What are the Special Problems of Public Utilities?


Due to their special features, public utility concerns have to face certain specific problems in connection with the selection of site, size of the business, marketing of services, and organisaiton and management. Some of these problems are described below:

1. Plant location:

Usually, a public utility has no choice as to the site for the location of its plant. The choice of location is confined to the city or town for which the concern has been granted franchise.


The plant has to be located at the site fixed by the Government. Public utilities have to depend upon the government for the availability of space as they require large areas for their operations.

2. Size of business:

In general the size of a public utility concern has to be quite large. It cannot operate efficiently below a certain minimum size for three reasons.

First, huge amount of fixed capital required for such a concern can be provided only by large-scale enterprises.


Sec­ondly, a public utility concern has to start its operations at a full swing in the very beginning. It is not possible to begin with a small size and to expand gradually like other business concerns.

Thirdly, a single public utility concern is required to supply services to the entire population of a particular area.

3. Marketing problem:

A public utility concern has to face little problem in selling its services because it has not to face competition. The services are standardised and essential. There is no need for advertising or salesmanship.


But, a public utility concern must provide efficient and courteous services. In some cases like transport and postal services, the consumers come into frequent contact with the operators.

Therefore, the employees of the concern must be courteous to the consumers. In order to maintain harmonious relationship with the public and to keep the consumers fully informed of time schedules, special services, etc., a public relations department becomes necessary.

There are no middlemen and a public utility concern provides direct services. In many cases, the service has to be provided at the premises of the consumer, e.g., water, electricity, gas, etc. There are no problems of credit, collection and bad debts as sales are made generally on cash basis.

4. Ownership and management:


Public utility concerns are generally owned and operated by the Government. Private enterprise is not considered suitable for such concerns because of the need for public regulation and control. Public ownership and control of public utilities may be secured in the following forms:

(a) Departmental undertaking:

Some public utility concerns may be organised as depart­ments of the Central or State Government. Railways, Posts and telegraphs. U.P. Roadways and Punjab Roadways are examples of such public utilities in India. Under this form of organisation, a public utility concern works under the control of a ministry.

The finances are provided by the Government through annual appropriations from the treasury and all revenues are also paid into the treasury. The main advantage of this form of organisation is that it ensures sufficient public control by the Government officials and the Parliament.


But the departmental form lacks the flexibility necessary for the supply of efficient and prompt services to the public.

(b) Municipal bodies:

In India, majority of the public utility concerns are operated by municipalities or other local bodies. The local body consists of the elected representatives from the local population.

It constitutes sub committees to look after the day-to-day administration of the public utility concern. Permanent officials of the local body assist these sub-committees.

For theoretically, municipal form of organisation appears to be fully democratic because the elected representatives of the public exercise direct control over the management of a public utility concern.

The local body can readily take up the local problems to protect the public interest. But the elected representatives may not be competent enough to manage the concern efficiently.

They may think in terms of narrow interests of particular constituency. Political rang- lings may interfere with the efficient supply of essential services. This has been revealed clearly by the frequent breakdown of power and water supply in Delhi.

(c) Public corporation:

A public utility concern may also be organised as public corpo­ration which is an autonomous body set up under a special Act or statute. The Act describes its powers, functions and jurisdiction.

It is financially independent and is managed by separate Board of Directors. Public corporation is a very useful form of organisation for public utility concerns because it combines the merits of public accountability and flexibility. It is a separate legal entity directly accountable to the Parliament or State Legislature.

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