Simulation and System Dynamics

Analysis of Poor Financial Health of State Electricity Board of India (SEBs)

Submitted to: Dr. Arun Abraham Elias

Submitted by: Brahmeswara Reddy KV Kartikeya Misra Pankaj Gandhi Sanjay Kumar ePGP - 01 - 003 ePGP - 01 - 011 ePGP - 01 - 018 ePGP - 01 - 030

Executive Post Graduate Programme (ePGP 01)

Indian Institute of Management Kozhikode

Index

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Performance of State Electricity Boards in India Recovery of Cost Through Tariff Low Plant Load Factor Higher Auxiliary Consumption Operating Efficiency Forced Outages of Thermal Station Auxiliary Consumption Aggregate Technical and Commercial Loss Transmission & Distribution Loss Poor Revenue Management System Power Balance Consumer category wise average Tariff Rate of Return on Capital Status of HR in SEB Analysis of different feedback loop in the causal loop diagram SEB Problem Analysis Plant Simulation (MS Excel Sheet) I think software output

01 02 03 03 04 04 06 06 07 09 10 10 11 11 15 18 19 23

Performance of State Electricity Boards in India Indian power sector comprises of State Electricity Boards, Central PSU like NTPC NHPC PGCIL etc and Private sector players like Torrent Power, Reliance etc. SEB holds about 60 % of countries generation asset and 80 5 of T&D assets.

The poor financial and technical condition of the Indian power sector -and especially State Electricity Boards (SEBs)- is widely acknowledged. . The World Bank observed "India's power sector is plagued by capacity shortages, resulting in frequent blackouts, poor reliability and deteriorating physical and financial conditions. The source of the Indian power sector's ailment is poor operational efficiency of the SEBs, which forms the foundation of India's power system. Due to subsidized tariffs to residential and agricultural consumers, low investment in transmission and distribution systems, inadequate maintenance and high level of distribution losses, theft and uncollected bills, Utilities are continually in severe financial distress and have been unable to provide quality supply and efficient services to their consumers

Recovery of Cost Through Tariff Average Cost (Paise/Kwh) 128.2 149.1 163.4 179.6 215.6 239.7 262.5 283.6 303.8 Average Tariff (Paise/Kwh) 105.4 116.7 128.0 139.0 165.3 180.3 185.5 199.0 212.0 Recovery as percentage Of Cost 82.2 78.3 78.3 77.4 76.7 75.2 70.7 70.2 69.8

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01

The state of financial health of Public Utilities was in the worst shape with huge accumulated losses and revenue in arrears. The problems can divided into following parts Technical Reason Financial Reasons HR and Administrative reasons

Figure of merit for analysis of SEB are as under Plant Load factor (PLF) Auxiliary Power Consumption Efficiency ( Inverse of Heat rate) Aggregate Commercial and technical Loss Transmission and Distribution Loss Theft Revenue realized

Low Plant load factor (PLF) This has 2 components first less generation due to unreliability of equipments resulting from Poor O&M practice, second higher schedule outages. For flawless running he power plants are required to be stopped for around 1 month in a year for Annual Maintenance of the plant. Depending on project management skills the time varies from 21 days to 40 days amount the Power stations.

Higher Auxiliary Consumption The power plant consumes around 10 % of Energy it produces to run its auxiliaries. This figure varies from 7.5% to 15 % and is dependent on O&M practices as shown in casual loop model.

