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Renoir Consulting Limited May 2006

‘Improving Efficiency and Profitability’ POWER SECTOR - DISTRIBUTION. Renoir Consulting Limited May 2006. Contents. About Renoir Current Indian Scenario in Distribution Case Study – TNB Distribution Project History Project Goals Project Results Project Approach Next Steps.

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Renoir Consulting Limited May 2006

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  1. ‘Improving Efficiency and Profitability’ POWER SECTOR - DISTRIBUTION Renoir Consulting LimitedMay 2006

  2. Contents • About Renoir • Current Indian Scenario in Distribution • Case Study – TNB Distribution • Project History • Project Goals • Project Results • Project Approach • Next Steps

  3. The Renoir Group • Founded in UK in 1994 • Operating in India since 1995 • Implementation Specialists • Vertical Specialisation in Generation and Distribution • Experience in UK, USA, Germany, Malaysia, Philippines and India • Excellent references • Facilitate change in culture and management behaviours • Focus on bottom line improvement • Commit to delivering a Return-On-Investment • Don’t write reports and don’t develop theoretical solutions

  4. References Worldwide

  5. Contents • About Renoir • Current Indian Scenario in Distribution • Case Study – TNB Distribution • Project History • Project Goals • Project Results • Project Approach • Next Steps

  6. Indian Scenario – Distribution • Estimated level of billing efficiency of 55% • Estimated collection efficiency of 41% • 2001-2002 SEB losses of Rs 33000 crore = 1.5% GDP • SEB lose 110 paise for every unit of electricity sold • (SOURCE: MINISTRY OF POWER APDRP OVERVIEW)

  7. Current Indian Scenario Financial performance of state electricity boards ( In Rs. billion ) • 2002-03 2003-04 2004-05 2005-06 • Provisional Provisional Revised Estimates Commercial losses 213.82 203.79 235.58 239.24 ( Excluding Subsidies) Commercial Losses83.86 92.98 130.8 136.7 (Including Subsidies) Rate of Return -31.64% -28.32% -31.94% -26.13% ( for losses without subsidy)

  8. Current Indian Scenario – Distribution “There is a lack of accountability in distribution, outdated rules, regulations, management structures, and practices…..unless you establish accountability at all levels, you can never improve performance”. Union Minister Source: Financial Express 18 March 2002

  9. Contents • About Renoir • Current Indian Scenario in Distribution • Case Study – TNB Distribution • Project History • Project Goals • Project Results • Project Approach • Next Steps

  10. Contents • About Renoir • Current Indian Scenario in Distribution • Case Study – TNB Distribution • Project History • Project Goals • Project Results • Project Approach • Next Steps

  11. Background : Power Sector in Malaysia • Government Policy not to fully privatize electricity power industry. • TNB (Tenaga Nasional Berhad) continues to generate & distribute power • Ongoing effort to restructure the electricity distribution to achieve competitive prices for end-consumers • Tenaga Nasional, the largest company in Malaysia had recorded financial losses for the year ended 1997/8. Its image with the general public was being tarnished due to • Supply reliability problems • Inefficiencies in customer management

  12. Project History • On successful projects in Generation and Transmission, the TNBD-Renoir Business Performance Improvement Program (BPI) began in January 1999 as a contract between Tenaga Nasional Berhad (Distribution), Malaysia and The Renoir Group, an international implementation consulting company, based in the United Kingdom. • Renoir would be the catalyst for change, introducing the business improvement methodology the ‘Technology of Change’, “transferring” this knowledge to a core team of change leaders, within the TNBD structure.

  13. Contents • About Renoir • Current Indian Scenario in Distribution • Case Study – TNB Distribution • Project History • Project Goals • Project Results • Project Approach • Next Steps

  14. Project Goals ` • The issues in TNB were commonly known as the “four big rocks”. • Network Services • 25% Reduction in breakdowns. • 15% Reduction in projects WIP. • Customer Services • 15% Reduction in non-technical losses (towards total losses target of 5% nationally). • 15% Reduction in debtors (towards an ACP target of 27 days nationally).

