of the Study 1.12 Organization of the Study/ Chapterization

1- 25

2. Overview of Power Sector and Imperative of Reform in Orissa State Electricity Board 2.1 Sectoral Overview 2.2 Relationship between Electricity and GDP 2.3 Electricity Sector in India 2.4 Orissa State Electricity Board and its State of

Affairs 2.5 Reform and Restructure of Power Sector in Orissa

26 - 51

8

2.6 Imperative of Reforms 2.7 Process of Reform 2.8 Privatisation of Distribution Business 2.9 Central Electricity Supply Company of Orissa Ltd

(CESCO) and creation of CESU 2.10 Transfer of Assets 2.11 Sovan Kanungo Committee Report 2.12 Restructuring of GRIDCO 2.13 Chronological events of Power Sector in Orissa 2.14 Summary of the Chapter

3. Corporate Governance and Literature Review 3.1 Historical perspective 3.2 Definition of Corporate Governance 3.3 International Development of Corporate

Governance 3.3.1 Cadbury Report: The Financial aspects of

Corporate Governance (1992) 3.3.2 Hampel Report (1998) 3.3.3 Blue Ribbon Report (1999) 3.3.4 King Committee on Corporate Governance

(2002) 3.3.5 Sarbanes Oxley Act (2002) 3.3.6 Salient features of Sarbanes Oxley Act 3.3.7 The combined code on Corporate

Governance (2003) 3.3.8 Higgs Report (2003) 3.3.9 ASX Corporate Governance Council

Report (2003) 3.3.10 OECD Principles of Corporate Governance

(2004) 3.4 Development of Corporate Governance in India

3.4.1 CII Code on Corporate Governance (1998) 3.4.2 Kumar Mangalam Birla Committee on

Corporate Governance (1999) 3.4.3 Recommendation of the Naresh Chandra

Committee Report on Corporate Audit and Governance (2002)

3.4.4 Narayan Murthy Committee Report: Report of the SEBI Committee on Corporate Governance (2003)

3.4.5 Clause 49 (2004) SEBI 3.5 Recent Development for Unlisted Public Sector

Undertakings (PSUs) 3.6 Models of Corporate Governance

3.6.1 Model-I 3.6.2 Model-II

52 - 89

9

3.6.3 Model III 3.6.4 Model IV

3.7 Corporate Governance, accountability and enterprise Indian Model for public enterprises

3.8 Some peculiarities in the Indian Corporate Governance

3.9 Corporate Governance abuses and the general scenes

3.10 Corporate Financial Reporting Concept 3.11 Role of Board in Corporate Governance 3.12 Board is not an Organ of Action 3.13 The Role of Board Committees 3.14 Evaluation of the Board 3.15 Boards Effectiveness 3.16 Whistle Blower Protection 3.17 Corporate Governance Mechanism and Public

Sector 3.18 Disinvestment, Privatization & Restructuring of

Public Sector Units 3.19 Corporate Social Responsibility: The third Pillar of

sustainable development 3.20 Corporate Governance Rating (CGR) 3.21 Corporate Governance in some prominent power

companies of the country 3.22 Satyam Episode-Failure of Corporate Governance 3.23 Should code of Corporate Governance be made

mandatory or voluntary 3.24 Review of Literature on Power Sector Reform 3.25 Summary of the Chapter

4. Regulatory Governance in Orissa

4.1 Goals of Regulation 4.2 Different Approaches to Regulation

4.2.1 Incentive Regulation 4.2.2 Price Cap Regulation 4.2.3 Yardstick regulation 4.2.4 Profit sharing, banded rate-of-return and

menus 4.3 Different Regulatory Models 4.4 Electricity Distribution Business Regulations in

Practice 4.5 International Experience in Regulatory

Governance 4.6 Reform Models adopted in different Countries

4.6.1 The US Reform Model 4.6.2 The U.K. Reform Model

90 - 131

10

4.6.3 Latin American Reform Models 4.6.4 Australian Reform Model 4.6.5 Inter-Country Comparison of Regulatory

Model 4.7 Reform Philosophy 4.8 Multi-Sector Versus Sectoral Regulatory

Institutions 4.9 Phases in the Power Sector Governance in India 4.10 Historical Background of Legislative Initiatives 4.11 Corporate Governance in new Regulatory

Framework 4.12 Salient features of Electricity Act, 2003 4.13 Role of OERC under Electricity Act2003 4.14 Constitution of OERC 4.15 Organization Chart of Orissa Electricity

Regulatory Commission 4.16 Application of Best Practice Regulation in OERC

4.16.1 Transparency 4.16.2 Accountability 4.16.3 Predictability 4.16.4 Consistency 4.16.5 Consultation 4.16.6 Independence

4.16.6.1 Exploitation or Misuse of Policy Directives

4.16.6.2 Behind the Scene Process that Subvert Procedure

4.16.6.3 Flouting of Procedure and Law 4.16.6.4 Institutional Capacity 4.16.6.5 Regulatory Capture through

Privatization 4.16.7 Flexibility 4.16.8 Communication 4.16.9 Effectiveness and Efficiency

4.17 Code of Ethics for Regulator 4.17.1 Preamble of Code of ethics report of TERI 4.17.2 The role of the Commission Chairperson 4.17.3 Responsibilities of Commission Members 4.17.4 Guidelines on acceptance of gifts 4.17.5 Handling conflicts of interests 4.17.6 Personal liability of Commission members 4.17.7 Delegation 4.17.8 Transparency and responsiveness 4.17.9 Interaction with the media 4.17.10 Political activity 4.17.11 Annual Report and Accounts

11

4.18 Survey on Code of Ethics 4.19 Summary of the chapter

5. Regulatory Financial Appraisal-A new way of

financial Governance 5.1 Tariff Setting in Orissa

5.1.1 Sales Forecasts 5.1.2 Distribution Loss 5.1.3 Power Purchase 5.1.4 O&M Expenses 5.1.5 Administrative and General Expenses 5.1.6 Revenue from Sale of Power 5.1.7 Regulatory Asset 5.1.8 Provision for Bad and Doubtful Debts

5.2 AT&C Loss and Distribution Loss 5.3 Balance sheet Analysis 5.4 Profit and Loss Account of Power Sector of

Orissa as a whole 5.5 What Is Availability Based Tariff (ABT)? 5.6 Electricity Tariff 5.7 Cross Subsidy in Tariff 5.8 Subsidy by the Government 5.9 Franchisee Operation in Distribution

5.9.1 Benefits of Franchisee System 5.9.2 Different models of Franchisee

5.10 Competition in Power Sector and Open Access 5.11 Comparison of Orissa Reforms Model with Delhi

Reforms Model 5.12 Summary of the chapter

132 - 182

6. Impact of Reform and Analysis of Beneficiary Survey 6.1 Quality of Consumer Service

6.1.1 International Experience in Quality of Service 6.1.2 Orissa experience in Standard of Performance 6.1.3 System Reliability Indices used by Regulators 6.1.4 Comparison of Standard of Performance

Regulations of different States 6.1.5 Overall Standards of Performance in Orissa 6.1.6 Re-look at the Prioritisation of Performance

Indices 6.1.7 Grievance Redressal Fora in Orissa

6.2 Electricity Ombudsman Scheme in Orissa 6.3 Energy Audit and Power Theft 6.4 Consumer Satisfaction Survey 6.5 Power supply related findings

6.5.1 Quality of Consumer Service Related Findings

183 - 217

12

6.5.2 Impact of Reform on productivity / efficiency /profitability

6.5.3 Alternative sources of power and associated cost 6.5.4 Gist of finding of beneficiary survey

6.6 Impact of Reform on Poor of Orissa A complete fiasco 6.7 Power Surplus a myth in Orissa 6.8 Summary of the chapter 7. CONCLUSION

7.1 Major Findings 7.2 Suggestion / Recommendation 7.3 Scope for Further Research

218-224

8. Annexure 225-227 9. Bibliography 227-231

13

List of Tables Table No. Title of Table Page No.