Operating Efficiency This is generally expressed as Heat rate of power plant which is inverse of efficiency and varies from 2400 kCal /unit to 3500 kCal/unit . This is amount of heat required to be burnt in a boiler of a power plant to produce 1 unit of electrical energy (Lower the better) this is also dependent on quality of O&M of plant as shown in causal loop diagram. FORCED OUTAGES OF THERMAL STATIONS (%)

S.No. I.SEBs

Agency

1991-92

199293

199394

199495

199596

199697

199798

1998-99 1999-2000

Northern Region 1 2 3 4 5 Haryana Punjab Rajasthan U.P. Delhi(DVB)

17.04 30.94 7.07 14.82 27.67 16.50

15.20 16.39 8.19 7.22 27.57 17.30

14.50 26.70 13.10 4.90 22.70 26.50

15.89 35.70 10.20 9.20 15.86 25.90

15.56 29.74 7.10 10.32 26.11 18.05

17.10 24.10 12.80 9.40 29.70 26.60

11.90 22.70 4.70 5.00 23.20 19.80

18.10 25.10 12.20 14.70 32.10 34.00

12.90 26.30 9.50 3.70 25.60 22.60

S.No. Western Region 6 Gujarat 7 Maharashtra 8 Madhya Pradesh Southern Region 9 Andhra Pradesh 10 Tamil Nadu 11 Karnataka Power Corp. Eastern Region 12 Bihar 12 Orissa $ 14 West Bengal SEB 15 WBPDC 16 D.P.L. N.E.Region 17 Assam All SEBs II. Central Sector 1 N.T.P.C.(STPS) 2 NLC 3 D.V.C.

Agency 11.78 10.62 13.67 16.51 12.42 11.28 13.80 8.81 22.41 27.57 26.98 13.90 8.86 44.45 34.39 34.39 21.10 13.50 8.30 16.07 35.77

91-92 11.64 7.20 14.07 14.63 13.69 7.46 10.08 26.57 29.62 41.90 25.90 40.37 11.51 25.92 46.52 46.52 16.93 15.33 9.42 27.04 41.09

92-93 10.30 7.60 10.00 19.30 10.00 8.20 10.40 8.90 20.10 31.10 19.80 24.20 5.20 21.60 33.60 33.60 15.00 10.20 6.00 19.10 25.70

93-94 8.29 6.60 7.79 12.20 8.70 6.00 8.10 6.70 20.40 21.90 33.50 17.90 8.40 22.23 21.31 21.30 13.50 11.60 6.40 18.10 34.60

94-95 8.16 7.90 10.19 11.00 6.84 6.42 8.15 6.96 20.16 28.36 19.00 16.67 10.37 28.01 10.54 10.54 9.60 9.06 7.20 7.23 22.67

95-96 7.80 7.40 10.00 9.00 5.40 5.90 7.70 2.90 23.80 36.00 5.30 14.80 11.60 42.80 35.40 35.40 14.30 11.00 8.30 6.90 34.20

96-97 7.40 7.80 9.40 10.40 5.90 4.30 8.20 5.30 24.50 48.30 5.20 22.00 13.20 35.50 48.50 48.50 13.60 10.60 8.70 5.50 30.00

97-98 8.20 10.40 10.90 9.90 9.80 10.00 16.60 5.50 23.60 40.80 4.30 30.40 17.00 53.70 49.40 49.40 17.80 10.30 6.60 8.30 37.80

98-99 99-00

8.40 12.90 9.20 10.60 7.40 5.90 10.90 2.80 24.90 40.60 1.60 31.60 19.30 49.50 52.00 52.00 15.60 9.90 5.20 9.90 40.60

III.Private Sector 1 2 3 4 A.E.Co. Trombay C.E.S.C. BSES

8.60 14.53 8.38 7.63 15.19

10.55 14.34 10.06 9.06 16.19

9.87 8.30 12.30 4.70 13.17

2.68 3.59 2.10 3.30 12.42

1.99 3.74 1.55 1.79 30.19 11.95

5.90 2.50 6.40 1.60 11.80 12.80

2.90 2.50 3.50 2.10 2.50 12.10

2.90 2.80 1.70 5.00 3.30 14.50

4.60 6.20 3.50 7.10 1.80 13.10

(IV) All India

AUXILIARY CONSUMPTION
(%) 1998-99 1999-2000 2000-01 (Provi.) (RE) (AP)

