Tata Power's Vandrevala: Transforming the 90-year-old power utility through a combination of cost reduction, steady growth and change in attitude

Like long distended claws they reach for the sky. Eerily silent, scores of monstrous cranes lie along the wharf, basking in the afternoon sun. From the seventh floor of Tata Power's office in Carnac Bunder the view of the iron hulks, neat stacks of cargo containers and the Arabian Sea beyond is a mesmerising one. Bombay Port Trust, which runs the dockyard, also happens to be one of Tata Power's valued customers. Others include the central and western railways, the Maharashtra state electricity board and sundry textile mills, which collectively consume 10,500 million units of electricity every year or 75 per cent of Mumbai's total bulk requirement.

A 15-minute-drive away, the third floor conference room in the Tata group bastion-Bombay House-may lack Carnac Bunder's panoramic vista but the vision Firdose A. Vandrevala, the 54-year-old cheery Managing Director, is painting is no less engrossing. The 90-year-old utility is in the midst of a transformation. Or to use an expression Vandrevala is partial to: "It's the difference between a prosperous farmer contently tilling his fields and a hunter going out, fighting and gathering food."

One quick glace at some of the recent projects is all it takes to get a feel of the kind of aggressive forays Tata Power's been making lately. Generation capacity, currently 2,203 mw, will be doubled over the next five years with the total investment pegged at Rs 10,000 crore. A 330-mw hydel project in Shrinagar, Uttaraanchal has been taken over at Rs 1,650 crore and Vile, Maharashtra has been identified for its next (1,000 mw) thermal project, into which an estimated Rs 2,500 crore will be sunk. In 2004 Tata Power bagged a $32 million (Rs 140.8 crore) contract from Power Grid Corporation of Bangladesh to set up a 187-km, 230-kv transmission line connecting Khulna and Ishurdi to be completed over the next one year.

Rather than drone on about these mega-projects, Vandrevala-a former Deputy Managing Director of Tata Steel-would rather talk about qualitative achievements. "Rather than a big hammer, I think we're closer to a sharp nail," chuckles the head of India's largest private power company, holding forth on benchmarks set, attitudinal changes and new growth areas. That's because flourishing in the Indian power sector can be a very trying affair. Scale and specialised skills are both required in equal measures as the sector continues to be an unusual one.

Team Tata Power: (L-R) M. Bhandari, VP (Strategy & Regulation); Ronald Sequeira, VP (HR); S. Ramakrishnan, ED (Fin., Strategy & Regulations); Amulya Charan, VP (Audit & Risk Management); F. Vandrevala, MD; P.K. Kukde, ED (Technical); Rahul Chaudhry, CEO (Strategic Electronics); and S.D. Deshpande, VP (Operations)

Against current capacity of 112,000 mw, demand for power in India is expected to touch 212,000 mw by 2012. Estimates put the investment required over the next decade at a staggering $170 billion (Rs 7,48,000 crore). Yet it has always been and still continues to be a highly-regulated sector (see Best Practice, on how Tata Power steers its way). Despite public declarations and landmark legislation like Electricity Bill 2003, ground level realities are far from ideal. Power distribution, managed by state electricity boards is yet to fully open up, as is "open access for transmission". Thus even today private generators are not allowed to rake in returns beyond the stipulated 16 per cent. Any efficiencies squeezed out of the production process or by optimising fuel mix have to be passed on to the consumer.

Sign Of The Times

But private producers like Tata Power are hoping that things will change, sooner rather than later, and optimistically gearing up for the competitive challenges a deregulated market will bring. Tata Power's organisational transformation-inspired by the Tata Business Excellence Model-is being driven through a combination of cost reduction and steady growth. It hit pay part with its fuel-sourcing policy, which in thermal power projects can account for half the costs.

Around four years back Unit 5 at Tata Power's 1,330-mw Trombay unit was told it needed to restrict sulphur dioxide emissions to 24 tonnes per day, in line with laid-down pollution norms. The company had the option of switching over to a gas-based unit, where pollution levels would be at par with those specified. But this would have resulted in costs doubling. Tata Power had to do things differently.

Along came Adaro and Kadico (after an exhaustive Internet search), two coal mines in Indonesia producing a unique coal variant. Compared to Indian coal in which the sulphur content is a minimum 1 per cent and ash content 30-40 per cent, this Indonesian coal has a sulphur content of only 0.1-0.15 per cent and ash of less than 2 per cent. Today Trombay's 500-mw Unit 5 is powered by 1.9 million tones of Indonesian coal annually. Not only have the pollution norms been adhered to, but the company has been able to save costs to the tune of Rs 188 crore, or 17 paise per unit of power.