1 Power Sector Performance: Gaps between Targets and Realities on Key Indicators in a sampling of regions and Countries

4

2 Comparison of Characteristics of Qualitative and Quantitative Research 8 3 Characteristic of four Qualitative Research Approaches 11 4 Per capita electricity consumption in India by region in kWH(kilowatt -

hours)/Year 29

5 Revenue Account of OSEB/GRIDCO 33 6 T&D Loss in OSEB before Reform 34 7 Planning Commission Report on T&D Loss 34 8 Performance of Orissa State Electricity Board/GRIDCO 35 9 Sales Over the Years in OSEB 35 10 Revenue Over the Years in OSEB 35 11 Comparison of SEBs Before Reform 38 12 License area of DISCOMs 42 13 Share Holding Pattern of DISCOMs 42 14 Details of Revaluation done in Transfer Scheme dated 1st April 1996 43 15 Chronological events of Power Sector in Orissa 48 16 Regulatory principles and practices in some European Countries 94 17 Inter-Country Comparison of Regulatory Model 99 18 Reform Philosophy 100 19 Background of Members/Chairpersons since its inception (OERC) 106 20 AT&C Loss Approved by the Commission 113 21 Billing and Collection from Govt. Departments and PSUs 118 22 Nos. of objections received in response to tariff application of DISCOMs

of Orissa 121

23 Consumer Strength of Orissa 132 24 Sales to Consumer voltage-wise 133 25 Distribution Loss 135 26 Power Purchase Cost of DISCOMs 135 27 Power purchased by DISCOMs 135 28 Employee Cost of DISCOMs 136 29 Asset of DISCOMs 138 30 Repair and Maintenance Expenses of DISCOMs 138 31 A&G Cost of DISCOMs 140 32 Revenue from sale of power of DISCOMs 141 33 Collection Efficiency of DISCOMs 142 34 Regulatory Gap Approved by Commission in different years 143 35 Provision for Bad & Doubtful Debts (Actual) 144 36 Income and Expenditure Statement of CESU/CESCO 145 37 Income and Expenditure Statement of NESCO 146 38 Income and Expenditure Statement of WESCO 147 39 Income and Expenditure Statement of SOUTHCO 148 40 Computation of AT &C Loss 151

14

41 Distribution Loss at LT Level 154 42 Balance Sheet of CESU 156 43 Balance Sheet of NESCO 158 44 Balance Sheet of WESCO 159 45 Balance Sheet of SOUTHCO 161 46 Comparison of Percentage composition of common size Balance Sheet of

DISCOMs 162

47 Accounting Profit and Loss Account of Power Sector of Orissa as a Whole

163

48 Comparison of Different Tariff Models 165 49 UI Rate 166 50 Tariff Rise vis-a-vis Inflation (Wholesale Price Index) 167 51 Calculation of Convergence Index 170 52 Collection of Electricity Duty from 1994-95 to 2009-10 171 53 Key performance Indicators in the Area of Franchisee Operation 175 54 Surcharge as per Tariff policy for FY 2009-10 at HT 177 55 Surcharge as per Tariff policy for FY 2009-10 at EHT 177 56 Surcharge Paise per Unit at EHT & HT (80% Load Factor) 177 57 Comparison between Orissa and Delhi Model 178 58 Payment of Compensation for Violation of Guaranteed Standards of

Performance 186

59 Comparison of SOP Regulations 187 60 Overall Standard of Performance of Electricity Distribution Companies 189 61 Phasing of Standard of Performance 190 62 Comparison of Constitution of Grievance Redressal Fora of some States 192 63 Comparison of features of Grievance Redressal Fora of different States 194 64 Metering Position in Orissa as on 31.03.2009 194 65 Supply Voltage Quality (% of respondents) 197 66 Interruption Level (% of respondents) 198 67 Fault related Service (% of respondents) 199 68 Metering Status (% of respondents) 199 69 Suppliers of Meters (% of respondents) 200 70 Prior Intimation Power Shutdown (% of respondents) 201 71 Billing Related Service (% of respondents) 202 72 Grievance Redressal (% of respondents) 203 73 Attitude of Staff (% of respondents) 204 74 Justification of Tariff (% of respondents) 205 75 Improvement of Consumer service (% of respondents) 206 76 Is Privatization good for consumer and Utility (% of respondents) 207 77 Alternative Sources of Power / Stand by Facilities and the associated cost

for commercial and industrial users of different capacity size (KW terms) 208

78 Share of rural and urban population in Orissa 211 79 Percentage of Village Electrification 213 80 The level of electrification 213

15

List of Graphs Graph No. Title of Graphs Page No.

1 Per Capita Electricity Consumption 28 2 Per Capita Electricity Consumption of various countries 28 3 Power sector outlay in percentage against overall outlay 30 4 Plan-wise power sector expenditure against overall expenditure 30 5 Installed Generation capacity in MW 31 6 Electricity sales to different consumers voltage-wise 134 7 Rise in Power Purchase cost vrs. Units purchased by DISCOMs 136 8 Employee cost per unit of sale 137 9 R&M cost per unit of sale of electricity 139 10 A&G cost per unit of electricity sold 141 11 Revenue Realized (Paise/Unit) 142 12 Actual Bad Debts as percentage of Billing 144 13 Performance of CESU 154 14 Performance of NESCO 155 15 Performance of WESCO 155 16 Performance of SOUTHCO 156 17 AT&C Loss (%) of DISCOMs 156 18 UI received during 2007-08 166 19 Year-wise UI charge received by GRIDCO 167 20 WPI vrs. Tariff Rise 168 21 Comparative tariff of Industrial consumers across the States 168 22 Convergence Index (CI) 170 23 Supply Voltage (All Orissa) 197 24 Interruption Level (All Orissa) 198 25 Fault Related Service (All Orissa) 198 26 Metering Status (All Orissa) 199 27 Supplier of Meters (All Orissa) 200 28 Prior Intimation of Power Shutdown (All Orissa) 201 29 Billing Related Service (All Orissa) 202 30 Grievance Redressal (All Orissa) 203 31 Awareness about GRF (All Orissa) 204 32 Attitude of Staff (All Orissa) 204 33 Justification of Tariff (All Orissa) 205 34 Improvement of Consumer service (All Orissa) 206 35 Is Privatization good for consumer and Utility (All Orissa) 206 36 Awareness about OERC (All Orissa) 207 37 Relationship between State Domestic Product and Household Electrified 210 38 Indian States with more than 10% of village un-electrified 211 39 Indian States with more than 25% of household without access to electricity 211 40 Percentage Growth of Kutir Jyoti Consumers vrs. other non-poor domestic

consumers 214

41 Per capita poor vrs. non-poor (Domestic) electricity consumption 214 42 Electricity Availability vrs. Demand 215

16

Abbreviations of the Terms used in this Thesis ABT Availability based tariff A&G expenses Administrative and General Expenses ARR-Annual Revenue Requirement AT&C Aggregate Technical and Commercial Loss CAIDI - Consumer Average Interruption Duration Index CEA Central Electricity Authority CESU Central Electricity Supply Utility of Orissa DISCOMs Distribution Companies such as CESU, WESCO, NESCO and SOUTHCO GRIDCO GRID Corporation of Orissa Ltd. (Now GRIDCO Ltd.) DT Distribution Transformer IBDF - Input Based Distribution Franchisee IBDFI - Input Based Distribution Franchisee with Investment KWh Killo-Watt Hour (A unit of electrical energy) LF- Load Factor (A measure to ascertain the percentage of use of Electrical Load) Licensee The Distribution Company LTTS-Long Term Tariff Strategy MU Million Uuits NESCO North Eastern Electricity Supply Company of Orissa Ltd. OERC - Orissa Electricity Regulatory Commission OHPC Orissa Hydro Power Corporation (Fully owned by GoO) OPGC Orissa Power Generation Corporation (49% AES and 51% GoO) OPTCL Orissa Power Transmission Corporation Limited OSEB Orissa State Electricity Board RBDF - Revenue Based Distribution Franchisee R&M Repair and Maintenance ROE Return on Equity SAIDI - System Average Interruption Duration Index SAIFI - System Average Interruption Frequency Index SBM - Spot Billing Machine SERC State Electricity Regulatory Commission SHG - Self Help Group SOP Standard of Performance SOUTHCO Southern Electricity Supply Company of Orissa Ltd. STU State Transmission Utility T&D Transmission & Distribution UI Unscheduled Interchange (Part of ABT) WESCO Western Electricity Supply Company of Orissa Ltd.