1992-93 Actual I.SEBs 1. Andhra Pradesh 2. Assam 3. Bihar 4. Delhi(DVB) 5. Gujarat 6. Haryana HPGC 7. Himachal Pradesh 8. Jammu & Kashmir 9. Karnataka SEB KPC 10. Kerala 11. Madhya Pradesh 12. Maharashtra 13. Meghalaya 14. Orissa SEB OHPC OPGC 15. Punjab 16. Rajasthan 17. Tamil Nadu 18. Uttar Pradesh 19. West Bengal SEB WBPDC Average of SEBs : Electricity Departments 1. 2. 3. 4. 5. 6. 7. 8. Arunachal Pradesh Goa Manipur Mizoram Nagaland Pondicherry Sikkim Tripura 7.90 0.00 7.90 3.60 7.00 0.00 5.60 3.50 5.36 9.81 12.87 8.44 10.39 5.33 0.35 1.00 0.12 3.30 0.50 9.26 7.91 0.42 2.89

1993-94 Actual

1994-95 Actual

1995-96 1996-97 1997-98 Actual Actual Actual

5.35 8.54 12.78 NA 10.04 5.46 0.27 1.00 1.47 3.69 0.57 9.30 7.89 0.34 3.29

5.66 8.09 12.80 8.84 9.66 5.26 0.24 1.00 1.60 3.51 0.38 9.09 7.53 0.35 9.60

6.71 8.88 13.53 9.09 9.25 5.57 0.20 1.00 2.02 4.08 0.39 8.75 7.64 0.36 12.84 0.00 12.82 4.46 7.48 6.71 7.59 12.03 9.75 7.11

6.14 8.74 10.27 8.94 8.26 5.98 0.30 0.18 2.59 5.51 0.51 8.64 5.73 0.35 1.22 11.42 4.36 7.16 6.80 7.67 10.91 9.74 6.57

6.87 9.32 12.64 8.68 9.52 6.51 0.26 1.00 2.47 3.69 0.46 8.73 7.46 0.42 2.87 11.53 5.01 7.52 6.80 7.97 11.66 10.06 7.15

7.01 7.63 14.33 8.85 9.58 2.78 11.27 0.25 1.00 2.31 3.79 0.48 8.38 7.40 0.30 2.87 10.23 4.72 7.52 7.15 7.49 12.14 9.60 7.04

7.41 6.70 14.01 8.94 9.73 0.87 11.49 0.23 1.00 2.59 4.18 0.46 8.68 8.03 0.34 1.00 10.69 5.34 7.31 7.25 7.84 11.67 9.64 7.28

7.30 6.14 13.84 7.91 9.79 0.87 11.56 0.33 1.00 2.64 4.50 0.43 8.76 7.90 0.31 1.00 10.65 5.06 7.70 7.13 7.81 10.56 10.47 7.25

4.20 7.33 6.06 8.74 11.14 9.83 6.91

4.92 7.51 6.79 8.15 10.73 9.99 6.96

4.49 7.10 6.41 7.58 10.90 8.86 7.44

6.80 0.00 7.00 3.70 8.00 0.00 5.50 1.90

6.45 0.00 7.41 2.42 3.14 0.00 4.80 1.74 3.39 7.07

8.49 0.00 7.50 2.26 9.59 0.00 4.73 1.80 3.79 7.17

7.62 0.00 4.80 4.12 4.64 0.00 4.41 1.78 3.53 6.56

7.63 0.00 7.93 3.40 5.73 0.00 1.27 1.85 2.94 7.14

7.51 0.00 8.02 3.27 5.37 0.00 1.74 1.83 2.69 7.03

6.79 0.00 4.14 2.88 4.64 0.00 2.33 1.84 2.63 7.27

7.92 0.00 3.74 2.50 2.64 0.00 1.63 1.85 2.72 7.24

Average of EDs : Average - All States & UTs

Aggregate technical and commercial loss. The electricity produced in plant is transmitted to location through transmission and distribution lines spread all over the nation. Not all the electricity produced reaches at consukers premises a part of which is lost during transmission and distribution lines as heat . Generally this figure is around 10 % however because of poor network condition it

varies up to 20 % . Further lot of theft is involved in India as a result further 20 % Electricity is lost in theft . Together above loss consists of AT&C loss.

