Electrokit | IADB

Accounting and Financial Practices Cost Efficiency, transparency, and optimization

Cost Efficiency, transparency, and optimization

Characterization of all the processes necessary for the activity of electricity distribution, with description of the main activities of each one of them. These processes and activities are all those that imply direct action on consumers or facilities, such as activities in the regular commercial cycle, customer service and technical service, and operation and maintenance activities for electricity distribution facilities. For each of them, it is important to establish the efficient cost associated with each of the processes, using market prices as a reference, considering the price of contracting its execution or provision in the market when there is reasonable competitiveness. In cases where the market was not sufficiently developed, efficient cost was calculated based on the definition of the main tasks that make up the activity (materials and services).


Transparency: The rationale and objectives of performance budgeting are clearly documented and reflect the interests of stakeholders. Identifying the costs of any given function of commercial and technical activity is essential. For SOEs, the major issue is accounting for costs associated with fulfilling public service obligations (if applicable). If public service obligations are subsidized by the public purse, costs should be identified in a transparent manner to ensure neither overcompensation nor under-compensation. Some recommendations include transparency disclosing in proportion of shared costs with public purse; proportion of shared costs and assets that are attributed to commercial activities, when non-commercial activities are not conducted separately. The degree of subsidies disbursed by the State should be made transparent.

Operating Cost optimization is included in the infrastructure and equipment design phase and when planning facility operation and operation of the system. There is a plan to reduce operating unit costs and it includes annual objectives and monitoring of their fulfilment. Some actions can help reduce or control more routine operating costs:

a. Productivity: The company must have a system of control and management of productivity and production of crews working in the field based on the production performed. It is recommended to use concepts adapted from the OEE (overall equipment effectiveness).

b. Life cycle: It is necessary to check if the service life of the equipment operated below the life cycle established by the manufacturer and to investigate the reasons for this occurring.

c. New Asset: It must be constantly analyzed whether the maintenance and operating costs of equipment with a long-life span are not exceeding the cost of acquiring new assets.