17

C H A P T E R - 1

Introduction In recent times nothing has attracted the more attention of the corporate world than the Corporate Governance. Corporate Governance has succeeded in attracting a good deal of public interest because of its importance for economic health of corporate and the welfare of the society in general. According to one of the earliest definition of Corporate Governance given by noble laureate Milton Friedman it is to conduct the business in accordance with owner or shareholders desires which generally will be to make as much money as possible, while conforming to the basic rules of the society embodied in law and social customs. Rahul Bajaj, the Chairman of the National Task Force on Corporate Governance appointed by CII said that it dealt with laws, practices and implicit rules that determine a companys ability to take managerial decision vis--vis its claimant in particular such as its share holders, the creditors, the state and employee in general. Thus, it is a system through which a company makes decision concerning its constituents. The first development in streamlining Corporate Governance in the World started with Cadbury Report in the year 1992 which is considered as the Magna Carta of Corporate Governance. Thereafter several committees have been set up in international level to investigate the status of Governance in different companies and suggest remedial measures. Following the Corporate Governance scandals such as Enron and Word Com the Sarbanes Oxley Act was enacted in US in the year 2002 which brought about fundamental changes in virtually every area of Corporate Governance. In India,the first step in streamlining Corporate Governance started with publication of CII Code on Corporate Governance in the year 1998. Subsequently Kumar Mangalam Birla Committee Report (1999), Naresh Chandra Committee Report (2002) and Narayan Murthy Committee Report (2003) on Corporate Governance were published. The market regulator SEBI considered the recommendation of the Birla Committee in January 2000 and decided to implement the recommendations through the medium of listing agreement entered into by the stock exchanges with the listed companies. The stock exchanges have included the directions on Corporate Governance as Clause 49 of the listing agreements. As the State owns all of overwhelming large part of the equity of the PSUs and the Government representing the State appoints, controls and directs their Boards, it seems that latter cannot go way ward as in the case of private sector companies and therefore there is little problem of Corporate Governance. This however is a nave view because even in case of PSUs their Boards must focus on sound Corporate Governance practices, business and technological restructuring with a view to enhancing enterprise values and intrinsic (share holder) value (Disinvestment Commission, February 1997 P.28). The Indian experience in this context is quite pertinent. Most of the public sector units in India were entirely owned and controlled by the state. Corporate Governance in them was in fact akin to State Governance. The PSUs have been working under a system of three-tier managements. At the top was the administrative ministry including minister(s) and the

18

higher bureaucracy following it came Boards of Directors consisting of at least two Secretaries of the Government of India (from the administrative and finance ministry), part time members, if any, from among fellow political activists of ruling party and professionals from industry and trade. These members have had little direct financial stake in the Governed Company resulting in weak belongingness. Next came the Chief Executive Officers and functional Directors appointed by the Government who work in the pleasure of the Government. Therefore, they were not free from the influence of their masters in bureaucracy and politics. On the whole public sector management was under complete capture of the Government. The public sectors were being used as extension of the Government to fulfill their wishes. Power sector in India has its own peculiarities. The companies which are engaged in generation, transmission and distribution of electricity are not only governed under Companies Act, 1956 but also under specific legislation in this sector. In 1948, the Electricity (Supply) Act was passed to facilitate the establishment of regional coordination in the development of electricity transcending the geographical limit of local bodies. It provided for rationalization of the production and supply of electricity and generation for taking measures conducive to the electrical development of the provinces of India. It enabled the creation of SEB (State Electricity Boards) in each state for promoting the coordinated development of generation, supply and distribution. 1.1 Constitutional Provision for Electricity

Electricity was entirely under the provision of the states as per the Government of India Act 1935 but it was because of Dr. Ambedkar, who was a member of the Executive Council for Power during 1942-46, Power was included in the Concurrent List, Schedule VII of the constitution. Recognizing the potential for the growth of power at that time, Dr. Ambedkar felt the development of electricity in the whole country which cannot be left to the provinces alone. According to Article 246 of the constitution, parliament as well as the state legislatures has the concurrent powers to make laws with respect to electricity. Whenever there is any conflict in the laws, the central law shall prevail over the state laws. Dr. Ambedkars philosophy for jurisdiction of central govt. over the electricity had withstood the test of time.

The most challenging unbundling of all would be that of the bureaucracy Editors comment, India Infrastructure Report 2002.

1.2 Backdrop of Power Sector Reforms

Developing countries need energy particularly electric power for social and economic development. Many developing countries are unable meet their energy demands of their economies because of the poor performance of their existing plants and the shortage of adequate investment for new facilities to meet the growth in demand.

19

Although the World Bank experience has been mixed, the performance of its client countries electric power utilities has generally been poor to dismal. The sub standard performance is usually reflected in low plant availability and productivity, poor service to customers (Characterized mainly by energy shortages leading to frequent blackouts and substandard system frequency) and poor financial returns. The proximate causes of these problems are, on the physical plant level, lack of readily available spare parts, scarcity or poor quality of operating materials viz. lubricants, chemicals etc, poor maintenance practices, inadequate training of operation and maintenance personnel and lack of investment in necessary upgrading.

On financial front, government policies that had kept electricity tariffs well below the cost of supply, combined with weak collection efforts by utilities, had drained government budget resources instead of contributing positively. It had thus been common for World Bank borrowers to request financing of new plant at the same time as they maintained existing plant availabilities of less than 50 percent. A final problem for the power sector was on the institutional side, where governments had controlled their power utilities as if they were departments of the state and had used this control to pursue populist politics and social policies that were incompatible with the commercial objectives. Governments inability to continue large subsidies to these utilities for operating purposes and to mobilize funding for large investments needed for new plant to satisfy the growing demand, with the private sectors reluctance to invest in such poor risk ventures, are leading to further deterioration in the performance of electric utilities.

The Indian constitution has included power in concurrent list, which means both the centre and state share the responsibility for this sector. Article 246 of the constitution vests the parliament as well as the state legislature with the power to frame laws. The Electricity Supplies Act. 1948 was amended in 1991 to permit private sector participation in generation. Many Independent Power Producers (IPPs) came with their proposals but very few could get the financial closure and commissioning of power plants in 10 years. The most important factor was that most of the state electricity boards were fast moving towards bankruptcy. The reforms carried out in 1991 in the area of power generation made us realize that reform has to begin from distribution end for sustainable development of power. The process of distribution reform started with the enactment of Regulatory Commission Act in 1998 to minimize the political interference in power sector and rationalize the tariff. In pursuance to reforms, states started unbundling the vertically integrated structure of state electricity boards (SEBs) into three separate corporate identities of Generation, Transmission and Distribution as a precursor to the participation of private sector in distribution. In order to promote competition in the electric power sector, the Electricity Act 2003 (E. Act) mandates open access to the transmission and distribution network for any supplier of electricity. Successful implementation of structural reform

20

requires both the hardware of technological advances in the power system and the software of workable contractual relationships. Utilities need to make efforts to identify such links / areas of high losses; there is still significant uncertainty and differences over the real level of total Transmission and distribution losses. Even 12 years after the establishment of the SERCs and the reforms process, there is still ambiguity over the real level of T&D losses.

Table- 1

Power Sector Performance: Gaps between Targets and Realities on Key Indicators in a sampling of regions and Countries INDICATOR TARGET REALITY REGION /

COUNTRY Percentage of Population Served 90% 5% SSAUtility management Customers per employee Blackouts (hrs. / Yr.) Load Factor System Losses

150-2507

70%10-12%

42750

46%35%

BangladeshPhilippines

NepalBangladesh

Commercial Performance Accounts receivable (days) 30-45 462 NigeriaFinancial Performance Return on assets Self-financing ratio

8-12%>25%

-19.8%0%

India Jordan

Note: SSA Sub- Saharan Africa 1.3 What is Reform?

Power sector reform consists of process of changes along four different but inter-dependent axes: management, ownership, structure and regulation. The structural change begins with the realization that a monolithic structure, often established as part of a centrally planned or command economy is too inflexible to respond to market forces and to provide appropriate incentives for such responses. The government functions need to be broken into

a. That the government cannot relinquish such as the roles of setting general

policy & strategy, and sector regulation and supervision. b. Those that are subsidiary to the role of government and that can be

transferred, wholly or partially, to the private sector, such as ownership, operation and management of energy facilities.

c. Those are not the core functions of the sector & that can be transferred to other sectors such as research & development and construction and manufacturing services.