Revenue realized Not all the energy metered and billed is collected as money at distribution subdivisions of SEB resulting into lot of arrears. Rate of returns on Equity Generally all SEB have negative return on equity and are in loss as shown in figure . Reasons of poor performance PLF Efficiency and Auxillary Consumption The plant load factor is low due to higher outages. The outages are of 2 types Forced and Planned The forced outages are due to poor reliability which is a function of poor O&M quality resulting poor O&M practice and lack of spares due to financial distress Planed Outages are due to scheduled maintenance to be done once a year for around 1 month. If project management practices are good this also can be brought down to 21 days. Some power Plants have annual shutdown of 40 days. This is shown in the casual loop diagram The overall effect of this is increase in cost of electricity generation Transmission and distribution loss This is dependent upon the T&D network healthiness if the network is nicely designed the losses are less however in India the network design is done on adhoc basis resulting in higher T&D Loss.

T & D Losses as percentage of Availbility

(%) 1992-93 1993-94 1994-95 Actual Actual Actual 1. SEBs 1 Andhra Pradesh 2 Assam 3 Bihar 4 Delhi 5 Gujarat 6 Haryana 7 Himachal Pradesh 8 Jammu & Kashmir 9 Karnataka 10 Kerala 11 Madhya Pradesh 12 Maharashtra 13 Meghalaya 14 Orissa (GRIDCO) 15 Punjab 16 Rajasthan 17 Tamil Nadu 18 Uttar Pradesh 19 West Bengal Average : (I) II EDs 1 Arunachal Pradesh 2 Goa 3 Manipur 4 Mizoram 5Nagaland 6 Pondicherry 7 Sikkim 8 Tripura 34.90 20.80 22.50 28.10 32.40 16.00 21.80 30.50 31.60 21.80 22.50 28.00 31.60 15.50 21.50 30.00 31.00 26.20 22.00 28.00 30.80 15.00 21.20 30.00 36.00 28.50 21.50 27.00 30.00 14.50 21.00 30.00 32.62 23.54 22.95 34.35 30.51 17.38 29.24 28.76 19.21 23.39 21.52 47.00 29.50 13.79 20.13 29.33 21.27 29.12 59.07 45.12 29.00 13.46 20.06 28.50 20.47 24.33 40.00 42.50 28.50 13.26 20.03 28.00 18.00 23.99 30.00 40.00 29.17 13.00 20.02 28.00 19.20 21.00 20.50 23.40 21.10 25.40 18.50 45.30 18.70 21.00 22.20 16.40 12.20 23.50 18.70 24.50 17.50 24.10 23.70 19.80 19.10 20.80 19.00 N.A. 21.30 25.50 17.30 47.70 18.60 20.20 20.20 15.80 10.70 23.40 18.50 25.20 17.30 23.20 22.40 20.20 18.90 24.90 24.00 N.A. 20.00 28.50 17.40 46.90 18.90 20.10 20.10 15.30 18.70 23.80 18.30 25.00 16.90 22.60 21.10 20.20 18.90 26.20 25.90 48.00 18.30 31.40 17.50 48.60 18.50 20.10 19.50 15.40 17.80 46.90 18.20 28.50 17.00 22.80 20.70 22.20 33.09 26.37 25.26 49.64 21.42 32.77 18.41 49.97 18.86 21.37 20.59 17.72 19.48 50.38 18.95 25.88 16.98 27.96 20.08 24.63 32.49 30.06 25.41 42.31 21.69 33.37 19.21 47.48 18.56 17.87 19.66 17.12 17.93 49.24 17.79 26.52 16.85 25.53 20.00 24.00 31.90 38.13 23.00 49.20 20.14 33.81 18.15 47.07 29.94 21.36 19.54 17.17 20.14 48.45 16.83 26.52 16.90 26.34 25.50 24.99 31.41 37.01 23.00 47.00 19.60 27.00 17.62 47.01 30.00 21.14 20.70 16.99 20.41 6.00 16.81 29.46 16.75 25.50 28.00 23.72 31.04 35.03 22.00 45.00 19.40 25.00 17.28 46.50 30.00 20.85 20.50 16.65 20.25 6.00 16.86 22.00 16.50 25.00 28.00 22.96
1995-96 1996-97 1997-98 1998-99

Actual

Actual

Actual

Provis.

