Tuesday, January 1, 2013

I-U-KAN: Raising sustainable Indian Utilities - a unique approach and platform

I-U-KAN (India Utility Knowledge And Forum) is a broader umbrella for all Utilities (Power, Water, Waste, Gas, Transport etc.) and all Stakeholders (Govt., Public utilities, Private Operators, New entrants, Service Providers, Regulators, NGOs, Investors, Customers) to analyse holistic gaps, exchange ideas, build common grounds, and expedite the establishment of sustainable utilities in India.

In this, sustainability is defined in terms of 'three P's’ (i.e. Profit, People and Planet) - so utilities to become Profitable (whoever runs it – Govt. or Private co.); end-customers to get affordable, high quality Services and increased choices; and production & consumption to be optimized for best Environmental conservation.

But, why do we need such an all Stakeholder cross utility platform? Is stakeholder engagement really an issue, and even if it is, then does it have enough weight that it can act as bottleneck to all good efforts? Are there lessons to be learnt from other utilities that can expedite reforms?

To truly figure out whether the various types of stakeholder engagement is missing (if any), let us use an example from the Power Distribution Utility.

1. Central Govt. to Discoms:
R-APDRP, perhaps (in magnitude), holds the position as being one of the biggest infra investment project in the world. Although, the objectives and intentions were great, i.e. invest in Discoms (Distribution Company)  to adopt measurements, automation and Technology to improve loss reduction and enhance accountability. However, most experts would agree that it has not yielded the expected returns.

One major lacuna has been, missing capacity building in the Discoms to effectively use new Infra, tools and right processes. One example is the wasted GIS Customer Indexing effort, which is the first mandated activity for all utility projects. But, because of its inappropriate on-field execution and static nature, it hasn't yield much value in terms of any useful further integration into building strong CRM, and hence timely Revenue Assurance strategies.

Heaps of Energy Audit reports are being compiled, without much care for scientific calibration of metering equipments. And, even if that were to be correct, there is not much measurement based decision making culture in our Indian Utilities. With these weak basic foundation blocks, and missing overall Performance Monitoring, the resulting architecture and operating system continues to remain weak, in spite of Technology influx.

2. Discoms to Private Operators:
The need for increased efficiency in design, development and end-service delivery, huge private investment requirements, and higher accountability, to transform Indian utilities has called for big Change Management. Different models and levels of privatization are being explored such as full privatization (Delhi model); Input Based Distribution Franchisee (Nagpur model); Light capex O&M Franchisee model (Orissa).

However the most basic, the Baseline information of the circle to be privatized (which includes, asset, revenue, costing and other information) is not put up in a robust & credible manner from Discom side. This has lead to irrational bidding, delayed closures, and at times litigation and bid cancellation. And it's not the Discom alone to be blamed, the winning private company at most times, is also not very transparent with respect to its planning related to Capex investments, customer services and employee deputation from Discom. 

A good analogy for this missing engagement can be made to a not so uncommon rental arrangement, wherein the owner is inflicted with insecurities about his Asset and ownership. The renter, in turn, perceiving non-cooperation from owner, make changes without notification to suit his immediate short term needs, leading to non-optimised asset handling and O&M, and continuing regular conflicts.

This, call for increased co-operation, well defined SLAs based upon credible baseline data, and agreed periodic performance monitoring audits. Most RFPs and contracts are otherwise mostly one sided, wherein private operators are supposed to take up all risks (including Demand risk), with Discoms not even being held responsible for wrong baseline information, not guaranteeing assured input supply, or not re-negotiating contract changes that otherwise pose high risk to the private operator. This needs change, and both parties should develop respect for each other position, to be able to co-create agreeable solutions, within strong legal, regulatory and performance governance (or monitoring) framework.

3.  Regulator to Utility
The lamp shade has to be light and transparent for one to see the light inside it. Same applies to the role of ‘cordiality’ in any ‘organisation’. Indian Power Distribution System has a good organization with Regulators regulating the Tariff, and Utility doing the last-mile delivery. However, for Regulators to gel and positively influence (and not force) strong best practices in the utilities and to see better positive enforcement & compliance from Utilities, more work is essential for building cordiality. Utilities’ constraints and short-comings need better appreciation, and effected stakeholders from Tariff decisions (the end-customers, and like or not also our politicians) need to be engaged to build a viable utility business. Regulators need to start influencing improved governance and accountability. 