The governments function can be assumed by a ministry of energy, or state energy commission or state supervisory agency. The ownership function can be retained by the state, or it can be transferred to municipal or regional companies or private

21

sector. In any case the day to day, management of the enterprises, even if fully state owned, should be exercised by commercially viable principles. Finally the third category of functions should be left to universities, research and development institutes, and independent private sector companies. Thus, the process of reform moves along two intertwined paths, one relating to the other government actions and one relating to sector & enterprise restructuring. The first path involves legal and institutional framework; second involves commercialization and corporatisation of enterprises. It is clear that the type of the regulatory framework and sector structure are closely interconnected. The precise dimension of governmental and sectoral reform may vary, but in each case the reform effort needs to be governed by a set of clear objectives. These are to

a. increase efficiency in generation through competition. Or through

regulation based on efficient enterprises and energy use, conservation and other measures.

b. maintain service reliability by setting strict rules to limit unreasonable interruptions of supply and variations from technical standards ( e.g. voltage and frequency levels)

c. increase the security of supply in terms of numbers of suppliers and types of energy resources

d. improve environmental protection by establishing clear rules in the construction & operation of energy facilities, coupled with enforcement mechanisms and the requisite penalties or incentives

e. attract capital, domestic or foreign, by establishing clear and stable Rules of the Game that relieves governments burden of funding the sector

f. develop competition in the supply of electricity services to customers, where viable, a means for increasing the economic efficiency of the sector.

1.4 Corporate Governance and its Relationship with Power Sector Reform

The unbundling of a monolithic agency called State Electricity Board calls for a complete overhaul of Corporate Governance. The Creation of State Electricity Regulatory Commission also makes the Governance in the reformed era completely different from that of pre-reform time. Disinvestment in the power utilities has taken place due to withdrawal of Government stake in them. Therefore, power sector Governance is completely different from other corporate entities. After reform it must be understood that power utilities are operating in deregulated environment free from Government control and at the same time they have to comply with Corporate Governance norms similar to other companies.

1.5 Review of Literatures

Several research papers have been studied to ascertain the status of research in this field. Industry and Energy Department, World Bank (1996) in its research paper Power Sector Reforms in Developing Countries and Role of World bank

22

discusses the experience of the Bank with the sector and the main drivers for sector reform and the expected benefits of reform. The policy advisory group of Infrastructure Development Finance Company Limited (IDFC), 1998 in its research paper Power Sector Reform in Orissa: Should and can it be replicated? reviews this process in Orissa. Asian Development Bank (ADB), 2001-02 in its research paper which acted as Blue Print for Power Sector Development has identified the fault lines and has found out the probable reasons. Sankar, T.L (2002), Advisor-energy, Administrative Staff College of India, Hyderabad, in his work on Power Reforms in India the search for an indigenous model for promoting competition has identified the major problems in this sector. Several other research papers by P Abraham (2003), Rahul Tongia (2003), Ranganathan, V and D, Rao Narasimha (2004) of IIMB have been studied to find out the objective and the scope of present research.

1.6 Objective of the Research

The present work aims to highlight the new Corporate Governance structure after reform, its characteristic and impact on the stakeholders particularly on the consumers that commenced in Orissa since 1995-96 to till date. It also analyzes different key business parameters and its trend after the initiation of reform. The present work systematically studies the experience of ORISSA, which adopted reforms process first in the country and its problems over these years. The findings of the study will highlight the various aspects in this regard, which require attention of the Govt. As Orissa is the first state in India to initiate reforms in the Power Sector, it has left a benchmark for the whole of country and for a good experimentation.

Therefore, in this backdrop, the objective of the project would be to study the impact of reforms in the Corporate Governance of the power sector of Orissa and its outcomes particularly in consumer service, quality of supply, tariff and financial viability. A concerted effort would be made to have comparative analysis among different states that adopted reforms.

In an effort to achieve these objectives, the following steps would be undertaken - To review the working of State Electricity Regulatory Commission as a part

of Regulatory Governance. - To ascertain the provision of quality power on demand to all consumers. - To study the different elements which determines the tariff structure and to

measure the trend in different cost components that goes into the tariff after reform. .

- To measure the cross subsidy component in the tariff structure. - To check the extent of progress made in rural electrification. . - To asses the viability of franchisee model in distribution business.

23

- To systematically analyze the reasons for Orissas failure to become a financially viable model.

- To make the interstate comparison of efficiency i.e. Orissa with Delhi (Which adopted reforms in 2002) and to bring out the weakness of the provision at the distribution end.

- To suggest alternatives to increase the cash flow without tariff hike. 1.7 Hypotheses

- To study if the power sector reforms have brought in commercial viability in Power Supply Industry.

- To study if the power sector reforms resulted in the Supply of power at Reasonable and Affordable Rate.

- To study if the cross subsidy in tariff has reduced over the years. - To study if the power sector reforms have brought in Fiscal Discipline. - To check if the introduction of OERC (Orissa Electricity Regulatory

Commission) has led to rationalization of Tariff structure, proper regulatory Governance and protection of the consumers interest.

- To study the performance standard in consumer services - To study the franchisee operation as viable distribution model - To study how far power sector reform has brought in competition in this

sector - To study if the impact of reform has been good for the poor.

1.8 Research Design

Qualitative research was one of the first forms of social studies, which regained its popularity in 1970s after loosing ground to quantative science for two decades such as 1950s and 1960s during which quantitative science reached its peak of popularity (The Quantitative Revolution). The phrase 'qualitative research' was until the 1970s used only to refer to a discipline of anthropology or sociology, and terms like were used instead. During the 1970s and 1980s qualitative research began to be used in other disciplines, and became a significant type of research in the fields of education studies, social work studies, information studies, management studies, psychology, communication studies, and many other fields. Qualitative research occurred in the consumer products industry during this period, with researchers investigating new consumer products and product positioning/advertising opportunities. The earliest consumer research pioneers including Gene Reilly of The Gene Reilly Group in Darien, CT, Jerry Schoenfeld of Gerald Schoenfeld & Partners in Tarrytown, NY and Martin Calle of Calle & Company, Greenwich, CT, also Peter Cooper in London, England, and Hugh Mackay in Mission, Australia. There continued to be disagreement about the proper place of qualitative versus quantitative research. In the late 1980s and 1990s after a spate of criticisms from the quantitative side, new methods of qualitative research evolved, to address the perceived problems with reliability and imprecise modes of data analysis. During this same decade, there was a slowdown in traditional media

24

advertising spending, so there was heightened interest in making research related to advertising more effective. In the last thirty years the acceptance of qualitative research by journal publishers and editors has been growing. Prior to that time many mainstream journals were prone to publish research articles based upon the natural sciences and which featured quantitative analysis

Qualitative research is a generic term for investigative methodologies described as ethnographic, naturalistic, anthropological, field, or participant observer research. It emphasizes the importance of looking at variables in the natural setting in which they are found. Interaction between variables is important. Detailed data is gathered through open ended questions that provide direct quotations. The interviewer is an integral part of the investigation (Jacob, 1988). This differs from quantitative research which attempts to gather data by objective methods to provide information about relations, comparisons, and predictions and attempts to remove the investigator from the investigation (Smith, 1983).

1.8.1 Characteristics of Qualitative and Quantitative Research

Table -2 Comparison of Characteristics of Qualitative and Quantitative Research

Point of Comparisons Qualitative Research Quantitative Research Focus of research Quality (nature, essence) Quantity (how much, how

many) Philosophical roots Phenomenology, symbolic

interaction Positivism, logical empiricism

Associated phrases Fieldwork, ethnographic, naturalistic, grounded, subjective

Experimental, empirical, statistical

Goal of investigation Understanding, description, discovery, hypothesis generating

Prediction, control, description, confirmation, hypothesis testing

Design characteristics Flexible, evolving, emergent

Predetermined, structured

Setting Natural, familiar Unfamiliar, artificial Sample Small, non-random,

theoretical Large, random, representative

Data collection Researcher as primary instrument, interviews, observations

Inanimate instruments (scales, tests, surveys, questionnaires, computers)

Mode of analysis Inductive (by researcher) Deductive (by statistical methods)

Findings Comprehensive, holistic, expansive

Precise, narrow, reductionist

Merriam, S.B. (1988). Case study research in education: A qualitative approach. San Francisco: Jossey-Bass, p. 18.