1999-2000 2000-01 (R.E.) (Plan Est)

Average : (II) Overall Average(I&II)

21.60 19.80

21.80 20.20

22.80 20.30

23.80 22.20

23.63 24.62

22.19 23.99

27.87 25.02

23.49 23.72

22.20 22.95

Theft In India around 20 % if Electricity is lost due to theft . The theft is high due to poor networkand open transmission lines . Further politicians at many times support theft .

Unauthorized taping and direct connections in large distribution network and lack of metering on each transformer center resulted in each additional unit sold in incremental losses by Utilities.Because of theft consumers are happy since they have to pay nothing for getting free electricity hence some politicians are encouraging resulting in a reinforcing loop. Forced outage in T&D Because of poor network reliability there are many forced outage of lines resulting into poor customer satisfaction. This poor feedback prevents Administrators in giving high pay and bonuses to employees which results in reduction of motivation. As shown in Casual loop diagram poor network reliability is due to poor quality O&M.

Poor Revenue management system Out of the energy billed, large amount is not collected, besides this, revenue in arrears have shown increasing trend, the revenue arrears receivable by Utilities from various consumers have shot of from Rs.14500 crores in 1996-97 to Rs.25000 crores in 1999-00 in just 3 years and the position is probably made further deteriorated by 2003-04. The average recovery percentage deteriorated from 82% in 1992-93 to 68% in 2001 -02. This is resulting from poor revenue management systems.

The problem is further complicated due to irrational tariff structure resulting due to political interference. This results into less revenue collection

Power Balance

Year 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Gross Generatio n (MKwh) 110844 122101 130624 140177 156859 170350 187714 202093 221396 245438 264329 287029 301362 324050 350490 379877 395889 421747 448563

Auxiliary Consumptio n (MKwh) 7230 8288 9029 10142 11650 13157 14324 16317 17363 18674 19603 21011 22060 23670 24795 27221 28804 30684 32521

% AC 6.52% 6.79% 6.91% 7.24% 7.43% 7.72% 7.63% 8.07% 7.84% 7.61% 7.42% 7.32% 7.32% 7.30% 7.07% 7.17% 7.28% 7.28% 7.25%

Net Generatio n (MKwh) 103614 113813 121235 130035 145209 157193 173390 185776 204033 226764 244726 266018 279302 300380 325695 352657 367085 391063 416042

Purchase From Outside *(MKwh) 78 30 -2 -2 73 1 346 2067 2196 1915 2153 3066 2937 3200 3560 3785 1493 3926 4323

T&D Losses (MKwh) 21325 23598 25644 27689 31214 34195 38144 42230 46033 53260 56522 61439 61565 65010 69569 79363 91105 97919 107693

Total Consumpti on (MKwh) 82367 90245 95589 102344 114068 122999 135592 145613 160196 175419 190357 207645 220674 238570 259686 277079 277473 297070 312672

T&D Loss 20.58% 20.73% 21.15% 21.29% 21.50% 21.75% 22.00% 22.73% 22.56% 23.49% 23.10% 23.10% 22.04% 21.64% 21.36% 22.50% 24.82% 25.04% 25.89%

Consumer Category-wise Average Tariff (Paise/Kwh)

