Private Sector Participation in Distribution

Puneet Munjal, Sr. GM TATA POWER DELHI DISTRIBUTION LIMITED

(formerly North Delhi Power Limited)Dec 23, 2011

ContentsSetting the ContextSetting the Context

• Key Issues in the Distribution Sector• Need for Private Sector Participation

Tata Power Delhi Distribution Limited (A PPP Model)Tata Power Delhi Distribution Limited (A PPP Model)

• Pre Reforms Situation in Delhi• Reforms Objectives• Delhi PPP Model• About Tata Power Delhi Distribution Limited• Our Turnaround Story

• Initiatives• AT&C Loss Reduction• Reliability• Consumer Service Excellence• Change Management• Corporate Sustainability

Key Issues in the Distribution Sector (1/3)• High Aggregate Technical and Commercial

Losses• National Average at 26-28%

• Absence of Cost Reflective Tariffs• Huge Revenue Gaps for discoms on account of

Deferred Tariffs: creation of Regulatory Assets not in favor of anyone except bankers !

• Incorrect economic signals to consumers on consumption vis-à-vis price

• As per Plng. Commission’s HLP Report, losses of SEBs at end of 2010 at Rs. 1,07,000 Cr; to increase to app. 2,90,000 Cr. by end of XII Plan (2017) at existing tariffs

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Source: PFC Report on Performance of Power Utilities 2009-10

Source: PFC Report on Performance of Power Utilities 2009-10

Deteriorating Financial Health of DISCOMS; Banks limiting/ restricting exposure to Power Distribution Sector

Key Issues in the Distribution Sector (2/3)• Huge Cross subsidies built into

existing tariff structures• Major inhibitor to introduction of

Competition under Open Access Framework

• Insignificant progress towards Tariff Rationalization in line with NTP

• Spiraling Generation Tariffs• No control on Input (Coal/ Gas cost for

Power Generation) but output cost (Retail Tariff) is controlled

• Dissonance between Generation and Distribution Regulations – while in Distt., efficiency is expected to be brought annually in O&M Costs (RPI- X), no such requirement in Generation.

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Source: PFC Report on Performance of Power Utilities 2009-10

• Competition

Open Access yet to take off

Need for Private Sector Participation• Professional and Accountable Management

• Introduction of Best Practices

• Agility in decision making

• Attract talent in the Distribution Sector

• Responsiveness to consumer expectations

• Ability to inculcate Performance Orientation in Employees

• Equity contribution by private players can free scarce state resources for public use

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State Owned

Current Scenario (More than 85% state owned)

PPP

DF

What can private

participation offer ?

Private participation – insulates Utility from Political Interference ; runs utility on Commercial principles

Pvt

Need for Private Sector Participation

• Observation of High Level Panel studying various distribution models in India• Govt. owned utilities have to perform within a rigid framework coupled with low

levels of accountabilityWhile,

Private Utilities enjoy greater flexibility in operations, are more focused on their actual businesses and have greater individual accountability at all levels

• To raise high density areas to optimum levels of efficiency and performance, these should be carved out into separate entities and privatized

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Some Pre Requisites for Private Sector Participation

• Sustainable Business Model• Reasonable Return after recovery of costs• Clean Balance Sheets

• Reasonably Accurate Baseline• Stable Regulatory Regime: MYT Policy• Cost Reflective Tariffs• Govt. Support for

• Transition • Loss Reduction : Police Force, Special Courts

• Freedom to select employees (maybe restricted)

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Models for Private Participation

Sale of 51% Equity to Pvt. Player PPP Model

Delhi / Orissa Discoms

• Distribution Companies privatized by Govt. through sale of majority stake

• License-based Regulated business – license for 25 years

• AT&C loss targets as bid variable; Guaranteed 16% RoE on meeting AT&C Loss Reduction Targets.

• Tariff set by regulator on cost plus RoE.

