Implementation of Integrated Reporting in Electric Utilities of Pakistan

Electric Utilities all around the world are rapidly transforming. Extensive power sector reforms are underway to tackle emerging challenges to ensure economic and social sustainability. Electric utilities provide essential and vital services to the public and are playing significant role for the sustainability of economics, environment, labor and Human Rights. But, power sector uses big amount of natural resources for generating electricity to provide its consumer. Keeping in view the limited resources, the utilities have to make the balance between the need of current and future consumer. Very rightly said Economic development must be achieved in a sustainable manner in order to protect key resource systems for present and future generations. A number of factors are fundamental in determining an electric utilitys economic, environmental, and social sustainability performance. In order to make the power sector financially viable and sustainable the implementation of Power Sector Reforms are underway in different countries. The development of partnerships with all stakeholders is paramount of current reforms. The ultimate goal of corporatization is to institutionalize a competent, efficient and accountable system of governance for sustainable growth. The objective of existing power sector reforms is to improve efficiency, productivity and integrity in the public sector; efforts are primarily focused on meeting present and future requirements throughout organizations and within available resources. After the disintegration of power sector in Pakistan DISCOs are responsible only for the distribution of electricity to consumers of its jurisdiction but various stakeholders including government and non governmental agencies, business, politicians, investors has diversified interests about the supply of electricity at affordable price. All DISCOs in Pakistan are in process of restructuring and appreciating the best management practices. Recently, some DISCOs have voluntarily adopted implementation of Code of Corporate Governance and further, in order to have interactive strategic dialogues, with stakeholders, has opted Integrated Reporting (IR) and decided to publish integrated report in accordance with G3 guidelines. All these state owned DISCOs have various stakeholders including government and non governmental agencies, business, politicians, prospective investors, labor and other segment of society have diversified interests as compare to any other organization. It is believed that IR will enable all stakeholders including governments, customers, communities, non-governmental organizations (NGOs), and many others to assess the ability of the company to create and sustain value. Obviously, it will also facilitate its privatization by the provision of confidence, in the process of due diligence, to prospective investors. Apparently, it will also build up a case for the electricity regulator (NEPRA) to implement integrated reporting for all utilities in Pakistan. Due to existing electricity crisis the stakeholders are not complementing the effort and sustainability of even best DISCOs. These DISCOs do not have any generation capacity and their mandate is only distribution of electricity to their licensed areas and rates of electricity are being regulated by NEPRA. The existing cross subsidized tariffs do not reflect the true cost of service but it is beyond the control of operators. It is

imperative to note that agriculture consumers are enjoying various subsidies and paying bill significantly lower than the real cost of service. The power sector is nourishing agriculture sector through its highly subsidized tariff. Evidently, the current tariff has taken care of agriculture consumer
through inbuilt cross subsidies. Keeping in view the sensitivity of the sector, Government is also providing various subsidies to agricultural consumers. The crisis is being handled all over the world by adopting two prongs strategies of adding new generation and demand side management. The addition of generation has significant impact on environment,

business, society and labor. The energy conservation campaign through mobilization of masses can not only provide electricity for economic growth but also transform the whole nation energy efficient. The saving of electricity is better than generation of electricity but cost of electricity is never higher than cost of loadshedding. The implementation of IR in power sector can play significant role in the existing energy deficient scenarios. Eskom, a vertically integrated electric utility of South Africa, has published its integrated report and has won Nkonki SOC Integrated Reporting Awards for the year 2012. According to the International Integrated Reporting Committee, integrated reporting combines the different strands of reporting (financial, management commentary, governance and remuneration, and sustainability reporting) into a coherent whole that explains an organizations ability to create and sustain value. The main output of integrated reporting is an integrated report; a single report that the IIRC anticipates will become an organizations primary report.

The International Integrated Reporting Committee (IIRC):-

The IIRC was formed in 2010 to

create the globally accepted International <IR> Framework that elicits from organizations material information about their strategy, governance, performance and prospects in a clear, concise and comparable format. The IIRC has aim to create a globally accepted framework for accounting for sustainability, bringing together financial, environmental, social and governance information in an "integrated" format. The IIRG has issued sector specific guidelines for generation, transmission, distribution or retail electricity companies. These guidelines are applicable to electric utilities regardless of their type of generation, size, ownership or range of activities within the sector. It provides stakeholders the ability to evaluate an electric utilitys sustainability performance on economic, environmental and social factors to comparable with other electric utilities. The Electric Utilities Supplement covers key sector-specific issues, including: Management of electricity availability and reliability Demand side management Research and development towards promoting sustainable development Energy use reduction strategies Power generation methods based on renewable energy Workforce and safety issues Programs to assess and manage the impacts on communities Resettlement of local communities Stakeholder identification and engagement Supply chain policies and practices regarding product and services purchased