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01

Domestic Commercial Agriculture Industry Traction Outside State Overall

77.3 165.3 16.1 171.5 206.8 91.0 105.4

84.3 186.3 17.9 198.2 216.4 84.5 116.7

92.8 208.0 18.8 221.1 261.4 111.8 128.0

85.0 172.8 19.0 219.5 282.5 93.5 139.0

105.7 239.1 21.2 275.5 346.8 151.4 165.3

136.2 293.6 20.2 312.7 382.2 138.1 180.3

140.1 322.4 20.6 320.5 405.9 163.6 185.5

157.8 354.9 21.1 344.5 414.7 181.6 199.0

173.4 340.4 28.5 359.9 420.8 193.8 212.0

Rate of Return on Capital (%) Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 (Provi.) 1999-2000 (RE) 2000-01 (AP) With Subsidy (-) 7.6 (-) 6.6 (-) 5.7 (-) 2.2 (-) 7.6 (-) 11.8 (-) 17.9 (-) 27.7 (-) 27.6 Without Subsidy (-) (-) (-) (-) (-) (-) (-) (-) (-) 12.7 12.3 13.1 16.4 19.6 22.9 30.8 33.8 35.1 With 50 Paise per Unit Agriculture Tariff (-) 6.6 (-) 6.9 (-) 8.1 (-) 8.5 (-) 12.4 (-) 15.6 (-) 23.5 (-) 26.4 (-) 28.0

Till this point it is clear that main cause of poor performance of SEB is Poor quality of O&M , poor quality Project management and poor revenue management . If refer to the causal loop diagram we will find that all of these depend upon employ knowledge and skill, motivation and organizational structure. Further all these depend upon quality of HR system of SEB . Status of HR in SEB Organization Structure Organization structures were found ill aligned towards consumer orientation; "the raison detre" of the public utilities in Indian power sector .12The structures further were, hierarchical and administration centric as opposed to consumer centric. Responsibility and the delegation of authority were not commensurate. Too many layers and too much formalization led to delayed decision-making and low response time to changes as well as consumer dissatisfaction. Human Resource Planning The human resource planning was poor and ad-hoc which resulted in internal staffing inconsistencies. There were landslide changes in the realm of technology; consumer expectations, regulatory framework and level of education, which necessitated the changes in

staffing norms and competencies required to deal with such changes but there were no corresponding changes in planning of human resources requirement and skills. Recruitment and Promotion The utilities filled in most of the middle and senior level positions by promotion on the basis of seniority. The recruitment from the market in very few supervisory cadres was also confined to the respective state only.13 The promotions based on seniority took no cognizance of potential or competence; these resulted in stagnated pool of employees and mediocre culture. No conscious efforts were made to build a competency-based organization Performance Management and Rewards There was no organizational Vision, Mission statement, organizational objectives and the targets set. No individual or departmental key result areas were identified; the performance was assessed in a prescribed format. It was a confidential report writing system; therefore not transparent and was a subjective one. The performance was neither recognized nor rewarded. The performance management system did not differentiate between a performer and a non-performer. The performers and non-performers were treated equally, which was demoralizing to those who had put in excellent efforts. There was no synergy in the assessment of organizational and the individual performance; of an individual performance was assessed for a calendar year whereas the organizational performance was taken in to consideration for the financial year . No potential appraisal/assessment was carried out. No performance based reward system was in existence, which severely affected building of performance-oriented culture in the Utilities. Training and Development The training and employee development was a neglected function for almost 5 decades. An officer, who was not considered to be fit for mainstream functions and who had no knowledge about the training and the HR was posted to head the training Department. The training needs did