25

In simplified terms Qualitative research means a non-numerical data collection or explanation based on the attributes of the graph or source of data. For example, if some body is asked to explain in qualitative terms a thermal image displayed in multiple colours, then he would explain the colour differences rather than the heat's numerical value.

In qualitative research cases can be selected purposefully, according to whether or not they typify certain characteristics or contextual locations. Secondly, the role or position of the researcher is given greater critical attention. This is because in qualitative research the possibility of the researcher taking a 'neutral' or transcendental position is seen as more problematic in practical and/or philosophical terms. Hence qualitative researchers are often exhorted to reflect on their role in the research process and make this clear in the analysis. Thirdly, while qualitative data analysis can take a wide variety of forms it tends to differ from quantitative research in the focus on language, signs and meaning as well as approaches to analysis that are holistic and contextual, rather than reductionist and isolationist. Nevertheless, systematic and transparent approaches to analysis are almost always regarded as essential for rigor. For example, many qualitative methods require researchers to carefully code data and discern and document themes in a consistent and reliable way.

Perhaps the most traditional division in the way qualitative and quantitative research have been used in the social sciences is for qualitative methods to be used for exploratory (i.e., hypothesis-generating) purposes or explaining puzzling quantitative results, while quantitative methods are used to test hypotheses. This is because establishing content validity - do measures measure what a researchers thinks they measure? - is seen as one of the strengths of qualitative research. While quantitative methods are seen as providing more representative, reliable and precise measures through focused hypotheses, measurement tools and applied mathematics in contrast, qualitative data is usually difficult to graph or display in mathematical terms.

Qualitative research is often used for policy and program evaluation research since it can answer certain important questions more efficiently and effectively than quantitative approaches. This is particularly the case for understanding how and why certain outcomes were achieved (not just what was achieved) but also answering important questions about relevance, unintended effects and impact of programs such as: Were expectations reasonable? Did processes operate as expected? Were key players able to carry out their duties? Were there any unintended effects of the program? Qualitative approaches have the advantage of allowing for more diversity in responses as well as the capacity to adapt to new developments or issues during the research process itself. While qualitative research can be expensive and time-consuming to conduct, many fields of research employ qualitative techniques that have been specifically developed to provide more succinct, cost-efficient and timely results.

26

M Q Patton has described 12 major charateristics of qualitative research which are presented below:

1.8.2 Qualitative Research Design Strategies Neutralistic Inquiry Studying real world situation as they unfold naturally;

nonmanipulative and noncontrolling. Emergent Design Flxibility- Openness to adapting inquiry as understanding

deepens and/or situation to change; the researcher avoides getting locked into rigid designs that eliminates responsiveness and pursues new paths of discovery as they emerge.

Purposeful sampling Cases for study (e.g. people, organization, communities, events) are selected because they are information rich and elluninative.

1.8.2.1 Data Collection and Fieldwork Strategies

Qualitative Data Observation that yield detailed, thick

description; inquiry in depth; interviews that capture direct quotation about peoples personal perspective and experiences; case studies; careful document review.

Personal Experience and Engagment The researcher has direct contact with and gets close to the people, situation and phenomenon under study.

Empathic Neutrality and Mindfulness An empathic stance in interviewing seeks vicarious understanding without judgement (neutrality) by showing openness, sensitivity, respect etc; in observation it means being fully present (mindfullness).

Dynamic systems Attention to process; assumes change as ongoing whether focus is on an individual, an organization a community or an entire culture; therefore, mindfull of an attentive to system and situation dynamics.

1.8.2.2 Analysis of Strategies

Unique case orientation Assumes that each case is special and

unique; the first level of analysis is being true to, respecting and capturing the details of the individual cases being studied.

Inductive Analysis and creative synthesis Immersion in the details and specifics of the data to discover important patterns, themes and interrelationships.

Holistic Perspective The whole phenomenon under study is understood as a complex system i.e. more than the sum of its parts.

Context sensitivity Places finding in a social, historical and temporal context; careful about, even dubious of, the possibility or meaningfullness of generalization across time and space; emphasizes instead careful comparative case analyses and

27

extrapolating patterns for possible transferability and adaptation in new settings.

Voice, Perspective and Reflexivity The qualitative analyst owns and is reflective about his or her own voice and perspective; a credible voice conveys authenticity and trustworthiness; complete objectivity being impossible and pure subjectivity undermining credibility, the researchers focus becomes balanced understanding and depicting the world authentically in all its complexity while being self analytical, politically aware and reflexive in consciousness.

1.8.3 Types of Qualitative Research

A qualitative "approach" is a general way of thinking about conducting qualitative research. It describes, either explicitly or implicitly, the purpose of the qualitative research, the role of the researcher(s), the stages of research, and the method of data analysis. There are four major types of qualitative research. They are as follows: Phenomenology Ethnography Grounded Theory Case Study

Table-3

Characteristic of four Qualitative Research Approaches Dimension Phenomenology Ethnography Grounded Theory Case Study Research Purpose

To describe one or more individual experience of a phenomenon (e.g. the experience of the death of a loved one).

To describe the cultural characteristics of a group of people and to describe cultural scenes.

To inductively generate a grounded theory describing and explaining a phenomenon.

To describe one or more cases in-depth and address the research questions and issues.

Disciplinary origin

Philosophy Anthropology Sociology. Multidisciplinary roots, including business, law, social sciences, medicine and education.

Primary data collection method

In-depth interviews with up to 10-15 people.

Participant observation over an extended period of time (e.g. one month to a year).

Interviews with 20-30 people. Observations are also frequently used.

Multiple methods are used (e.g. interviews, observations, documents).

28

Dimension Phenomenology Ethnography Grounded Theory Case Study Interviews with informants.

Data analysis approach

List significant statements, determine meaning of statements and identify the essence of the phenomenon.

Holistic description and search for cultural themes in data.

Begin with open coding, then axial coding and end with selective coding.

Holistic description and search for themes shedding light on the case. May also include cross-case analysis.

Narrative report focus

Rich description of the essential or invariant structures (i.e. the common characteristics, or essence) of the experience.

Rich description of context and cultural themes.

Description of topic and people being studied. End with a presentation of the grounded theory. May also list propositions.

Rich description of the context and operation of the case or cases. Discussion of themes, issues and implications.

1.8.3.1 Phenomenology-

Phenomenology (i.e., the descriptive study of how individuals experience a phenomenon) is sometimes considered a philosophical perspective as well as an approach to qualitative methodology. It has a long history in several social research disciplines including psychology, sociology and social work. Phenomenology is a school of thought that emphasizes a focus on people's subjective experiences and interpretations of the world. That is, the phenomenologist wants to understand how the world appears to others. Qualitative research examines life experiences (ie, the lived experience) in an effort to understand and give them meaning. This usually is done by systematically collecting and analyzing narrative materials using methods that ensure credibility of both the data and the results. Phenomenology is one of many types of qualitative research that examines the lived experiences of humans. Phenomenological researchers hope to gain understanding of the essential "truths" (ie, essences) of the lived experience. Examples of phenomenological research include exploring the lived experiences of women undergoing breast biopsy or the lived experiences of family members waiting for a loved one undergoing major surgery.

1.8.3.2 Phenomenological Methods Many methods have been used in phenomenological research. Frequently, inductive or qualitative methods involve transcribing material (usually interview transcripts), coding data into themes, and drawing conclusions

29

regarding the phenomena based on these themes. It is incumbent upon researchers to seek methods that fit with the philosophy and methodology of their research question and to chose methods congruent with the research topic and assumptions. As qualitative researchers, phenomenologists must follow an organized approach to answering their research question. First, the researcher must develop the question. Next, he or she must devise a sampling plan to ensure the appropriate subjects are available and willing to answer questions. Information or data can be obtained by observations, interviews, or written descriptions. Data then are analyzed using a process of coding and categorizing the information. Finally, the findings are confirmed by others to ensure the credibility of the conclusions. This can be depicted in following steps. The foundational question in phenomenology: What is the

meaning, structure, and essence of the lived experience of this phenomenon by an individual or by many individuals?

The researcher tries to gain access to individuals' life-worlds, which is their world of experience; it is where consciousness exists.

Conducting in-depth interviews is a common method for gaining access to individuals' life- worlds.

The researcher, next, searches for the invariant structures of individuals' experiences (also called the essences of their experience).