  15. Project Goals • Change the culture of the organisation from • ‘passive, problem-oriented’ to ‘results-focused, • performance-driven, action-orientated culture’ • and develop change leaders.

  16. Contents • About Renoir • Current Indian Scenario in Distribution • Case Study – TNB Distribution • Project History • Project Goals • Project Results • Project Approach • Next Steps

  17. Non Technical Losses • Project Headlines As At End October 2000 • Reduction In Losses: (Total losses % measurement). (15% improvement). • State Base (Date) Current Target Imp • Metropolitan Region 15.5% (03/99) 6.06 5.00% 60.9% • Negri Sembilan 8.85% (03/00) 5.40% 5.00% 38.9% • Melaka 13.% (03/00) 8.55% 5.00% 34.3% • Johor 12.8% (03/00) 8.60% 5.00% 32.65%

  18. Cash Flow Management • Project Headlines As At End October 2000 • Reduction Debtors/ACP: (ACP days measurement). (15% improvement). • State Base (Date) Current Target Imp • Wilayah Persekutuan 47.5 (03/99) 38.1 27 19.8% • Negri Sembilan 39.4 (03/00) 35.4 27 10.1% • Melaka 36.8 (03/00) 30.5 27 17.1% • Johor 33.3 (03/00) 29.9 27 10.1%

  19. System Performance – LV Breakdowns • Project Headlines As At End October 2000 • Reduction In Breakdowns (No. LV Breakdowns). (25% improvement). • StateBase (Date) Current Target Imp • Wilayah Persekutuan 270 (03/99) 115 135 57.4% • Negri Sembilan 64 (03/00) 53 11 17.2% • Melaka 46 (03/00) 47 14 -0.1% • Johor 218 (03/00) 71 54 67.4%

  20. Reduction in WIP – Value • Project Headlines As At End October 2000 • Reduction in WIP (WIP Value). (15% improvement). • State Base (Date) Current Imp • Metro 1,123m (03/99) 770m 31.4% • Negri Sembilan 127m (03/00) 62m 51.1% • Melaka 160m (03/00) 89m 44.4% • Johor 114m (03/00) 62m 45.6%

  21. Project Results

  22. Contents • About Renoir • Current Indian Scenario in Distribution • Case Study – TNB Distribution • Project History • Project Goals • Project Results • Project Approach • Next Steps

  23. Technology of Change • 6 stage process Definition Development Installation Change Management Results Sustaining Results

  24. Technology of Change • 6 stage process Definition Development Installation Change Management Results Sustaining Results • Process • System • Structure • The Issues • Training • Creative Tension • 4 Stages • Minds Path • Measurement • Time Frame • Behaviour

  25. Technology of Change • 6 stage process Definition Development Installation Change Management Results Sustaining Results • Process • System • Structure • The Issues • Training • Creative Tension • 4 Stages • Minds Path • Measurement • Time Frame • Behaviour

  26. The Issues Illustrated(Where The Money Was Lost) Non-Technical Loses Cash flow ? Lost in CIBS Records do not exist Theft/Faulty Meter Outstanding Opportunity Not followed up

  27. Customer Services • Many customers details were not in customer information billing system (CIBS). • Many customers were in the billing system but no bills were sent. • The customer address information was sometimes incorrect. • Formal procedures for disconnection were not always observed and practices varied by zone. • There were differing practices in the zones concerning the selection of accounts to disconnect. • Disconnectors spent time waiting for disconnection and reconnection notices to be produced. • There was extensive daily planning, but little weekly or monthly planning to control work.

  28. Customer Services • Meter readers had stopped completing Irregularity Reports (IRs) for faulty and tampered meters because they were not being used to take action. • Meter readers were seen as solely responsible for customer billing. There were many customer contact points that the MRs did not control where customer billing should have happened. No-one else was being held accountable. • In Tenaga Shops, tellers used to ask ‘how much do you want to pay’ providing the customer with the opportunity not to pay the full bill. • There was a substantial debtors problem across all customer types. The enforcement mechanisms laid down by the Electricity Act were not being followed and this was resulting in customers building up debts sometimes in excess of 1 year and millions of ringgits.