not emanate form the corporate strategy, current competency level of the employees or future skill requirement. There was no evaluation of training except the number of persons trained. The training did not have any link with the other components of HR subsystem. The training did not keep pace with the changes in the external environment. The training budget was meager and the infrastructure was poor. All these impaired Utilities' efforts for competence building Career and Succession Planning There was sheer absence of succession planning which resulted in non-grooming of middle and senior people to take over the higher-level positions and shoulder higher responsibility. Role transformation from an engineer to a manager and leader did not take place. The Utilities did not identify the career anchors to fit young and promising officers to get best out of them and keep them motivated. The top positions were filled in by the selection on the file, no potential assessment, and pre posting training or understudy used to be made. The promotions took long time in the engineering cadres, which led to frustration. Organizational climate The conducive organization climate is one of the factors, which aid survival and growth of organization. The climate in public utilities was degenerative and not conducive to development and risk taking. If we see that this inconstancy in HR management is due to lack of vision in top management who is generally a politician and appointed politically who has his own selfish agenda . If we really analyze this is due to Lack of political will to improve for example in Gujarat the CM has stopped policy of appointing a politician as a chairman of SEB and appointed handpicked IAS officers who were given enough freedom to work . This has

resulted into good improvement in performance of Gujarat Electricity Board (Erstwhile) .

Analysis of different feedback loop in the causal loop diagram . If we see that the financial condition of SEB is poor due to 1. less revenue realization and 2. higher cost of generation. Pl refer table for The revenue realizations due to low net electricity sold, irrational tariff and poor revenue realization model. This poor revenue model is due to lack of clear direction and inconsistency at top as shown in causal loop diagram. The tariff is irrational due to lack of political will whereas net electricity sold is less due to high T&D loss, high Theft & high forced outages. All these are due to poor network condition. If we see the diagram we will find that the T&D network condition is poor due to lack of maintenance and spares. However higher the no of units generated higher is the net electricity sold. The cost incurred for total energy generation is high due to higher cost per unit of electricity generated in plant this high cost results from poor O&M quality. Further the net units generated have positive relation with plant reliability resulting from poor O&M quality. Now we have come to conclusion that poor O&M quality is main cause of poor financial condition of SEB. If we further analyze the reasons for poor O&M quality we will find that it is directly dependent on availability of spares and O&M practice and project management practice. Poor O&M practices result into reduction in reliability of machine leading to less PLF , higher Auxillary consumption . Poor project management skills results into delay of shutdown and causes higher MTTR. When right quantity and quality of spares are not available maintenance Engineer comprises by fitting reconditioned spares resulting untimely failure of equipments.

Loop 1 Poor financial condition of SEB results into less money available for spare procurement which reduces O&M quality leading to low PLF and less generation of Electricity. This leads to higher cost of Electricity and reduction in surplus of SEB.

Loop 2 When financial condition of SEB are stressed no money is left in enhancing installed capacity of Power Plant. This results in zero growth rate in installed capacity. Hence additional electricity units are not available for sale resulting into poor financial condition of finances of SEB. If we analyse in deep we will find that poor O&M and Project management is a result of poor motivation and poor knowledge and skills of employees due to organizational and structural problem of organization. This is a result of Poor HR system and less training impartment to Employees . HR condition is deeply discussed earlier.

Loop 3 When SEBs are into financial distress less money is available for training and development of employees which lead to poor moral , knowledge and skill of them which further lead to poor finances of SEB. If we analyze further we will find that poor HR Systems is a result of lack of direction and consistency at top of SEB. The Chairman appointed are political and work in their own interest and have no will to improve the system. The MD appointed is form IAS who stay for a small time in SEB before they learn and understand the system they are transferred. This situation of inconsistency at top is a result of lack of political will to improve condition of SEB. There is one interesting loop.

Loop 4 When there is theft of electricity form network public gets free electricity hence such customers influence the politicians not to improve the system.

Loop 5 Due to poor financial condition of SEB they are not in a position to pay a good package to employees leading to reduction in motivation .this further leads to poor performance and so on.

Loop 6 When there are high outages in distribution and blackouts customers are very unhappy. This leads to a general thinking that the SEB staff is useless and do not deserve any good facility and bonus and salary. This also results into reduction of moral and motivation. As explained earlier such poor motivation results into poor performance of SEB leading to poor financial condition of SEB.

Reference 1. Annual Report on The Working of State Electricity Boards & Electricity Departments By Planning Commission Government of India , June, 2001