Phenomenological researchers often search for commonalities across individuals (rather than only focusing on what is unique to a single individual). For example, what are the essences of peoples' experience of the death of a loved one? Here is another example: What are the essences of peoples' experiences of an uncaring nurse?

After analyzing phenomenological research data, researcher writes a report that provides rich description and a "vicarious experience" of being there for the reader of the report. There are two good examples. See if you get the feeling the patients had when they described caring and non-caring nurses.

1.8.3.3 Ethnography

The ethnographic approach to qualitative research comes largely from the field of anthropology. The emphasis in ethnography is on studying an entire culture. Originally, the idea of a culture was tied to the notion of ethnicity and geographic location (e.g., the culture of the Trobriand Islands), but it has been broadened to include virtually any group or

30

organization. That is, we can study the "culture" of a business or defined group (e.g., a Rotary club).

Ethnography is an extremely broad area with a great variety of practitioners and methods. However, the most common ethnographic approach is participant observation as a part of field research. The ethnographer becomes immersed in the culture as an active participant and records extensive field notes. As in grounded theory, there is no preset limiting of what will be observed and no real ending point in an ethnographic study.

The foundational question in ethnography is: What are the cultural

characteristics of this group of people or of this cultural scene? Because ethnography originates in the discipline of Anthropology,

the concept of culture is of central importance. Culture is the system of shared beliefs, values, practices, language,

norms, rituals, and material things that group members use to understand their world.

One can study micro cultures (e.g., such as the culture in a classroom) as well as macro cultures (e.g., such as the United States of America culture).

There are two additional or specialized types of ethnography. Ethnology (the comparative study of cultural groups). Ethnohistory (the study of the cultural past of a group of people).

An ethnohistory is often done in the early stages of a standard ethnography in order to get a sense of the group's cultural history.

Here are some more concepts that are commonly used by ethnographers: Ethnocentrism (i.e., judging others based on your cultural

standards). You must avoid this problem if you are to be a successful ethnographer!

Emic perspective (i.e., the insider's perspective) and emic terms (i.e., specialized words used by people in a group).

Etic perspective (i.e., the external, social scientific view) and etic terms (i.e., outsider's words or specialized words used by social scientists).

Going native (i.e., identifying so completely with the group being studied that you are unable to be objective).

Holism (i.e., the idea that the whole is greater than the sum of its parts; it involves describing the group as a whole unit, in addition to its parts and their interrelationships).

The final ethnography (i.e., the report) should provide a rich and holistic description of the culture of the group under study.

31

1.8.3.4 Grounded Theory Grounded theory (i.e., the development of inductive, "bottom-up," theory that is "grounded" directly in the empirical data) is a qualitative research approach that was originally developed by Glaser and Strauss in the 1960s. The self-defined purpose of grounded theory is to develop theory about phenomena of interest. But this is not just abstract theorizing they're talking about. Instead the theory needs to be grounded or rooted in observation -- hence the term.

Grounded theory is a complex iterative process. The research begins with the raising of generative questions which help to guide the research but are not intended to be either static or confining. As the researcher begins to gather data, core theoretical concept(s) are identified. Tentative linkages are developed between the theoretical core concepts and the data. This early phase of the research tends to be very open and can take months. Later on the researcher is more engaged in verification and summary. The effort tends to evolve toward one core category that is central.

The foundational question in grounded theory is: What theory or explanation emerges from an analysis of the data collected about this phenomenon?

It is usually used to generate theory (theories tell us "How" and "Why" something operates as it does; theories provide explanations).

Grounded theory can also be used to test or elaborate upon previously grounded theories, as long as the approach continues to be one of constantly grounding any changes in the new data.

Four important characteristics of a grounded theory are

Fit (i.e., Does the theory correspond to real-world data?), Understanding (i.e., Is the theory clear and understandable?), Generality (i.e., Is the theory abstract enough to move beyond the

specifics in the original research study?), Control (i.e., Can the theory be applied to produce real-world

results?).

Data collection and analysis continue throughout the study. When collecting and analyzing the researcher needs theoretical sensitivity (i.e., being sensitive about what data are important in developing the grounded theory).

Data analysis often follows three steps: 1. Open coding (i.e., reading transcripts line-by-line and identifying

and coding the concepts found in the data).

32

2. Axial coding (i.e., organizing the concepts and making them more abstract).

3. Selective coding (i.e., focusing on the main ideas, developing the story, and finalizing the grounded theory).

The grounded theory process is "complete" when theoretical saturation occurs (i.e., when no new concepts are emerging from the data and the theory is well validated). The final report should include a detailed and clear description of the grounded theory.

1.8.3.5 Case Study

The fourth method of qualitative research is Case studies. Case studies are detailed investigations of individuals, groups, institutions or other social units. The researcher conducting a case study attempts to analyze the variables relevant to the subject under study (Polit and Hungler, 1983). The principle difference between case studies and other research studies is that the focus of attention is the individual case and not the whole population of cases. Most studies search for what is common and pervasive. However, in the case study, the focus may not be on generalization but on understanding the particulars of that case in its complexity. A case study focuses on a bounded system, usually under natural conditions, so that the system can be understood in its own habitat (Stake, 1988).

Stake (1994) identifies three types of case studies: Intrinsic - aimed at understanding a particular case because the

case itself is of interest (e.g. how one person managed a stroke). A case may be of interest because it has particular features or because it is ordinary.

Instrumental - aimed at providing insight into an issue or problem or to refine a theory. In this instance, understanding the complexities of the case is secondary to understanding something else (e.g. case study of 'Sally' provides insights into the problems with healthcare in the US).

Collective - a number of cases are studied jointly in order to understand a phenomenon, population or general condition. Often referred to as a multiple-case study (e.g. 15 primary care practices are studied as single but conjoined cases in order to understand how obesity is discussed in this setting).

Case study research excels at bringing us to an understanding of a complex issue or object and can extend experience or add strength to what is already known through previous research. Case studies emphasize detailed contextual analysis of a limited number of events or conditions and their relationships. Researchers have used the case study research

33

method for many years across a variety of disciplines. Social scientists, in particular, have made wide use of this qualitative research method to examine contemporary real-life situations and provide the basis for the application of ideas and extension of methods. Researcher Robert K. Yin defines the case study research method as an empirical inquiry that investigates a contemporary phenomenon within its real-life context; when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used (Yin, 1984, p. 23). Critics of the case study method believe that the study of a small number of cases can offer no grounds for establishing reliability or generality of findings. Others feel that the intense exposure to study of the case biases the findings. Some dismiss case study research as useful only as an exploratory tool. Yet researchers continue to use the case study research method with success in carefully planned and crafted studies of real-life situations, issues, and problems. Reports on case studies from many disciplines are widely available in the literature. Many well-known case study researchers such as Robert E. Stake, Helen Simons, and Robert K. Yin have written about case study research and suggested techniques for organizing and conducting the research successfully. This introduction to case study research draws upon their work and proposes six steps that should be used:

Determine and define the research questions Select the cases and determine data gathering and analysis

techniques Prepare to collect the data Collect data in the field Evaluate and analyze the data Prepare the report

Step 1: Determine and Define the Research Questions

The first step in case study research is to establish a firm research focus to which the researcher can refer over the course of study of a complex phenomenon or object. The researcher establishes the focus of the study by forming questions about the situation or problem to be studied and determining a purpose for the study. The research object in a case study is often a program, an entity, a person, or a group of people. Each object is likely to be intricately connected to political, social, historical, and personal issues, providing wide ranging possibilities for questions and adding complexity to the case study. The researcher investigates the object of the case study in depth using a variety of data gathering methods

34

to produce evidence that leads to understanding of the case and answers the research questions.

Case study research generally answers one or more questions which begin with "how" or "why." The questions are targeted to a limited number of events or conditions and their inter-relationships. To assist in targeting and formulating the questions, researchers conduct a literature review. This review establishes what research has been previously conducted and leads to refined, insightful questions about the problem. Careful definition of the questions at the start pinpoints where to look for evidence and helps determine the methods of analysis to be used in the study. The literature review, definition of the purpose of the case study, and early determination of the potential audience for the final report guide how the study will be designed, conducted, and publicly reported.

