Impact of Corruption on Public Sector

Organization’s Efficiency: Case of

WAPDA
Managerial Economics Project Report

Submitted to: Sir Qazi Subhan

Submitted by: Kaiynat Malik

Noor Nadeem

Lubna Rafique

M. Awais Azhar

BBA 6-B

Bahria University Islamabad

Table of Contents

1. Introduction…………………………………………………………………......2
1.1 Pakistan Corruption Index………………………………………………….3
1.2 Broad Problem……………………………………………………………….3
1.3 Problem statement……………………………………………………………4
1.4 Objectives of Study…………………………………………………………..4
1.5 Types of Study………………………………………………………………..4
1.6 Significance of Study…………………………………………………………5
2. Literature Review………………………………………………………………...6
3. Conclusion………………………………………………………………………11
4. Recommendations…………………………………………………………….....12
5. References ………………………………………………………………………13

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 Impact of Corruption on Public Sector Organization’s Efficiency
Case of WAPDA

CHAPTER # 1

INTRODUCTION

Energy and Power has turned into an essential requirement for the economic progress of any
country. From one point of view, it is consumed for agricultural and industrial aims also needed
for household use of the society. Pakistan is experiencing a significant energy crisis in natural
gas, power and oil which bring to an end the economic development.

The newest and probably the trickiest crises confronted by Pakistani nation nowadays is the lack
of electricity supply. Therefore the country is facing an enormous power crisis currently.

The Pakistan Water and Power Development Authority were formed in 1958 as a Semi-
governing organization; the goal of this organization is to coordinate and provide an integrated
path to the improvement and growth of plans in Water and Power zones. Before the creation of
WAPDA, Electricity and Irrigation section of the Provinces used to cope with the energy issues.

The demand of electricity is growing at an average rate of 9.5% whereas because of older plants
electricity generation is diminishing resulting in severest energy crisis in history of Pakistan.

Researchers and experts have evaluated that the electric energy production projects are inferior at
their capacity and they would not be able to meet the heaving electricity demands. The situation
so far has hardly changed and it has been officially declared that since last 10 years not a single
megawatt is added into production.

WAPDA is experiencing bureaucratic, administrative and managerial weaknesses. It has bear

mutual direct and indirect losses that have occurred due to these utilities from 1996 to up till

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now. These losses have produced great financial deficiencies that are covered by imposing taxes
and by borrowings.

The International Monetary Fund (IMF), and the World Bank, both major donor organizations to
Pakistan have stressed even greater reform in the public institution and the public energy sector
where progress has been slow.

Pakistan Corruption Index Notes

The Corruption Perceptions Index ranks countries and territories based on how corrupt their
public sector is perceived to be. A country or territory’s score indicates the perceived level of
public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean).

Actual Previous Highest Lowest Dates Unit Frequency

30.0 29.0 30.0 10.0 1995-2016 Points Yearly

Broad Problem:

It is the mandate of WAPDA to provide electricity to house hold and business concern. WAPDA
is unable to do so and the basic and foremost reason is inefficiencies and corruption. To meet the
energy needs WAPDA is generating energy on emergency basis and cost of energy production is

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higher. At the same time the Pakistan government is borrowing money from World Bank and
IMF and they are unable to utilize this loan money on different power project effectively.
WAPDA is facing the electricity shortage due to ageing generation equipment and inefficient old
technology, Waste of energy due to line losses (technical and theft), Up gradation of distribution
network.

Problem Statement:

The main problem is that since day one the WAPDA is facing huge losses. The WAPDA is
unable to produce and provide electricity due to its inefficiency and ineffectiveness. The
household and business community is suffering due to corruption. On the other hand WAPDA
has to increase its tariffs due to International Monetary Fund imposition of conditions, so that
government of Pakistan can return back the loan it has taken from IMF. Whereas, electricity
tariffs are very low in the world even neighboring country India is charging the low electricity
tariffs. The project will study and explore that WAPDA is inefficient and underperforming due
to corruption.

Objectives of study:

The rationale of this research is to explore the effect of corruption on public sector organization.
The project will study and explore the role of government involvement WAPDA in particular
and public sector organization in general. The project will focus to eliminate or minimize
corruption in WAPDA specifically and public sector organization commonly.

The core objective of this study is to investigate the role of corruption in WAPDA. Total power
generation capacity of Pakistan is 19,855 MW whereas the electricity demand is 14,500 MW
while PEPCO is merely generating 10,000 MW. Hence, it is clear that these 15-20 hours load
shedding in various areas of Pakistan is not due to lack of electric production capacity, but
because of the incapability, inefficiency and ineffectiveness of WAPDA, which is due to
corruption.

Type of Study:

This study is an exploratory research which provides detailed information about the impact of
corruption in WAPDA and this study will also try to explore the reasons behind it. Nowadays

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every organization is facing the problems of corruption in the shape of fraud, nepotism,
favoritism, bribery etc which is affecting performance, efficiency and effectiveness of
organization. This research will try to prove that when an organization controls the corruption
then it leads to an increase in efficiency, effectiveness and performance.