• Overachievement gains shared with consumer

• Transition Support by Govt.• Performance Assurance Standards

vested with licensee

Franchisee ModelBhiwandi

• Licensee appoints franchisee for a tenor of 15-20 yrs

• Input Rate for Bulk Power as bid variable

• Assets transferred to Franchisee on license to use basis

• Franchisee Tariff similar to that of remaining licensee area

• Performance Standards of licensee to be maintained by Franchisee

• Franchisee insulated from direct Regulatory Oversight; Licensee adopts the Regulatory Role

Concession Based PPP Model(under consideration)

• Long Term Concession – BOOT basis• Assets transferred to Concessionaire

on License to Use Basis; to be returned to Concession Granting Agency on termination of Concession Agreement

• Bid Evaluation Criteria – positive / negative Viability Gap Funding Requirement based on a pre-determined wheeling tariff

• Regulator to only fix the Retail Supply Tariff based on actual cost of input

• Penalties/ Incentives for over/underachieving Performance Assurance Standards – to be specified in the RFP/ Concession Agreement

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Tata Power Delhi Distribution Limited

(A PPP Model)

Joint Venture between Tata Power (51%) and Govt. of Delhi (49%)

Distributing Electricity in North and North West of Delhi

Pre Reforms Situation in Delhi

Billing Receivables Close to 1 year Outstanding

Lack of accountability, initiative & service orientation in ageing and semi skilled workforce

Harassed Consumers- Large no. of Complaints and Requests Backlog

Burgeoning Aggregate Technical & Commercial (AT&C) Losses - 50% - 60%

Condition of Network Pathetic – supply system on the verge of collapse

Govt. Subsidies of ~ Rs. 1200-1400 Cr. p.a.

Ill maintained administrative infrastructure and no IT Enablement

Sector becoming increasingly unviable leading to decision to reform through unbundling and privatization

Pre 2002 Delhi Electricity Board – A Vertically Integrated Utility

Reforms Objectives

Reduction in AT&C Losses

Focus on Consumer ServiceAttract investment

Improvement in Quality of

supply

Make Sector Self Sustaining

Delhi PPP Model: 2002

Integrated SEB unbundled: Generation, Transmission and three Discoms

Discoms privatized (51%) through sale of majority stake at par value

AT&C Loss Reduction Commitment: Sole Bid Evaluation Criteria

Clean Balance Sheets with only serviceable liabilities

Guaranteed 16% RoE on meeting AT&C Loss Reduction Targets

Overachievement gains shared equally between Utility & Consumers

Transition Support by Govt. to Transco – (Rs. 3,450 Cr. over first five years) to cover Transco’s deficit which was to be paid by Discoms for Power on Capacity to Pay basis

Power Purchase cost to Discoms subsidized through Govt. owned Bulk Buyer Transco to prevent tariff shocks

Delhi PPP Model:2002

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Government Oversight through Board Shareholders Agreement between Govt. of Delhi (49%) and Tata Power (51%)

Salient Features of Shareholder Agreement are as follows:

Private Entity entitled to appoint MD/ CEO and all other Executive Directors of the Company. Govt. Nominees on Discoms’ Board of Directors – One less than Majority Shareholder. Quorums for Board Meetings – at least one Govt. Nominee Director to be present Approval of Govt. Directors essential in critical matters till the Govt. Entity holds 10% or more of

Discom Equity Govt. Partner Entity entitled to examine books and accounts kept by the Discoms and to be supplied

with all relevant information including quarterly management account and operating statistics. Prior intimation to Govt. Partner Entity for transfer of shares in excess of 26% of total equity share

capital First Right of Refusal on Sale of Shares with both Shareholders

Fully protects the interest of the Government and citizens at large

Delhi PPP Model:2002

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Regulatory Oversight

• License issued by the DERC w.e.f. March 12, 2004 for distribution and retail supply of power in North and North West Areas of Delhi.

• The same is valid for a period of 25 years from this date.

• The Licence may be renewed by the DERC for such further period or periods and on such terms and conditions, as it may consider appropriate

• • The Licence lays down the Terms and Conditions for operation of the License together with

the conditions under which the Licence can be suspended / revoked.