Step 2: Select the Cases and Determine Data Gathering and Analysis Techniques

During the design phase of case study research, the researcher determines what approaches to use in selecting single or multiple real-life cases to examine in depth and which instruments and data gathering approaches to use. When using multiple cases, each case is treated as a single case. Each cases conclusions can then be used as information contributing to the whole study, but each case remains a single case. Exemplary case studies carefully select cases and carefully examine the choices available from among many research tools available in order to increase the validity of the study. Careful discrimination at the point of selection also helps erect boundaries around the case.

The researcher must determine whether to study cases which are unique in some way or cases which are considered typical and may also select cases to represent a variety of geographic regions, a variety of size parameters, or other parameters. A useful step in the selection process is to repeatedly refer back to the purpose of the study in order to focus attention on where to look for cases and evidence that will satisfy the purpose of the study and answer the research questions posed. Selecting multiple or single cases is a key element, but a case study can include more than one unit of embedded analysis. For example, a case study may involve study of a single industry and a firm participating in that industry. This type of case study involves two levels of analysis and increases the complexity and amount of data to be gathered and analyzed.

A key strength of the case study method involves using multiple sources and techniques in the data gathering process. The researcher determines in advance what evidence to gather and what analysis techniques to use with the data to answer the research questions. Data gathered is normally

35

largely qualitative, but it may also be quantitative. Tools to collect data can include surveys, interviews, documentation review, observation, and even the collection of physical artifacts.

The researcher must use the designated data gathering tools systematically and properly in collecting the evidence. Throughout the design phase, researchers must ensure that the study is well constructed to ensure construct validity, internal validity, external validity, and reliability. Construct validity requires the researcher to use the correct measures for the concepts being studied. Internal validity (especially important with explanatory or causal studies) demonstrates that certain conditions lead to other conditions and requires the use of multiple pieces of evidence from multiple sources to uncover convergent lines of inquiry. The researcher strives to establish a chain of evidence forward and backward. External validity reflects whether or not findings are generalizable beyond the immediate case or cases; the more variations in places, people, and procedures a case study can withstand and still yield the same findings, the more external validity. Techniques such as cross-case examination and within-case examination along with literature review helps ensure external validity. Reliability refers to the stability, accuracy, and precision of measurement. Exemplary case study design ensures that the procedures used are well documented and can be repeated with the same results over and over again.

Step 3. Preparation for Collection of the Data

Because case study research generates a large amount of data from multiple sources, systematic organization of the data is important to prevent the researcher from becoming overwhelmed by the amount of data and to prevent the researcher from losing sight of the original research purpose and questions. Advance preparation assists in handling large amounts of data in a documented and systematic fashion. Researchers prepare databases to assist with categorizing, sorting, storing, and retrieving data for analysis.

Exemplary case studies prepare good training programs for investigators, establish clear protocols and procedures in advance of investigator field work, and conduct a pilot study in advance of moving into the field in order to remove obvious barriers and problems. The investigator training program covers the basic concepts of the study, terminology, processes, and methods, and teaches investigators how to properly apply the techniques being used in the study. The program also trains investigators to understand how the gathering of data using multiple techniques strengthens the study by providing opportunities for triangulation during the analysis phase of the study. The program covers protocols for case study research, including time deadlines, formats for narrative reporting

36

and field notes, guidelines for collection of documents, and guidelines for field procedures to be used. Investigators need to be good listeners who can hear exactly the words being used by those interviewed. Qualifications for investigators also include being able to ask good questions and interpret answers. Good investigators review documents looking for facts, but also read between the lines and pursue collaborative evidence elsewhere when that seems appropriate. Investigators need to be flexible in real-life situations and not feel threatened by unexpected change, missed appointments, or lack of office space. Investigators need to understand the purpose of the study and grasp the issues and must be open to contrary findings. Investigators must also be aware that they are going into the world of real human beings who may be threatened or unsure of what the case study will bring.

After investigators are trained, the final advance preparation step is to select a pilot site and conduct a pilot test using each data gathering method so that problematic areas can be uncovered and corrected. Researchers need to anticipate key problems and events, identify key people, prepare letters of introduction, establish rules for confidentiality, and actively seek opportunities to revisit and revise the research design in order to address and add to the original set of research questions.

Step 4. Collect Data in the Field

The researcher must collect and store multiple sources of evidence comprehensively and systematically, in formats that can be referenced and sorted so that converging lines of inquiry and patterns can be uncovered. Researchers carefully observe the object of the case study and identify causal factors associated with the observed phenomenon. Renegotiation of arrangements with the objects of the study or addition of questions to interviews may be necessary as the study progresses. Case study research is flexible, but when changes are made, they are documented systematically.

Exemplary case studies use field notes and databases to categorize and reference data so that it is readily available for subsequent reinterpretation. Field notes record feelings and intuitive hunches, pose questions, and document the work in progress. They record testimonies, stories, and illustrations which can be used in later reports. They may warn of impending bias because of the detailed exposure of the client to special attention, or give an early signal that a pattern is emerging. They assist in determining whether or not the inquiry needs to be reformulated or redefined based on what is being observed. Field notes should be kept separate from the data being collected and stored for analysis.

37

Maintaining the relationship between the issue and the evidence is mandatory. The researcher may enter some data into a database and physically store other data, but the researcher documents, classifies, and cross-references all evidence so that it can be efficiently recalled for sorting and examination over the course of the study.

Step 5. Evaluate and Analyze the Data

The researcher examines raw data using many interpretations in order to find linkages between the research object and the outcomes with reference to the original research questions. Throughout the evaluation and analysis process, the researcher remains open to new opportunities and insights. The case study method, with its use of multiple data collection methods and analysis techniques, provides researchers with opportunities to triangulate data in order to strengthen the research findings and conclusions.

The tactics used in analysis force researchers to move beyond initial impressions to improve the likelihood of accurate and reliable findings. Exemplary case studies will deliberately sort the data in many different ways to expose or create new insights and will deliberately look for conflicting data to disconfirm the analysis. Researchers categorize, tabulate, and recombine data to address the initial propositions or purpose of the study, and conduct cross-checks of facts and discrepancies in accounts. Focused, short, repeat interviews may be necessary to gather additional data to verify key observations or check a fact.

Specific techniques include placing information into arrays, creating matrices of categories, creating flow charts or other displays, and tabulating frequency of events. Researchers use the quantitative data that has been collected to corroborate and support the qualitative data which is most useful for understanding the rationale or theory underlying relationships. Another technique is to use multiple investigators to gain the advantage provided when a variety of perspectives and insights examine the data and the patterns. When the multiple observations converge, confidence in the findings increases. Conflicting perceptions, on the other hand, cause the researchers to pry more deeply.

Another technique, the cross-case search for patterns, keeps investigators from reaching premature conclusions by requiring that investigators look at the data in many different ways. Cross-case analysis divides the data by type across all cases investigated. One researcher then examines the data of that type thoroughly. When a pattern from one data type is corroborated by the evidence from another, the finding is stronger. When evidence conflicts, deeper probing of the differences is necessary to identify the cause or source of conflict. In all cases, the researcher treats

38

the evidence fairly to produce analytic conclusions answering the original "how" and "why" research questions.

Step 6. Prepare the report

Exemplary case studies report the data in a way that transforms a complex issue into one that can be understood, allowing the reader to question and examine the study and reach an understanding independent of the researcher. The goal of the written report is to portray a complex problem in a way that conveys a vicarious experience to the reader. Case studies present data in very publicly accessible ways and may lead the reader to apply the experience in his or her own real-life situation. Researchers pay particular attention to displaying sufficient evidence to gain the readers confidence that all avenues have been explored, clearly communicating the boundaries of the case, and giving special attention to conflicting propositions.

Techniques for composing the report can include handling each case as a separate chapter or treating the case as a chronological recounting. Some researchers report the case study as a story. During the report preparation process, researchers critically examine the document looking for ways the report is incomplete. The researcher uses representative audience groups to review and comment on the draft document. Based on the comments, the researcher rewrites and makes revisions. Some case study researchers suggest that the document review audience include a journalist and some suggest that the documents should be reviewed by the participants in the study.

This paper explains how to use the case study method and then applies the method to an example case study project designed to examine how one set of users, non-profit organizations, make use of an electronic community network. The study examines the issue of whether or not the electronic community network is beneficial in some way to non-profit organizations and what those benefits might be.