Let’s say that today one Utility has a Report Generation team of 100+ people, while the ERC of that state is run by maximum 10+ people, and that too looking for multiple utilities in that state. The front-end (on utility side) measurements and accounting need to get standardized, with regular independent audits, while back-end (on regulator side) should be further strengthened for data validation, its detailed analytics & benchmarking, and well supported & adaptable policy and regulation. It is this missing piece and standardization of processes and accounting, that has led us not to trust any reported AT&C loss figures from any utility, and have its scientific breakup for basing any useful interventions. 

4. Utility to End-Customers
One of the foremost objective and mandate for all utilities, is to enhance Customer Satisfaction through continuously meeting their needs, and improving delivered service quality. It is well established through many studies and across utilities that there is high willingness to pay for good services in end-customers; be it good mobile value-add services, good quality water, reliable electricity, easily accessible financing, or trusting health care. The otherwise opportunity cost in terms of business loss, risking safety, high cost of production, poor health, weak social networking, are too high to risk.

One unit of electricity generated from Diesel Generator costs a minimum of Rs. 15-18 per kWh, and we continue to fight to give electricity at subsidized cost to farmers. This has its supply limitations, impacting the farmer’s output and also cost of production. Though, ‘Open Access’ now is allowed, it is yet to be put to effective implementation. Due to this, our industries are forced to resort to high cost Diesel backup, to make up for limited electricity supply.

This is not to say, that good customer services comes only at higher price. In-fact  the telecom industry is best example on how innovations across the entire value chain, has increased overall consumption, and also quality of services, with reducing tariff, and increasing convenience. Micro Finance is another sector, that has established that with strong lending origination process, and further innovation in capital raising from main stream markets through securitization, lower cost financing products can be made available to low income households, with high customer convenience. On the other side, there are also sectors, wherein good last mile delivery has led to the opening of otherwise conservative markets, and acceptance of higher price points. An example of this is the increasing penetration of bottled/canned drinking water among all socio-economic classes.

The same or bigger size market exists in India for easy and reliable Power and Water. What is needed is fresh outlook, good intentions, and willingness to innovate, experiment and develop a customer centric utility model. Many cite power theft as irreversible phenomenon.

What do you think? Is it more effective to beat and scold a child who has succumbed to the vices? Or perhaps, would it be better to be more affectionate and understanding and positively influence him to change and become a better man? The answer to correcting theft and arrear problems in utilities lies in our attitude towards customers.

5. Service Providers to Utility
Contracting and Procurement has its own leakages, especially in big systems and hierarchies regardless whether it is a Private or a Public company. With increasing complexities of outsourcing, sophisticated front-end companies are emerging with lot of promises, but there is not much change in the ground level execution.

Ground executions by the contractors continues with same old cohesive liaisoning to get clearances and payments released, and deploying low skilled work force. This skill pyramid has to be strengthened at the bottom from Service Provider side, and the Discom in turn should establish science and sense in their Procurement, Contracting and Monitoring protocols.

It is this agency issue, that has crippled the R-APDRP program, and equal blame is to be shared by our corporates involved. Now is the opportunity to re-build a new Service Provider ecosystem, with fast rising small and many PPP utility operators. The service providers to these new PPP operators need to engage more turn-key and have end-performance linked payment realisation.

So for example, it's no more just selling a (smart) meter, but developing an entire Metering infrastructure, and also managing Metering, Billing and end-to-end Energy Auditing services. And instead of lump-sum purchase of meters, now it’s a pay-per-transaction type of Managed services model. Similar service models need to emerge in Network (HT, LT, Line, Transformer etc), Data, CRM, IT and also Customer services side. This shall ensure better domain competence across key functionalities of the Distribution system, with Operator to focus upon overall integration and continuously innovating end-customer delivery and services.

The Telecom industry has mastered this Managed Services Model. Here Airtel, Idea, Reliance, Tata and others are leased license operators that are focusing upon the end-customer services and innovation. The Tower infrastructure part, is to be outsourced and managed by operators like Indus, Reliance, Viom, Bharti Infratel and others, while data is managed by successful players like IBM and others. The result of this change is evident, with vast penetration of telephony into our dominant rural base.

