Utilities are heavily driven by outsourcing of products and services, but most times, their integration is limited by lack of strong Service Level Agreements (SLAs) and vendor management practices. The new private operators usually start dealing with several products and contractors, and already scarce Management bandwidth gets occupied in monitoring and renegotiating contracts and performance. The key question here is – can organized vendors be developed with more end-to-end managed services for these new PPPs?
Recently, pManifold team spoke with Mr. Gagan Aggarwal, MD, Creative Entrepreneurs (CE). The company has 30+ years of experience in providing Turnkey EPC and O&M services for Power and Water utilities. The interview focuses upon ‘What new business models need to emerge for such managed services that have performance-linked contracts?’ The below shared are the author’s personal views and not to be associated with any of his company’s and other associations.
Q1) What differences you have experienced while supporting Power DFs and Discoms with normal scope of contracted work?
- In case of Govt. Discoms, the structuring of contracts is more stereotyped. Moreover with union issues, there is also a limitation in terms of certain activities which stand reserved for the staff on rolls of the Discoms. Whereas in case of DFs, there is no such baggage and they are able to formulate contracts much more freely. Also, there is a concerted thrust by these newly formed DFs to enforce strict statutory compliances by their vendors.
- The conventional contracts given by Govt. Discoms have predefined and fixed boundaries in terms of role, responsibility & scope, while in case of Power DFs, things are much more flexible. It happens such that we initiate the contract for one specific given activity, but as the scenario keeps changing rapidly, there is an opportunity of augmentation in other types of activities. Based on the circumstances, there are new situations to dealt and attend it, without any loss of time, to make an overall effective contribution.
- There has been a very dynamic way of working, while supporting & dealing with Private Power DFs, compared to the conventional contracts offered by the Govt. Discoms.
Q2) How have you tailored and expanded your service offerings and delivery to fit Franchisee model better? What more your current tacit knowledge allows you to do better than others, something like Transformer Mgmt., Meter theft mgmt. etc.?
- As we are gaining more experience and that too across various diverse areas, we are able to offer increasingly effective solutions in sync with the requirements of the Franchisees.
- In another instance while working in a particular city, it was observed that power theft turned out to be a much bigger daemon & much more difficult to tackle than had been anticipated earlier. Special measures had to be immediately taken up to handle the developing situation so that the project could proceed as scheduled.
- Though most activities that we carry have elements of Distribution Network, new subsets keep emerging all the time, mainly due to public reaction and observed deviations from the anticipated results. Like for one of the DFs, we started with the activity of laying their 33KV cables to augment the power availability from the SEB, soon the priority changed to converting the LT Overhead network to Underground to reduce theft and even this job was very dynamic based on the feedback and calculations of energy saving for given Distribution Transformer. Thereafter, only those DTs were taken up which would provide maximum benefit for the cost incurred. So all in all because of the constant challenges faced by the DFs the approach had to commensurate with the situation.
Q3) What changes you went through from moving from normal ‘Contractor’ to specialised ‘O&M Managed services provider’?
- Many times the overall cost has been drastically reduced by the implementation of Trenchless Technology in lieu of Trenching methods thereby avoiding the exorbitant restoration charge by the municipal authorities. With the adaptation of appropriate technique suiting the specific site conditions in the urban areas and the quantity based pricing model provides a win-win situation for both the DFs and the service provider. This gives the DF an opportunity to deal with less vendors and for the vendor it becomes a case of economy of scale. It’s given infrastructure in a particular city being able to generate more business.
- While normal contract working is more mechanical in its approach, a specialized O&M Managed service provider has to be much more proactive and of a system-study-&-implement kind of outfit. One has to understand the issues, rather than the ‘apparent’ requirements; to do a fair assessment and analysis; to suggest and discuss with the DFs, followed by implementation of the solution, as deemed relevant.
Q4) What loss reduction opportunities you see on both Technical and Commercial loss reduction with integrated O&M services contract?
- Lot of integration is possible, if the service contracts are formulated for a phased manner implementation, for instance we do the network study and analysis to suggest the loss reduction schemes in phase I, thereafter we implement the approved schemes by carrying out field execution, then comes the maintenance of the Network.
- On the power theft issue, there has to be a strong & clear political will. States where the government & administration has actively supported the efforts to curb the menace of power theft have done subsequently well. Losses have come down, the speed & extent of modernization has gone up, overall power reliability & availability has improved. On the other hand states where authorities have shied away from their role & responsibility in dealing in a stern manner on the power theft issue are languishing at the bottom of achievement charts.
- On the technical front, we have to keep exploring and invest in the latest technologies to accurately identify components / areas, which are a source of high percentage losses. which needs immediate attention, so as to provide us with a working life line.
- I am of the firm view that, with most cities the power distribution situation is unsustainable, unless we are able to bring down both the technical & commercial losses to an absolute minimum. Energy saved this way is twice as good as energy produced, as the energy produced would again be subjected to such high AT&C losses.
Q5) There is always ongoing tussle for quality and pricing between contractors and Utility Operators. What best practices you have seen in contract design and Monitoring? What new performance linked contracts will you be open to work?
- The concept of performance linked contracts is a novel one, but is marred with lot of uncertainties. We are open to such contracts with a rather long term commitment, as only then can there be viability in such contracts.
- So having prescribed the minimum must have quality parameters based on the aforesaid attributes, cost should be worked out. And then there is cost associated with a quality work
- Yes, this is a classic dilemma, not just in our Industry, but I think its universal. Although such a tussle is an essential ingredient in any system, I would say, we have to go with a balanced approach. We have to go a step further & assign different attributes to quality in terms of minimum quality parameters for safety; minimum quality parameters for statutory compliances; minimum quality norms for long life of the Distribution Network Components etc.
Q6) Managing Labor work force has always been challenging, and so different models of outsourcing and pay roll management emerging with mixed results. How are you tackling this and keeping your grounds team motivated?
- Needless to say that an efficient & effective workforce is more than half the battle won, it is very important to have them motivated by incentivizing their working. The incentives have to be assessed based on a very precise monitoring & recognition system. The genuine effort has to be recognized and appreciated. Create similar independent groups capable of carrying a given set of activities, assign similar works to these different groups, induce a healthy competition, the group working more or faster earning better incentives. And provide everyone with the right resources and working environment are some of the practices regularly used at CE.
- We have been in this sector for the last 3 decades & have seen a huge change in the availability of labor force. With so many opportunities for them, thanks to the ongoing developmental phase in the country & due to government schemes like NREGA, this resource has become scarce and as a result very precious.
Q7) With your experiences with multiple DFs, how confident you feel that DF could emerge as successful model?
- Well very frankly the confidence right now is not very high. The DF models are still evolving, fine tuning the various terms, experimenting with different methodologies. The overall financial scene also makes the current situation give a bleak outlook.
- But having said so, I am absolutely clear that there is no option but to sort these issues out. To have any sort of sustenance in the Distribution System across the entire country, the inefficiencies have to be reduced. It may take a few iterations for the best & most effective models/mechanisms to evolve, but they have to eventually evolve.
- Since Power features in the basic infrastructure elements of any country, no one can afford to neglect it even in the slightest way. It is so very essential for the nation building that all the stakeholders will have to come together & join hands to take things to the next level.