1.9 Research Methodology Adopted in the Present Study The present study is carried out by using some primary data and rest on secondary statistical data. The primary data has been obtained through face to face interview and circulating structured questionnaire. The secondary data has primarily been obtained from Power Management Institute, NTPC Ltd., different Tariff Orders of Orissa Electricity Regulatory Commission (OERC), Published Regulation of OERC, Audited Financial Report of Utilities, Newspaper reports, University Library - University of Delhi, Corporate Office-GRIDCO/OPTCL. Apart from this, several published journal viz. TERI, Energy Watch, Powerline, ADB Review and

39

by interviewing some senior personnel of different areas related to power industry. The method of study includes the following:

- A survey of available literature on topic. - Collection of data (Both time series and cross section) - Analysis of published & Non-published Journals. - Analysis of Primary & Secondary Data. - Analysis of circulated Questionnaire. - Classification and tabulation of data. - Preparation of charts, graphs and schedules for proper presentation - Suggestion and remedial measures for overcoming the problems faced by

the organization officials and scope for further study. 1.10 Scope

The scope of present study has been with an eye on the process of power sector reforms in India that was initiated in early 90s. The present study is restricted to few aspects i.e. a conceptual background on legislative aspect of Indian Electricity Act 1910 and Electricity Supplies Act, 1948 and its reforms that was initiated by amending them in 1991 and subsequent in Electricity Act, 2003. The present study particularly focuses on new way of Corporate Governance due to reform process and its impact on the power sector in Orissa.

It also empirically studies the various functional reforms carried out by different governments in India and abroad. It covers time series and cross section analysis on trend scenario.

1.11 Limitation of the Study

The compilation and execution of the present study have to pass through several constraints due to unavailability of adequate primary data. The available data is very unsystematic which discouraged the systematic treatment of data. Hence the study would have been more systematic if detailed data would have been available.

1.12 Organization of the Study/ Chapterization The total work has been presented through the following chapters

I. Introduction II. Overview of Power Sector and Imperative of Reform in Orissa State

Electricity Board III. Corporate Governance and Literature Review IV. Regulatory Governance in Orissa V. Regulatory Financial Appraisal-A new way of financial Governance VI. Impact of Reform and Analysis of Beneficiary survey VII. Findings and Conclusion

40

References: 1. Ahluwalia, M. S. (2001). Report of the Expert Group (on) Settlement Of SEB

Dues. New Delhi, Ministry of Power.

2. Ahluwalia, S. S. and G. Bhatiani (2000). Tariff Setting in the Electric Power Sector - Base paper on Indian Case Study. TERI Conference on Regulation in Infrastructure Services, New Delhi.

3. Baijal, P. (1999). "Restructuring Power Sector in India." Economic and Political Weekly.

4. Baijal, P. (1999). "Restructuring Power Sector in India." Economic and Political Weekly.

5. Dixit, S., G. Sant, et al. (1998). "Regulation in the WB-Orissa Model: Cure Worse Than Disease." Economic and Political Weekly XXXIII (17).

6. Dubash, N. K. and S. C. Rajan (2001). The Politics of Power Sector Reform in India. Washington, DC, World Resources Institute.

7. Morris, S., Ed. (2002). Indian Infrastructure Report 2002: Governance Issues for Commercialization. Ahmedabad, 3iNetwork.

8. Mahalingam, S. (1997). Unbundling Trouble. Frontline. 9. Mahalingam, S. (2001). A worrisome tariff order. Frontline. 10. Malhotra,Anil K., and Ranjit Lamech. 1994."Power Sector Experience in Asia."

Paper No. 8. World Bank, Asia Technical Department, Washington, D.C.

11. Nellis, John. 1994. "Is Privatization Necessary?" FPD Note 7. World Bank, Finance and Private Sector Development Vice Presidency, Washington, D.C.

12. Prayas (2008). India Power Sector Reforms Update, Issue 1. Pune, Prayas. 13. Rajan, A. T. (2000). "Power sector reform in Orissa: an ex-post analysis of the

causal factors." Energy Policy

14. Denzin, Norman K. & Lincoln, Yvonna S. (Eds.). (2005). The Sage Handbook of Qualitative Research (3rd ed.). Thousand Oaks, CA: Sage. ISBN 0-7619-2757-3

15. Loseke, Donileen R. & Cahil, Spencer E. (2007). Publishing qualitative manuscripts: Lessons learned. In C. Seale, G. Gobo, J. F. Gubrium, & D. Silverman (Eds.), Qualitative Research Practice: Concise Paperback Edition, pp. 491-506. London: Sage. ISBN 978-1-7619-4776-9

16. Lindlof, T. R., & Taylor, B. C. (2002) Qualitative communication research methods: Second edition. Thousand Oaks, CA: Sage Publications, Inc. ISBN 0-7619-2493-0

17. Becker, Howard S., The epistemology of qualitative research. University of Chicago Press, 1996. 53-71. [from Ethnography and human development : context and meaning in social inquiry / edited by Richard Jessor, Anne Colby, and Richard A. Shweder

41

18. Flyvbjerg, B. (2006). "Five Misunderstandings About Case Study Research." Qualitative Inquiry, vol. 12, no. 2, April 2006, pp. 219-245.

19. Holliday, A. R. (2007). Doing and Writing Qualitative Research, 2nd Edition. London: Sage Publications

20. M Q Patton, Qualitative Research and Evaluation Methods, Third Edition.pp.40-41, copyright 2002 by Sage Publications. Inc.

21. http://www.socialresearchmethods.net 22. Merriam, S.B. (1988). Case study research in education: A qualitative approach.

San Francisco: Jossey-Bass, p. 18.

23. Hamel, J. (with Dufour, S., & Fortin, D.). (1993). Case study methods. Newbury Park, CA: Sage.

24. Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 352-550.

25. Emory, C. W., & Cooper, D. R. (1991). Business research methods. (4th ed.). Boston, MA: Irvin.

26. Miles, M. B., & Huberman, A. M. (1984). Qualitative data analysis: A sourcebook of new methods. Beverly Hills, CA: Sage.

27. Soy, Susan K. (1997). The case study as a research method. Unpublished paper, University of Texas at Austin.

42

C H A P T E R 2

Overview of Power Sector and Imperative of Reform in Orissa State Electricity Board

Electricity is an essential requirement for all facets of our life and it has been recognized as a basic human need. It is the key to accelerating economic growth, generation of employment, elimination of poverty and human development.

Before Indias independence, its electricity sector was decentralized. Electricity was generated and supplied locally by private entrepreneurs, enterprising municipalities and provincial governments. The Tata hydroelectric project in Khandala supplied power to Bombay while Metur Dam on the Cauvery supplied power to Madras presidency. However, the emphasis was on supply to large urban concentration and there was little coordination or cooperation between different suppliers. The Indian Electricity Act, 1910 left the granting of all licenses in the hands of the local government, laying down some rules regarding safety. It was a comprehensive piece of legislation to regulate the generation, supply and use of electricity and dealt with licensing, regulation and safety giving considerable authority to the provincial Government. In 1948, the Electricity (Supply) Act was passed to facilitate the establishment of regional coordination in the development of electricity transcending the geographical limit of local bodies. It provided for rationalization of the production and supply of electricity and generation for taking measures conducive to the electrical development of the provinces of India. It enabled the creation of SEB (State Electricity Boards) in each state for promoting the coordinated development of generation, supply and distribution.

The CEA (Central Electricity Authority) was created to develop a national power policy and coordinate electricity planning across India. The Industrial Policy resolution 1956 reserved generation and distribution of electricity almost exclusively for the states, letting existing private licensees, however to continue. Amendment in 1976 enabled generation companies to be set up by Central and State Government, resulting in the establishment of NTPC (National Thermal Power Corporation), NHPC (National Hydro Power Corporation, WAPCOS (Water and Power Consultancy Services, the consulting firm) etc. Regional Electricity Board (REBs) comprising part time members were constituted in 1964 to promote regional coordination and operation of power supply by a 1964 office order of Government of India (Inserted into the Electricity Supply Act in 1991 by an amendment). REBs had as members, the Chairmen of the SEBs while members of SEBs ran the technical committees.

By an amendment in 1991, of Electricity (Supply) Act 1948, generation was opened to private investment, including foreign investment. RLDCs (Regional Load Despatch Centers) were also established at the same time to operate the power system in a region, ensure regional grid security and integrate with power system of other regions and areas. Tariff in cases of inter-regional movements and transmission charges were t