Our Turnaround Story

About Tata Power Delhi Distribution Limited

• The Tata Power Company Ltd. and Govt. of Delhi JV (51:49)

• License Area : N. Delhi- 510 sq. km

• Consumer Base : 1.1 Mln ; serving population of 5 Mln

• Peak Load Served : ~ 1300 MW

• Employee Base : 3998

Tata Power Delhi Distribution : ISO 9001, 14001, 27001 ; SA 8000 Certified

Tata Power : Largest Integrated Power Co. in Private Sector

Our inheritance

17

Dilapi

date

d

Networ

k

1,00,000 Billing Complaints

20,000 New ConnectionsErroneous consumer database

Un-reliable Power SituationTransformers’ failure rate 11%

Absence of key management functions like HR,

Finance, Governance etc.

Bleeding with 53.1 % Technical & Commercial losses

No Computerization / Automation /

Tracking and MonitoringA workforce of 5600

employees with little skill set

Long

Que

ues

Our Sustainability Philosophy

Consumer Service Excellence

Operational Excellence

AT&C Loss Reduction

Care for Community

Care for Environment

Areas of Focus

Becoming Carbon Neutral

Drivers

Skilled & Motivated Workforce

Innovative Technology Adaptation

Passion for excellence

Success Parameters

Improving CSI Score

Reliability Indices

ATC Levels

TCCI ScoreAA Score

Safety

Consumer Centric Inclusive Approach

Shareholder Value

Care for Environment

Care for Community

Customer Excellence

Tata Power Delhi Distribution Limited: Snapshot of Turnaround

Parameter UoM July 2002 (on takeover)

2010-11 % change

AT&C Losses % 53.10 13.2 75.1System Reliability – ASAI % 70 99.9 42.7Transformer Failure Rate % 11 1.10 90Length of Network Ckt. Km 6750 10034 48.6Power Transformation Capacity MVA 1730 3209 85.5

Distribution Transformation Capacity MVA 1926 4160 116

New Connection Energization Time Days 51.8 7.3 85.9

Peak Load MW 930 1313 41.1

Number of Consumers Nos. ‘000 700 1184 69.1

Number of employees Nos. 5600 3981 28.9

Street Light Functionality % 40 99.1 147.7

Capex Incurred (Cumulative) Rs. Cr. 920 3663 298.1

Consumer Satisfaction Index % - 88 -Employee Satisfaction Index % - 72 -

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AT&C Loss Reduction

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• Consistently overachieved AT&C Loss Reduction Targets• Saved over Rs. 6500 Crs. for Exchequer over last 9 years• Pre-paid to Govt. its 552 Cr. Opening Balance Sheet Loan in the fourth year against 13 years tenor• Started paying dividends from the 4th year of operation

Initiatives Undertaken

I. AT&C Loss Reduction Initiatives (1/2)

• Energy Audit up to the DT level – prioritizing focus • HVDS & LT ABC Implementation – Technology interventions for theft prevention • Replacement of Electromechanical meters with Electronic meters • AMR for all High Revenue consumers – 70% of Total Revenue• Aggressive Enforcement activities with scientific inputs & analysis

Energy Audit at 4 levels HVDS LT ABC AMR

AT&C Loss Reduction Initiatives (2/2)• Collaboration with NGOs – awareness creation across LA especially slums• Public participation in controlling Theft through Community pressure • Separate Segment for consumers at Bottom of Pyramid –Sp. Consumer Group

• Employment Oriented Vocational Trainings - “ Creating Capacity in consumers to pay before asking them to pay”

Removed Hooks after Raid New Connection Camps

Red Colored Bills for Default

Government

Govt. Exp. On Distt. Sector minimized

Shareholders

Handsome ReturnsRoE :CAGR 21%

Meeting Reforms Objectives

Consumers• 24x7 Supply of Power

• Moderate Tariffs

II. Reliability Improvement (1/2)• Focused approach to improving Network Reliability & N-1 redundancy• Capital works of over Rs. 2743 Crs commissioned in 9 years on an acquired asset

base of Rs. 920 Crs• Innovative Technology Adaptation: Various Work Systems automated and

integrated to improve Reliability and Efficiency• Many Firsts:

