Private Sector Participation in Distribution

1. Private Sector Participation in Distribution Puneet Munjal, Sr. GM TATA POWER DELHI DISTRIBUTION LIMITED (formerly North Delhi Power Limited) Dec 23, 2011

2. Contents Setting the Context • Key Issues in the Distribution Sector • Need for Private Sector Participation 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

3. 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 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

4. 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. Source: PFC Report on Performance of Power Utilities 2009-10 • Competition • Open Access yet to take off

5. Need for Private Sector Participation State Owned Pvt • 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 PPP What can private participation offer ? DF Current Scenario (More than 85% state owned) Private participation – insulates Utility from Political Interference ; runs utility on Commercial principles

6. 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 accountability While, 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

7. 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)

8. Models for Private Participation

9. 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

10. Pre Reforms Situation in Delhi Pre 2002 Delhi Electricity Board – A Vertically Integrated Utility 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. Billing Receivables Close to 1 year Outstanding Harassed Consumers- Large no. of Complaints and Requests Backlog Lack of accountability, initiative & service orientation in ageing and semi skilled workforce Ill maintained administrative infrastructure and no IT Enablement Sector becoming increasingly unviable leading to decision to reform through unbundling and privatization

11. Improvement in Quality of supply Focus on Consumer Service Attract investment Reduction in AT&C Losses Reforms Objectives Make Sector Self Sustaining

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

13. Delhi PPP Model:2002 • 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

14. Delhi PPP Model:2002 • 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.

15. Our Turnaround Story

16. 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 : Largest Integrated Power Co. in Private Sector Tata Power Delhi Distribution : ISO 9001, 14001, 27001 ; SA 8000 Certified

17. Our inheritance Bleeding with 53.1 % Technical & Commercial losses Dilapidated Network Un-reliable Power Situation Transformers’ failure rate 11% Long Queues Absence of key management functions like HR, Finance, Governance etc. 1,00,000 Billing Complaints A workforce of 5600 employees with little skill set 20,000 New Connections No Computerization / Automation / Tracking and Monitoring Erroneous consumer database

18. Care for Community Care for Environment Operational Excellence Consumer Service Excellence AT&C Loss Reduction Our Sustainability Philosophy Success Parameters Areas of Focus Drivers ATC Levels Reliability Indices Skilled & Motivated Workforce Shareholder Value Customer Excellence Improving CSI Score Care for Environment Consumer Centric Inclusive Approach TCCI Score AA Score Innovative Technology Adaptation Becoming Carbon Neutral Care for Community Passion for excellence Safety

19. Tata Power Delhi Distribution Limited: Snapshot of Turnaround

20. AT&C Loss Reduction • 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

21. Initiatives Undertaken

22. 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 AMR LT ABC

23. 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 Red Colored Bills for Default New Connection Camps Shareholders Handsome Returns RoE :CAGR 21% • Consumers • 24x7 Supply of Power • Moderate Tariffs Government Govt. Exp. On Distt. Sector minimized Meeting Reforms Objectives

24. 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 Packaged Substation Unmanned Grids SCADA GIS

25. 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 TPDDL Generation Plant at Delhi 1 MW SPV at Delhi Addressing Reform Objectives Consumers Improved Service Quality Consumers Reliable Power Supply Government Enhanced Consumer Satisfaction

26. III. Consumer Service Excellence (1/3) • Revamping Consumer Experience • BPRof 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

27. 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

28. 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/IWA Meetings in Progress Addressing Reform Objectives Consumers Redefined Service Delivery Government Enhanced Consumer Satisfaction

29. 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

30. 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 Only Utility in the Country to be SA : 8000 Certified; also certified for PCMM-II Addressing Reform Objectives Consumers Consumer Centric Employees Employees Learning & Growth

31. 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 Drug De-Addiction Camps Free Health Camps Energy Conservation Street Plays

32. 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

33. Thank You