PERFORMANCE CONTRACT

BETWEEN

CHIEF EXECUTIVE OFFICER, IESCO

AND

SDO (E) F-6

FOR

FY 2009-2010 TO FY 2013-14

Preamble

This Performance Contract (hereinafter referred to as the “Contract”) is entered between the Government of Pakistan through the Ministry of Water & Power, hereinafter referred to as “GOP” or the “MOWP” and the Islamabad Electric Supply Company Limited, hereinafter referred to as the “Company”.

Whereas,

1)The GOP/MOWP is committed to ensure that the Company is well managed and deliver efficient and quality service to the electricity consumers at the minimum cost possible

2)The GOP recognizes that the Company holds vital key to improving performance.

3)GOP/MOWP to ensure that the Company is allowed adequate and reasonable managerial and operational autonomy so that theCompanycould achieve the agreed performance targets set out in this Contract.

4)GOP/MOWP to ensure that the BOD of the Company has fair representation of each relevant field including engineering, finance and management.

5)The Company had indicated its capacity and competence to perform the duties and undertake the functions specified herein.

6)The Contract will represent a basis for similar contracts to be entered between the parties for the subsequentyears.

7)The objective of these contracts is to ensure continuous improvement by designating specific responsibilities and encouraging the management and the employees of the Company to act for the wellbeing of the Company by making them partner in Company’s success.

8)GOP to stimulateand strengthen National Electric Power Regulatory Authority (NEPRA) to act as the monitoring agency andreport on Company’s performance to the MOWP/GOPin accordance with the guidelines of this Contract.

Now therefore, the parties hereto agree as follows:

Part – ICompany’s Vision & Mission

a)Vision

To Promote Good Corporate governance & values by applying high level of professional Standards

b)Mission

To Promote Good Corporate governance & values by applying high level of professional Standards

c)Objectives

To bring a “ CHANGE” in the traditional structure & working pattern of electricity distribution companies of Pakistan

To generate profit for the growth of National Economy

To produce environment conducive for the working of professional, honest & dedicated employees.

To increase efficiency in all the departments of organization.

Part - IICompany Responsibilities & Commitments

Following actions are required to be undertaken by the Company for effective implementation of the Contract:

1)Implement the approvedstrategic business plan to ensure achievements of the agreed targets

2)Board of Directors of the Company shall review the performance targets given in this contract in its periodic meetings at least on a quarterly basis and committees of the BOD shall be formed, who will ensure effective implementation of the strategic business plan.

3)Set performance targets and establish performance monitoring and control mechanisms within the Company at all levels (i.e. for each circle, division, sub-division, line and employee) within onemonthof the signing of this contract.

4)Formulate an HR policy covering basic features of the Contract; including reward/penalty mechanism, employee training, substitute plan etc.

5)Prepare, train and motivate employees to perform their duties efficiently and diligently in the best interest of the Company through structured training programs and incentive schemes as envisaged in this Contract.

  • Each employee should have at least five days of training per year as a mandatory requirement.
  • Share the reward among the employees in an equitablemanner to commensuratewith the performance and contribution of each employee towards achieving overall corporate objectives.
  • In case of transfers, reward/penalty shall not be applicable unless the stay at the new post is for more than three months during the evaluation period. Similarly, employee’s performance will be determined based on his pre-transfer position as well as current position, provided the stay has been for more than three months.

6)Persistent underperformance of an individual employee i.e. achieving less than 80% of the target shall be penalized in following manner:

  • For the first year, penalty shall be putting a bar on promotion & increments and issuing a warning letter
  • Achieving less than 80% of the target for twoconsecutive years shall result in demotion
  • Underperformance for three years in total (either consecutive or cumulative)shall result in a loss of job.

7)Submit monthly, quarterly and annual performance reports incorporating Key Performance Indicators to the designated authorities (MOWP, NEPRA & PEPCO)within the giventime.

