IUKAN Session-1 Proceedings: Co-creating new PPP Design

Overall IUKAN 2013 Annual conference was a great success with 210+ participants from all around the Power and Water Distribution sectors. The Session-1 “Co-creating new PPP design together with Utilities” was focused upon addressing - What challenges and best practices can be learned from operational PPP models, to avoid initial pit falls, and influence new design considerations?

Following industry veterans and topics were covered in this session:

Evolution of PPP models in Utilities and key design challenges

Mr. B. Rajesh, Associate Director, GRID, PwC

Base lining and Contract Designing Considerations

Mr. Kamal Maheshwari, Director SPANCO
Mr. Amanullah, CEO SPML
Mr. Pramod Sinha, Project Director, Vishwa Infra

Expediting knowledge transfer during Joint Operative Period

Mr. Philip Nayak, General Manager - Franchisee Operations, Enzen
Mr. Dattatray Wavhal, Director Finance, MSEDCL

Smart Staffing for stability, growth and performance driven work culture

Col. Rahul Gowardhan, Retd. Executive Director, HR, MSEDCL

While PPP models in both Power and Water Distribution started in early 2000 period saw limited success, the learning from there has based today’s charter for fast growing Franchisee models. These models continue to evolve and are poised for significant growth. Some key proceedings and suggestions from this session are discussed below. (More details and individual presentations can be seen at http://www.iukan.in/conference-2013/proceedings/)

What perspectives to be re-considered while designing new RFPs for Power Distribution Franchisees?

Strong and third party audited baseline information (including authentic asset register map, HR map, Opex under broad heads, customer segmented MBC information and ageing data of asset and arrears)
Longer 20+ years contract for better business viability and lenders confidence. The initial 2 years are usually loss making, and longer contract shall allow compensating for these first 2 year losses.
Adaptive contract change provisions to circumvent uncertain policy changes during long 15-20 years tenure of the project. Strong SPV structuring was recommended to specially mitigate this risk.
Transparency in benchmark rates calculation and underlying assumption. There was good recommendation of standardizing the process of calculating min. benchmark prices. Also a suggestion was made to keep first 2 years rates on lower side, to allow for better loss compensation (and form of viability funding) to the DF operators in these years.
Better integration of existing schemes like R-APDRP with DF, to ensure new DF operator starting strongly on already Govt. allotted/invested capex
Discom should support the DF with detailed capex plan laid out as part of RFP baselining, and having its pre-approval from Regulators, including incorporating its effect on ARR.
Higher bid governance on selection and cancellation
Strong legal framework binding equally on both Discoms and Franchisees on respective share of information and handling defaults
Minimum 6 months ring fencing of DF area should be done, and all energy and loss data should be shared as part of baseline information with all bidders
Allowing consortium bidding with a Lead Operator Partner, and supporting functional partners in areas of Network, IT, Investors and Customers. (This shall allow more planning on bidders side, including strong due diligence and right partnerships. Also, shall create better competition, and hence more rationale bids.)
Longer joint operative period (min. 6 months) to ensure best knowledge transfer on Network
Definite SLAs for both Discoms and DF, with set fund for an independent performance monitoring agency
Authorizing DFs with good enforcement power from the Judiciary to handle cases of unauthorized use, power theft and recovery of fines (under Electricity act 126, 135, 152)
Defined clarity on additional power procurement and open access surcharge sharing with the Licensee and Franchisee

What best practices to follow for taking over new Franchisees (Power DF or Water 24x7)?

Audit and verification of all baseline data
Validate and sanitize legacy customer database (including GIS Customer indexing) and create good handling for future use. Develop in-depth understanding of all Systems.
Feeder wise quantification of following: Network & metering health, customer segmentation and performance (quantum & hours of supply, losses, collection)
Retain best of Discom grounds team and its vendors who are thorough with the Network and customers
Conduct intelligence on customers, their socio-economics, opinions, preferences and satisfaction
Conduct input energy analysis wrt consumerism, different tariff categories, and economic/load growth of the region
Internalise a clear joint operative handling plan – strategy, structure, systems, approach and timeline. Have defined deliverables and milestones against contractual obligations.
Give good attention to soft aspects of creating bonding between Discom deputed employees and new resources. Schedule right Training programs, and have a clear Org structure in RASCI format.
Have transparent and clear communication of plans with Discoms to give them confidence on overall approach, and engaging them appropriately. All new initiatives should be brought into their attention.
Have a separate and devoted team of engaging all stakeholders – customers, local opinion leaders, media, utility employees, and others. Timely and appropriate communication (sensitization/socialization) with all stakeholders is the key to win their confidence and cooperation.

How to mobilize people resourcing for the new Franchisee takeover (Power DF or Water 24x7)?

Some key reasons for arising tensions amongst Discom employees on Franchisee model:

Discoms do not deploy periodic transfer policies for its employees, and this result into employees developing vested long interest in their regions, creating tensions
Both state and local level unions usually oppose any privatization model, because their existence is perceived at stake
There are higher expectations in end-customers from private operators, and employees have their own apprehensions of new operators abilities to meet them, and further suffer stiff resistance
Discom employees carry apprehensions of biased behavior from new operator, and live in dilemma of having Two Masters and divided loyalty

Some Best practices to smoothen resource mobilization for new Franchisee models:

Increase time period of joint hand holding and resource mobilization in RFP contract (Current average time period given is 1-2 months only, and this should be increased to min. 4-6 months)
Franchisees to design new Org structure with well developed KPIs, KRAs and Performance Management system. A well developed plan earlier communicated with the Discom employees will generate better confidence on new Franchisee model and its capabilities
A thumb rule of starting with 75% of the existing work force was suggested

30% from Discom deputation: From this, 50% should be relatively Fresh (less than 5 years experience) and another 50% experienced
40% recruited fresh externally: From this, 50% fresh from ITI and 50% from other public/private Utilities

Engage Discom employees of various ranks earlier to educate on Franchisee model, through an independent agency to bridge and mitigate their perceptions

The Sessions was very rich, and now it remains to be seen that new Franchisee projects benefit from this knowledge. Water Franchisees struggle with similar problems and hence most discussion above is applicable for them, pretty one-to-one. Our IUKAN Speakers and pManifold Team will be delighted to further engage on specifics discussion to overall raise the bar for the Franchisee industry.

Post by: Rahul Bagdia at pManifold