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Energy | Execution roadblocks in power distribution

Energy | Execution roadblocks in power distribution

Let’s not presume for a moment that clearances and politics are the only culprits in the inordinate delays in power plant commissioning. Distribution project delays are particularly underreported as they are smaller-ticket. Mohammad Saif says that in compensation of the lack of execution skills, outsourcing will be a norm in the future.

During the 11th Five Year Plan, despite record capacity additions, the gene­ration capacity additions met only 70 per cent of the initially set targets. Similarly, inter-regional transmission capacity additions were also lower by nearly 25 per cent than the targets. Similar under achievements were witnessed in the earlier Five Year Plans.

One of the reasons for the underachievement is weak project management capabilities in the country’s power sector. The concern becomes even more aggravated owing to the record capacity additions targeted in the 12th Five Year Plan period.
We may be aware of the delay in setting up the evacuation system for the prestigious Mundra Ultra Mega Power Project (UMPP), delaying the grid synchronisation and thereby the commercial operation of the first 800 MW unit of the 4,000 MW power plant. Generation and transmission project delays are routinely highlighted in the media, yet similar, yet under­reported project delays happen in distribution, although the size of distribution projects are smaller and more dispersed. It deprives the end consumers from reliable power supply and fina­ncially impact the already loss making dis­tri­bution utilities.

With over 90 per cent of utilities owned by state governments, it really affects the power distribution performance in the country. Let us endeavour to understand the reasons behind such delays and propose a practical solution.

Project life cycle

Life cycle of a power distribution project is comprised of three main stages:

Planning: This first stage consists of two sub-stages. The first is the preparation of the annual capital expenditure plan, reflecting the macro-level capital expenditure that a utility plans to undertake in the ensuing financial year. The projects and the corresponding costs are identified during this stage. The second sub-stage focuses on individual schemes and comprises of preparation of Detailed Project Report (DPR) and arranging project finances.

Implementation: This phase again has two sub-stages, procurement and execution. The procurement stage deals primarily with the bid process management for the project. The procurement can be for the entire project on a turnkey mode or the individual material to undertake in-house project execution.

Project evaluation, operation & mainte­nance: The evaluation helps in recor­ding the variations from the plan and under­standing the reasons for the same. The ope­rations and maintenance (O&M) is a recurring activity initiated post-commissioning of the project. This stage focuses on ensuring that the commissioned project successfully delivers through its life.

A successful project is one where the aforementioned stages are completed within the targeted time, cost and quality parameters. However, there is a definite lack of successful projects in power distribution due to multiple project implementation roadblocks occurring across the project stages, especially during implementation.

Project roadblocks: Lessons and remedies

Recent experiences highlight the following project roadblocks in power distribution and related initiatives to address the same:
Inappropriate planning: The distribution utilities have limited skill sets to prepare quality estimates on project cost and the execution timelines, especially for new initiatives. With similar capabilities unavailable on the regul­atory side also, it is inevitable that there is no standard procedure followed for project planning. It results in overambitious cost and time estimates that are bound to hit the project during the execution stage.

The Forum of Regulators has taken a step to standardise project planning across utilities through a capital cost benchmarking study and a working model for arriving at benchmark capital cost of different elements of the distri­bution business. The extent of its usage is yet to be evaluated, but this is a significant initia­tive to address a critical issue in project planning.

Archaic bidding process: Majority of state utilities follow the turnkey route to execute a section of their annual capital expenditure plan. However, quite a few of these turnkey projects have failed to deliver on time due to reasons attributable to the turnkey contractor. These include limited experience to carry out projects of such size/scope, delays in getting necessary clearances/certifications, delays in delivery of material and failing periodic quality checks. Such issues occur primarily due to the incapability of the turnkey contractor selected through a competitive bidding process. The two stage bidding process followed by distri­bution utilities, although screens a prospective bidder on a minimum qualification criteria, awards the project only on lowest cost (L1) basis with no credence given to his past deli­very record.

In recent times, states like Haryana and Orissa have adopted quality and cost-based selection (QCBS) for turnkey contractors, esp­ecially for new IT initiatives like spot billing and remote meter reading. Going forward, more such bidding initiatives will be welcome in distribution.

Project monitoring capabilities: Succ­ess­ful project implementation depends on a robust project monitoring framework and skill set for implementing the same. How­ever, the existing project monitoring capa­bilities of the distri­bution utilities are inade­quate given the inapp­ropriate focus on people development and tra­nsfer and rotation policy.

The successful participation of third-party project/quality monitoring agencies in the Rajiv Gandhi Grameen Vidyuteekaran Yojana (RGGVY) has been replicated in the Restru­ctured Accelerated Power Development & Reforms Programme (R-APDRP). Many state owned distribution utilities have also started appointing out­sourced agencies for monitoring and evalu­ation of select capital expenditure. The role of specialised agencies for project monitoring and evaluation is bound to grow in future, given the rising capital expenditure in distribution.

Vendor management: Project management is not only restricted to field level monitoring but also managing the vendors/contractors con­tributing to the project. Vendor manage­ment encompasses contract management, add­ressing project specific issues, assistance in getting clea­rances/certifications from other gove­r­nment bodies/in-house departments and timely issu­ance of payments for successful executions.

With increasing involvement of turnkey contractors, majority of distribution utilities are in the process of replicating successful vendor management practices from generation and transmission.

Way forward

With all the above mentioned initiatives, there is still a lot to be achieved to improve the sector’s health. If the existing situation in power distribution is not addressed promptly, it is going to significantly impact the sector in spite of good work done in generation and transmission segments. Some of the initiatives that could help minimising the project road­blocks in distribution can be:

1. The state regulator follows a stringent app­roach towards approving capital expen­di­ture plans submitted by distribution utilities. This can be achieved through use of necessary benchmark data available through FoR reports or other relevant sources. It is also imperative that the regu­lators also undertake independent project evaluation studies that are available in public domain for usage by other state regu­lators/utilities.
2. The sector funding agencies need to stre­ngthen their project appraisal approach to ensure robust project DPRs from the distribution utilities. This shall ensure rati­onal planning of the project with no overambitious targets.
3. The ongoing R-APDRP programme is prim­a­rily focused on improving the commercial operations within power distribution. It is imp­erative to include project management module for all such future schemes. This shall help utilities to building in IT-based project management capabilities.
4. Similar to generation and transmission, standard bidding document may be intro­duced to allot turnkey contracts for high value capital projects in power distribution. It is high time that a quality and cost based (QCBS) approach be followed for selection of turnkey contractors for high value and critical projects.
5. Limited information available on the pro­gress of capital expenditure in the country’s power distribution. A centralised database to track high value distribution projects may be introduced that could be available in public domain. The database shall be useful in project planning and appraisals, evaluating utility/vendor performance and conducting impact assessment studies.
6. The existing in-house capabilities of distri­bution utilities are not pertinent enough to attain successful project executions. It is therefore essential to involve third party project monitoring agencies for project monitoring and reporting. The effective­ness of such agencies can be enhanced by having scheme specific appointments. Part of the payment to such third-party agency should be linked to the successful project execution.

The above is only a limited set of inter­ventions that may be relevant to the current issues related to improving project management in power distribution.

Learning: Lack of project management skills has cost the implementation of power distribution projects dearly.

The author is Senior Manager – Energy & Utilities Practice, PwC India.

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