Significance of Study:

As we know that there is always shortage of electricity and load shedding in Pakistan, so this
research will try to find out the reason behind it. After finding out the reason, the study will give
suggestions in the project for improving the organizational efficiencies and reducing the
corruption, which are main reasons behind poor organizational performance.

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 CHAPTER # 2

LITERATURE REVIEW

Corruption defined as a misuse of entrusted power for private benefit is unfortunately common in
Pakistan. No structure, no tier and no office of public sector is immune from it. Its spread is
enormous.”Corruption manifests itself in various forms in Pakistan including widespread
financial and political corruption and nepotism, and misuse of power. Both pretty and grand
corruptions are prevalent in the country”. (Chene, 2008) “The level of corruption in the society
ultimately depends on the values and morals of that society” (Vittal, Mahalingam, 2004).Over
the period acceptability of corruption has rather increased in the society and there is little
evidence that people feel guilty about their own role in corruption. The scale of corruption is
highest in development projects and procurement (including defense and public sector
corporations) and the bank loan write offs. as per the perception survey carried out by
Transparency international Pakistan power sector is among the most prominent department
which is causing huge losses to government which are about Rs.200 billion yearly.

The aim of this project is to study corruption prevailing in WAPDA and its effect on the
organizational performance. These days corruption is getting a lot of attention from scholars all
around the world. An investigation by Transparency international identified 4000 journals,
articles and books presented during the last ten years whose core subject was corruption. (Global
Corruption Report, 2001) corruption is using authority or power to gain private remuneration.
Its survival shows a lack of esteem for the rules and regulations that govern economic
interactions in the society (Kaufmenn et al, 2003).

According to Luo (2005) an organization is a fundamental unit of corruption performance. The

bulk of corruption occurs between business society and political organization, both locally and
globally.

Braguinsky (1996) defines it as ‘stealing of government assets or revenue made possible

through government regulations’ from short term viewpoint, it can be argued that corruption can
assist in diminishing costs of a particular transaction from enlarged institutional privileges or
decreased regulatory hurdles (Bunker and Cohen, 1983;Schliefer andVishny,1993).But form

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long term perspective it can make the organization experience many hidden damages or price
that are so harmful that no solitary transaction gain can pay compensation.

Therefore the study will focus on how corruption affects the organizational performance,
organizational efficiency as well as organizational effectiveness.

Organizations differ in how well they perform. This can be because they are different in their
strategic point as well as their competitive abilities.

Organizations participate intentionally in competition with one another for seeking advantage. A
main quality of that competition is competitive emulation. Poor performance rankings are
interpreted by potential competitors as indicators that a practice does not work or a market does
not exit, thus slow down emulation and competition, in that way decreasing the competitive
pressure and progressing the relative performance. Good performance ranking, on the other hand
not only appreciate but they also encourage emulation and competition that tend to erode a
favorable position. Organizations imitate the performance achievement of others by imitating
their organizational structure and practice. This practice is institutionalized through theory of
“best practice” and in the actions of administrative media and experts.

Contemporary research has aroused the question of how much performance is appraised by firm
position and how much emerge to be idiosyncratic. Two organizations (e.g . , Hansen and
Werner felt, 1989; Rumalt, 1991; Henderson and Cockburn, 1994). For which William et al
(1994) proposed an evolutionary model in which there is a trade-off between these two sources
of advantage. In a raw evolutionary model,rivalry both selection and learning-leaving
organizations with the ability to act upon greater.

According to the Heck et al (1990), leadership efforts aimed at organizing the job structure and
erecting an affirmative atmosphere in organization were directly related to superior or inferior
performance results.

An organization’s employee selection exercise, evolution of performance and premium for

performance are strongly linked to organizational performance. So to improve organizational
performance developing successful methods of recruiting, accessing and reimbursing employees
is required.

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Kravetz(1988) amplified Kanter’s findings show that management exercises nurturing
involvement, independence and innovations were directly correlated with goal indicator of
organizational performance. Hansen and Werner felt (1989) contrasted the sound effects of
inner organizations and market position on performance. Their study demonstrated that inner
organizational features were stronger predictors than market position and these two predictors
were not related. Based on the current situation and literature the study testifies:

It is proposed that corruption is associated with organizational performance.

Therefore this study will focus on relationship between organizational performance and
corruption and how corruption affects organizational performance.

Organizational effectiveness the concept of how effective affective an organization is in

accomplishing the results the organization aim to produce.

Goal attainment model defines organizational effectiveness in terms of the extent to which the
organization accomplish its target and objective (Price, 1968, 1972; Steers, 1975)

Recently, Goodman, Atkin and Schoorman (1989) called for a suspension on conventional
studies of organizational effectiveness. They explained that the experimental literature to date
has not been enough to recognize the effectiveness of organizations. Other Authors have
criticized the literature on effectiveness classifying it “In conceptual disorder”. (Connolly,
Conlon and Deutach 1980), and “In a confused state of affairs” (Nord 1983). Furthermore,
others have also connected for an elimination of effectiveness study in the organizational
disciplines (Hannan and Freeman 1977). Based on the literature, the study asserts:

The higher the corruption, the lower then organizational effectiveness.