The pre-requisites of deploying and scaling-up 'smart grid' is missing big time in India. The emergence of privatization in utilities provides new opportunity and hope to build right smartness in our utilities - I define this as realising importance of 'measurement driven action'. This requires 'smarter' business engagement models to click with new PPP operators, because it is them that can provide scale to this effort. Pure 'smart technology' driven approach, with all investments as loans from Central, and huge reliance on Discoms without much capacity building, can lead to similar R-APDRP results. The Service Providers has to own the challenge, and link with financiers and suitable O&M partners to raise a relevant end-to-end managed service (light capex) model for utilities. This will also boost up the R&D spent into this sector, which is otherwise fairly poor compare to any benchmarks.

6. Investors to Utility
Financial non-performance of Indian utilities is much debated, and various steps are being attempted, with mixed results. Unbundling, Electricity Act 2003, Govt. funded Infra augmentation (RGGVY, R-APDRP), privatization (full PPP model, Distribution Franchisees), open access, Multi Year Tariff, debt restructuring and others are few major ones. It is time that existing Investors request a bold move, and they seek equity against current debt restructuring (deficit of Rs. 2 lac crores) at Discoms, and drive viability and improved governance from top to bottom.

A lot could be done to fuel and invest reforms, if better integration of different existing schemes can be channelized. For example: a good handover of R-APDRP in a circle can reduce capex requirement from the new starting Distribution Franchisee player by atleast 50%.

Also, there is a need for strong aggregator (may be one at Central level or multiple at State levels) in between Capital market investors (debt and equity) and the Discom (or new private operator), to strengthen processes at Utilities side, and in turn take guarantee for Market capital to flow easily into the sector. Agencies like PFC, PTC Financial Services (PFS) and alike are well placed to play this role. A good working example of setting an aggregator along similar lines is established by IFMR, for Micro finance sector. (see detailed case study from IFMR). Another similar structuring with a financial intermediary and aggregator is successfully attempted for Muncipal financing through external markets by way of Muncipal Bonds. The new emergence of Power Distribution Franchisee models, and high risk seen from investors, can be mitigated through a similar innovative aggregator driven appropriate cash securitization approach. 

IUKAN 12th Feb. Delhi conference is designed keeping in view all above stakeholder’s issues, and best in class speakers (mix from Top Management and Functional Heads) are requested to share their perspectives. Some unique design elements of IUKAN conference are:
  • First ever ‘Operational roll-out’ focused conference in Utility PPPs
  • First ever conference to promote convergence of Water and Power Utilities (and exploring functional areas, wherein collaboration and consolidation will bring value to end-customers)
  • Bringing all stakeholders together - Govt., Discoms, ULBs, Private Operators, New entrants, Service Providers, Regulators, NGOs, Investors, Customers, Consultants, Academics, R&D organizations and others
  • Close group session for progressive Discoms (or ULBs), to learn reform experiences of other leading Discoms (or ULBs), to fast forward their start
  • Close group session of all private operators (both in Power and Water) to find common issues, that need united standing to influence and grow the PPP models
  • Involvement of fresh graduates through academic tie-ups to fuel mid-management resourcing and R&D in utility space
This first IUKAN conference is start of a big change that we hope will receive all relevant stakeholders’ active participation and open sharing of knowledge, to raise sustainable Indian utilities. The portal www.iukan.in will continue to engage all future discussions.

I-U-KAN (India Utility Knowledge And Networking), the name with literal meaning "I and You can" symbolises the importance of Stakeholder Engagement to drive sustainability in our Utilities. 

Post by: Rahul Bagdia @ pManifold

(Share your thoughts and feedback here, or in-person with Rahul at rahul.bagdia@pManifold.com. The company pManifold, is actively engaged as a Utility focused Management Consulting firm specializing in Research and Consultimplementation on emerging business models in India. Our key focus rest in private utilities (Power, Water, Waste etc.) – their go-to-market strategies; customer intelligence & business analytics; financial modeling and bid advisory; and performance monitoring and improvements. Please see our corporate profile)

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