8)Company shall create or reactivate the Strategic Business Unit for implementation of the Contract. SBU shall be served by a full-time secretary to act as the focal person and custodian of the data.

9)Company shall conduct an independent year-end operational audit of the Company.

Part - IIIPerformance Evaluation Parameters & Targets

Performance targets shall cover major activities of the Company and the performance shall be measured in a quantifiable wayfor the following categories according to the assigned weights:

CategoryWeight

  1. Operational & Commercial Performance50%
  2. Financial Performance8%
  3. Investment Project Implementation 15%
  4. Customer Relations Management5%
  5. Human Resource Management 12%
  6. Safety Management 10%

‘Performance Evaluation Matrix’ and ‘Explanatory Notes’ attached as Annexure I and Annexure II respectively form an integral part of this Contract.

Part IVGOP Support and Obligations

The following GOP support shall be required with a view to enable the Company to achieve its objectives and targets:

1)GOP/MOWP to ensure that the Company has full corporate autonomy in their business and commercial operations.

2)GOP/MOWP to ensure notification and implementation of NEPRA determined tariff within the stipulated time.

3)GOP/MOWP to strictly adhere to the regulatory standards and procedures regarding tariff adjustments including monthly adjustments on account of variations in the fuel cost/power purchase price

4)GOP shall support the Company in clearing the outstanding dues from the government and government controlled entities.

5)GOP to provide adequate security cover to the employees particularly where law and order is a serious concern.

6)GOP/MOWP to ensure no interference in Company’s routine operations particularly in matters regarding disconnections due to overdue payments, HR, etc.

7)GOP shall support the Company to obtain soft long term bilateral and multilateral external financial assistance in executing projects geared towards improving efficiency and customer service.

8)GOP to ensure that the MOWP(in consultation with NEPRA) continues to set the performance parameters and targets for each subsequent fiscal year and will hold the management of the Company accountable for its poor performance while rewarding for improved performance.

9)GOP shall authorize and enable NEPRA to conduct periodic performance review.

Part VMonitoring Process & Reward Mechanism

1)For regular monitoring of each parameter, the following procedures shall be adopted.

  1. Monthly Flash Reports (MFR) to be sent to the MOWP, NEPRA and PEPCO containing monthly and year-to-date performance indicators by the 15th of each following month.
  2. Quarterly Performance Review Meeting by the MOWP to be held within ten days of the submission of the end-quarter MFR
  3. Annual Performance Review (APR) and decision on the incentives/penalties should be made at the end of the fiscal year but not later than October 15.

Incentive for an individual employee shall be a product of performance score above target (i.e. achieving a score of more than 50) and [x] months of salary calculated as per the following formula:

Individual Incentive = 2 * [Max (0, Individual Score – 50)/100] * [(x * Monthly Salary]

Subject to the following conditions:

  1. Sum of incentive amounts will be capped depending upon the overall Company performance. Formula for the cap on total incentive is given below:

Cap on Total Incentive = 2 * [Max (0, Total Score – 50)/100] *

[x * Total monthly salary of employees performing above target]

  1. In case, Company’s Performance Score is below 50 and yet there are employees who have scored above target, reward may be given to high achievers at Company’s own discretion.

2)The year-end performance evaluation of the Company shall be done by NEPRA.

3)Underperformance of a sub-division because of force majeure (including natural disasters, war, etc)shall not be factored in to Company’s performance.

4)Calculations for the incentive amount shall be prepared by the SBU, which shall be verified by the internal audit for onward distribution.

Part VIDuration of the Performance Contract

The Performance Contract will run for a period of five years starting from July 1, 2009 to June 30, 2014. However,performance indicators shall be reviewed and renegotiatedfor eachyear.

Raja Abdul Ghafoor
Chief Executive Officer
Islamabad Electric Supply Company Limited (IESCO) / Imtiaz Nadeem
SDO (E) F-6
IESCO, Islamabad