So this study will analyze the correlation between corruption and organizational effectiveness.

Assessing efficiency of an organization is about the affiliation between the outputs it generates
and the input it utilize. An efficient organization is one that generates the maximum outputs
given its inputs, or that generates the definite level of output with least amount of input.
Measuring public sector efficiency (Green Budget, January 2003).

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Enhancing efficiency is currently the over ruling goal of public sector reforms in many African
countries, “as it is the holy Grail or Sangrall of reforms attempt in the north”. (Wright, 1997:11).
It is suitable to begin the study of efficiency assessment with a brief description of the world
bank position, because it stay highly significant in forming the language and practice of public
sector reform in the state. Therefore few years back the World bank (1994: 99 ) described that a
public sector lies in the middle of the stagnation and decline in development in Africa. Besides,
augmented competition in service sector including private and public sector is required to raise
efficiency. That indicates not just “less government but better government”.

Today is transformation initiatives are going on at an era when only some are ready to protect
the status quo. As Mkandwire and Soludo (1999: 135) wrote that the necessity to transform
African managerial structure to make sure efficiency and lessen the chances of corruption is
obvious. So is the necessity to raise democratic answer ability.

Many autonomous observers agree that public sector organizations in poor countries perform
badly, still considering the difficult situation they work in. To varying extent they endure from a
numeral bureau pathologies, inefficiency, centralization, fragmentation, poor leadership, lack of
capability, patrimonial ism, and rent looking for corruption and poor accountability and
legitimacy. The need to improve efficiency an accountability is therefore obvious (Ayoade,
1988: 107.111; Kiggundu, 1998; Mkandwire and Soludo, 1999: 135; Mukandala, 1992;
Mutahaba et al . ,1993; Olowu, 1999). The available information is proposing the general and
fundamentally the “silent stakeholder” of transformation and reforms.

Government service sector has formed successfully instrument of public outsourcing today.
Public sector outsourcing is still anonymous inspite of its importance as a public policy issue
even great number of study has been done in this sector. Conventional analyzes of the issue have
focused on the issue relating to competition and ownership as the key determinants of success.
The effects of public sector outsourcing are best seen through corresponding lenses by ways of
Risk and incentives. Thus that efficient contracts involve balancing risk and incentives is
renowned in labor and information economics (for a survey, See Prendergast, 1999, and
Andersen and Sechittlein, 1984; John and Vitz, 1989).

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The study support the controversy that the private firm is more economically efficient than the
public firm. Based on this literature, the study testifies:

The higher the corruption lower will be the organizational efficiency.

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 CHAPTER # 3

CONCLUSION

WAPDA is basically a colossal monopoly that along with being consistent to the image of
monopolies i.e. bad for the society and the consumers, is somehow beneficial as well. Absence
of competition in the organization leads to monopoly so that WAPDA is free to fixing the rate of
power in Pakistan, this is badly effecting general public and industrial sector which also leads
towards the profit and revenue for the organization.

WAPDA is not achieving the criteria of effective organization as due to bureaucratic structure of
the organization it is not adaptive and cannot change easily, there is also less coordination among
departments. Although employee motivation was low. Therefore corruption affects the
organizational effectiveness because the organizational structure of WAPDA is difficult to
change.

WAPDA is facing efficiency problems also because of non-billing or non-payment of bills in

most of the areas of the country and high distribution losses that are mainly due to electricity
theft. In order to improve organizational efficiency of WAPDA there is a need of accountability,
which will also help in combating corruption.

Increased competition in service provision, both with the private sector and in the public sector
itself, is required in order to raise efficiency. This means not just less government but better
government.

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 CHAPTER # 4

RECOMMENDATIONS

1. The management of WAPDA should take action to eliminate the corruption which is the
form of bribery, nepotism, embezzlement and extortion. It should strengthen its policies
and procedures to ensure transparent hiring and promotion, prevent possible corruption
which may occur during hiring and promotion and prevent the creation of phantom jobs
to promote and support political support.
2. More transparent procurement process should be introduced to promote competition and
put off potential corrupt activities and aequate administrative procedures for the company
to abide by.
3. The culture of the organization also needs to be changed. People mindsets could be
changed by giving them more education and awareness and by discouraging the use of
unfair means.
4. It is also important to raise the pays of employees according to their performance,
experiences and market situation because due to getting very low salary, some employees
are helpless but to accept a bribe for their livelihood.
5. WAPDA ought to understand their weaknesses in administration and they need to
strengthen accountability. Accountability related to WAPDA’s employee requires taking
individual responsibility for action and in action.
6. WAPDA should increase the transparency of the processes through use of online
monitoring for making the process more visible.
7. For being effective, WAPDA should pay keen attention in subsequent areas: Leadership/
Guidance, Decision making, Structuring, Employees, Systems and Process, Culture.
8. Governance should be based on sound and objective business principles, as opposed to
political pressures and should generate confidence in the investment community. Only
good governance can eliminate corruption.
9. WAPDA should restructure itself from bureaucratic to functional lines, and other
adjustments made to the organizational structure through careful review of the best
approach for managing the company’s obligations.

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 CHAPTER # 5

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