Summary of IRG Guideline: - All of the sector-specific disclosures and performance indicators are
considered as core (these are labeled as EU1, EU2, EU3, etc.). EU1 to EU30 cover the aspect of Profile and Strategy, Economic, Labor Practice, Human rights and society altogether. EU1 to EU5 required different disclosure that set the overall context for understanding organizational performance such as its strategy, profile, and governance. The Disclosure(s) on Management Approach should provide a brief overview of the organizations management approach to the Aspects defined under each Indicator Category in order to set the context for performance information. It diverts the backward looking focus of the stakeholder to forward looking vision. The organization can structure its Disclosure(s)

on Management Approach to cover the full range of Aspects under a given Category or group its responses on the Aspects differently. The objective of these disclosures is to link organizational strategy, governance and financial performance. However, the Disclosure should address all of the Aspects associated with each category regardless of the format or grouping. It means that integrated reporting doesnt only demonstrate the linkages between an organizations strategy, governance and financial performance and the social, environmental and economic context within which it operates, as the IIRC defines it, but is also an integrator of sustainability into a companys core business. EU6 to EU12 requires the disclosure of Management approach to ensure short and long-term electricity availability and Reliability. This is an important sustainability issue for industry, commerce and domestic consumer within the jurisdiction of Electric Utility. Since electricity is an essential service for socio-economic stability. have industrial dominant area and any DSM through load shedding imperil the sustainability of all segment of society. U7 required disclosure of Demand-side management programs including residential, commercial, and institutional and Management industrial programs. The transmission and distribution losses comprise technical losses and commercial/unaccounted losses. The technical losses comprise both controllable and uncontrollable and are caused by energy dissipation in conductors and equipments used for transmission and distribution of power. EU 12 also requires the segregation of transmission and distribution losses. The controllable component is due to weak and inadequate sub-transmission and distribution lines, inadequate size of conductors used, lengthy transmission and distribution lines and inadequate reactive compensation in the system. The controllable component can be minimized by better design of distribution networks, use of higher voltage levels wherever feasible, relocation of transformers, provision of capacitors, use of higher efficiency equipment etc. Increase in losses can increase the consumer end tariff, increase the emission intensity. The increases in distribution losses also indicate theft of electricity which is not only health hazardous but also shifting burden indiscipline consumers to disciplined consumers. It also covers the management strategy to respond it because T&D losses has great impact on sustainability of DISCO, consumers, industry and in some cases Governments, where subsidy is being provided to make electricity affordable. EU14 to EU 16 deals with labor practices & Decent Work and requires various disclosures to assess the availability of a skilled, motivated and healthy workforce because maintaining a highly skilled workforce is essential to the sustainability and reliability of the utilitys services upon which societies depend. EU19 to EU 22 cover Stakeholder participation in the decision making process related to energy planning and infrastructure development, approach to manage the impacts of displacement and contingency planning. In Pakistan Electric Distribution Companies have monopolies but their planning for infrastructure development is being driven by various sociopolitical players. This sector cannot be market driven like other sectors due to socio political and physical nature of electricity and the demands of maintaining a stable electricity system for vital services to the population. The construction or expansion of electricity utility infrastructure can result in the displacement of local residents. Affected people can experience loss of livelihoods, breakdown of social networks, and loss of access, among other impacts.

The infrastructure of most electric utilities presents potential hazards, which can have serious impacts. Examples of concerns include major accidents, natural disasters and terrorist attacks. These require contingency planning measures, disaster/emergency management plans and training programs, and recovery/restoration plans. This indicator is also applicable in Distribution Companies particularly relevant to High Voltage lines and Power Transformers. Electric Utility Sector Specific Disclosures on Management Approach EU23 to EU30 covers the Product Responsibility and requires disclosure on Programs to improve or maintain access to electricity and customer support services, Practice to address language, cultural, low literacy and disability related barriers to access and safely use electricity and customer support services, Number of injuries and fatalities to the public involving company assets, including legal judgments, settlements and pending legal cases of diseases, Percentage of population un served in licensed distribution or service areas, disconnection, power outages and plant availability factor. Programs to improve access to electricity can deliver significant improvements to the standard of living for individuals and communities. Provision of information is essential to ensure consumers have access to electricity delivering significant improvements to their standard of living. It also includes village electrification or any other program supporting by Government. Although village electrification improves the standards of living but put extra burden on network and in some cases other consumers have bear the burden of village electrification. It is a matter of fact village electrification increase the T&D Losses and repair cost of the distribution network. As per the preface of Sector Supplement of GRI guidelines for Electric Utility the goal of sustainable development is to meet the needs of the present without compromising the ability of future generations to meet their own needs. Transparency about the sustainability of organizational activities is of interest to a diverse range of stakeholders, including business, labor, non-governmental organizations, investors, accountancy, and others. Integrated Reporting (IR) in Power Sector may lead many success stories because major part of disclosures are available and being developed for regulator/management/governmental agencies for performance evaluation and process reengineering. Electric Utilities are operating under regulatory environment and regulators most important objective is to safeguard the interest of present consumer align with the interest of future consumer. The adoption of Integrated Reporting will transform the whole of the power sector and pave the way for corporatization, commercialization and ultimately privatization.

Source and Reference:1. 2. 3. 4. Draft Framework Outline IIRG Sustainability Reporting Guidelines for Electric Utilities Sector Supplement GRI Application Level Volume 3 Indicator Protocols Set Economic(EC), Environment (EN),Labor Practice and Decent Works (LA), Human Right (HR), Society (SO) Product Responsibility (PR) Version 3.0/EUSS Final Version