SMS Based Fault Management System Unmanned Grids Packaged Substation

SCADA GIS

Reliability Improvement(2/2)

Energy Security• PPAs

• Executed long term PPAs for appr. 1700 MW over 1281 MW allocated

• Own Generation• Establishing 108 MW Gas Based Power Plant• Enables supply continuity to critical installations even

during Grid Collapse• Developing Renewable Portfolio• Established first operational MW SPV Plant in Delhi

Consumers

Improved Service Quality

Government

Enhanced Consumer Satisfaction

AddressingReform Objectives

Consumers

Reliable Power Supply

TPDDL Generation Plant at Delhi

1 MW SPV at Delhi

III. Consumer Service Excellence (1/3)

• Revamping Consumer Experience• BPR of Revenue Management Cycle• Integrated Commercial Software

developed in-house to automate workflow

• 14 Fully networked consumer care centers

• Call Centers for No Supply and Commercial Complaints

• The SUGAM Experience – Billing database of 100% of consumers on website

Business Process Reengineering of RCM

Sugam - website Commercial Call Center

Consumer Service Excellence (2/3)• Innovative Consumer Offerings in Delhi Distribution Sector

Benchmarked to Banking industry

• Door Step Delivery of New connections

• SMS based pull services

• Instant Connection

• Video conferencing for Consumers

• E-Bills

• Automatic Cash/Cheque Collection machines

Consumer Service Excellence (3/3)• Inclusive Approach

• Meetings with RWA /IWA• Segmented Consumer meets

• Segment wise Relationship Approaches• Client & Account Managers for

Xpress, KCG & HRB consumers• Consumer Relationship Officers

(CROs) for HCB Consumers.• Special Consumer Group

RWA/IW

A Meetings in Progress

Consumers

Redefined Service Delivery

AddressingReform Objectives

Government

Enhanced Consumer Satisfaction

IV. Change Management(1/2)

• Organization Performance Alignment through BSC Approach

TPDDL entered “BSC Hall of Fame” in 2008 for its effective use of BSC to attain organizational objectives

Change Management (2/2)

• Capability Development & Knowledge Management• Training Center- CENPEID for own and other Utilities employees• Sanchay (Repository) – Knowledge Management Portal linking all employees• SEEKH (Learning) – Platform for Sharing of Best Practices and Knowledge• TPDDL Innoverse and SHINE – Fostering culture of innovation & improvement

• Multiple Communication Forums to encourage employee participation• SAMVAD (Dialogue Sessions) constituted for two way communication.• Joint Interaction Forums• Meet the CEO• SARTHI (Helpdesk)launched to capture and resolve Employee Grievances• Multilingual Newsletters for internal communication

Consumers

Consumer Centric Employees

AddressingReform Objectives

Employees

Learning & Growth

Only Utility in the Country to be SA : 8000 Certified; also certified for PCMM-II

V. Corporate Sustainability (1/2)

• 3 pronged Inclusive Approach• Philanthropic • Compensatory• Business Oriented

• Affirmative Action to support Underprivileged through • Education• Employment• Employability• Entrepreneurship Development

Village Adoption Support to MS Patients

Free Health Camps Drug De-Addiction Camps

Energy Conservation Street Plays

Corporate Sustainability (2/2)

• Climate Change Initiatives• Carbon footprint reduced by 75% from 0.41 to 0.10 TCO2/Mwh (2002-

03 to 2010-11) on account of loss reduction

• Aspire to be Carbon Neutral and Water Neutral by 2014-15

• Renewable Projects – Roof Tops (5-10 MW)

• Water Harvesting projects being initiated at Grids in Phases

• Demand Side Management

• Green Village Project

• Delhi Water Utility Peak Shifting Project

• LED Hoardings & Streetlights

Thank You