Equally propitious has been the energy company's first brush with Delhi's consumers. Tata Power's first foray into retail distribution outside Mumbai (its licence area), North Delhi Power (NDPL) is a joint venture with the Delhi state government. NDPL supplies to over 8 lakh consumers in north and north-west Delhi. "I could spend a day just talking about the kind of work we're doing in New Delhi," says Vandrevala, who personally monitors customer satisfaction levels. Thus, to consumers plagued by load shedding, voltage fluctuations, faulty billing, heavy pilferage and non-existent service standards, Tata Power introduced a 24x7 call centre, a customer portal, wireless reading of meters, SMS alerts of impending shutdowns, regular consumer forums, and emergency vans. Superior consumer service is supplemented with technical enhancements. Rs 330 crore has been spent to improve reliability. Not surprising then to find the Aggregate Technical and Commercial losses dropping from 53 per cent to 45 per cent over the last two years, and the average interruptions per annum reducing by 67 per cent.

Such numbers are music to the ears of Executive Director (Technical) P.K. Kukde. A 35-year-old power industry veteran, he reels of a long list of technical feats the company's pulled off in Mumbai. Today the frequency of consumer interruptions is a mere 1 compared to 2.29 internationally and the average duration of interruptions is only 29 minutes, way below the international 93 minutes. A combination of best practices, nifty resource management and common sense has ensured that plant shutdown time is reduced from 45 to 25 days.

Measures like these while praiseworthy today may become survival tomorrow. Competitors like Reliance Energy Ltd. (REL, formerly BSES) are on a war footing. Basically a distribution company, REL supplies to 25-million customers across six states and is now backward integrating into generation. Its plans, true to its pedigree, are gargantuan; REL has announced that over the next five years it will invest Rs 20,000 crore in mega projects like the 3,500 mw Dadri plant in Western up. The distribution charge will continue, into 10-15 new states, a move that will ensure a head-on confrontation with Tata Power. Opines industry analyst Sameer Ranade of Pioneer Intermediaries: "While REL is aggressive by nature, Tata Power appears to be more measured in its approach."

BEST PRACTICE

Nevigator: Tata Power has successfully dealt with the maze of India's power sector To get an accurate picture of the labyrinthine maze that is the Indian power sector, a meeting with the Regulations team at Tata Power is a must. This 12-member team's primary function is to help the utility company find its way through the highly regulated and complex industry where even today everything from tariff norms to transmission priorities are a direct function of government diktat. Also referred to as the policy advocacy cell, the team-headed by vp, Strategy & Regulations, Mahesh Bhandari-comprises people drawn from functions as varied as technical, legal and economics. Interacting with various state regulators like the Maharashtra Electricity Regulatory Commission or the apex central body, the Central Energy Regulatory Commission, or the ministries of energy and power, the Regulations team keeps track of policy changes, resolution of disputes, and ever-changing procedures, and interacts with bureaucrats and key players, both at the policy and operational level. What makes the task bewildering at times is the quantum of information and data the team has to go through. While the central government sets the broad direction and policy directives, implementation is at the state level. As diverse is the number of states, equally varied is their legislation. So while Maharashtra mandates that any hike in fuel cost must only be passed on to the consumer over a phased period, another state may be all right with a one-time hike.

Staying Ahead

As it tries to hold onto its numero uno spot, help may come from a little talked-about division, dubbed Strategic Electronics. Rahul Chaudhry, CEO of this division, expects a nearly 10-fold growth in revenues over the next five years to Rs 600 crore. While the division's current contribution to the company's top line is negligible, it's carved a niche for itself in the defence industry. Be it display systems for the Indian navy, Pinaka, a multibarrel rocket launcher, or missile Akash, the division's expertise especially in missile electronics and onboard computers in widely acknowledged. As a further validation of the quality of its engineering and technical pool, managers like to point out that F.C. Kohli, founder of Tata Consultancy Services, began his professional career in this very division.

In the meanwhile, newer areas are being explored, and S. Ramakrishna, Executive Director (Finance, Strategy and Regulations), has built a reputation for sniffing out lucrative opportunities. Power Trading is one such niche that holds tremendous potential for the future. The power-trading subsidiary, Tata Power Trading Company, has bagged the first ever licence, enabling it trade power across the country. Trading involves supplying surplus power available during off-peak hours or acting as a middleman between potential buyers and sellers. While currently only 2 per cent of total power is traded, this high volume-low margin business is expected to pick up in the next three years. "Along with generation of revenues, power trading ensures efficiency of resources and optimisation of plant load factor," says Ramakrishna.

And if it's machines for some, it's manpower for others. With mediocre remuneration structures and long stints in remote power plants, attracting bright engineers is getting tougher day by day. Retaining them is tougher. Though attrition levels are still at a low 3.6 per cent, the company is offering performance-based initiatives, something unheard of in the power industry. Ronald Sequire, VP, Human Resources, still has sleepless nights wondering how to keep excitement levels high in the 3,361 odd workforce. "We have to win over the heads and hearts of our people". Or else the competition will.