  29. Network Services • The supply network and maintenance systems in place were not adequate to provide the levels of supply reliability demanded by the nation. • A lack of information, particularly at middle management level upon which to make business decisions. • A lack of accountability/ownership, particularly at supervisory level for problems that arose. A breakdown was always someone else’s fault and someone else’s problem. • Critical elements were missing from the maintenance management framework. There were no measures of mean-time between failure (MTBF) at a component level to facilitate effective preventative maintenance.

  30. Network Services • There was a lack of accountability for restoration performance unnecessarily increasing customer outages. • Tenaga had a substantial number of projects in progress at the same time and needed to reduce these numbers to improve lead times for new supply and improve cash flow. • There was no established discipline of carrying out root cause analysis of re-occurring problems. • A lack of co-ordination across departments. • There was a general culture of lack of accountability and performance orientation.

  31. Technology of Change • 6 stage process Definition Development Installation Change Management Results Sustaining Results • Process • System • Structure • The Issues • Training • Creative Tension • 4 Stages • Minds Path • Measurement • Time Frame • Behaviour

  32. Behaviour Change What is the definition of madness? “ Doing what you have always done and thinking somehow magically performance will improve”

  33. Stage 2 - Development Internal Business Framework Processes Activities Results Systems Information Behavioural Change Structures People Education Training

  34. Sub Process Example: Disconnection Issue Management Government Accounts Special Letter JBE Counter Clerk Faulty Meter W/O 30 Cross Meter Counter Clerk Back billing NTL W/O 90 UPJ Disconnection Direct Illegal Restoration Theft Clerk Unpaid & Vacated Clerk W/O 40 Close Account Deduct Deposit Access Found Supply Disconnected Unpaid & Vacated Higher Level Disconnection Disconnected Account Status Unbilled Team Follow-up No Access Metered Illegal Restoration Higher Level Disconnectionn Disconnection Expense Slap-on Notice No Access Address Not Found Take to MRE Next MR To Check

  35. Process Planning

  36. Process Planning

  37. Process Planning

  38. Management Control System Development

  39. Performance Measurement KPI Format (Weekly Report)

  40. Standard Operating Procedures

  41. Project Management Process • Change - Stage 3 Definition Development Installation Change Management Results Sustaining Results • Process • System • Structure • The Issues • Training • Creative Tension • 4 Stages • Minds Path • Measurement • Time Frame • Behaviour

  42. Stage 3- Installation • Training Tools - Skills Matrix Figure indicates the % Multiskill attained by a area/ division/ region. Figure indicates the %skill attained by individual. The individual to be trained % people trained for particular skill The skill required by individual

  43. Stage 3- Installation • Training Modules • Technology of Change • Active Supervision • Managing with numbers • Training Skills • Communication Skills • Time Management • Team Building • Management Systems

  44. Stage 3- Installation Creative Tension Effective Meetings Structure and set up Action solving root causes Individuals responsible Information Systems Transparency Confrontation Positive Confrontation To provide accountability To change behaviour Procedures Problem Analysis Root Cause, not symptoms 5 Why analysis Determination, not deferral Accountability

  45. Technology of Change • Change - Stage 4 Definition Development Installation Change Management Results Sustaining Results • Process • System • Structure • The Issues • Training • Creative Tension • 4 Stages • Minds Path • Measurement • Time Frame • Behaviour

  46. The lack of awareness and understanding that a successful change process has to go through ‘four changes in mindset’is a common reason why many strategic change programmes fail… We also make false assumptions about peoples ability to adhere to new ways of working, and to manage and accept change. Change Assessment Management System (CAMS) Where Most Things Go Wrong!

  47. Renoir Minds Path Matrix Incompetent Competent Conscious Understanding Usage Unconscious Culture Compliance Change Assessment Management System (CAMS) The Four States of Mind! …No shortcuts possible... The Four States of Mind! Incompetent Competent Conscious Support Coach Unconscious Delegate Direct

  48. Change Assessment Management System (CAMS) The Key to Success! The secret to successful change management is to be able to assess and measure your progress through the ‘minds path’. “ If you can’t measure it, you can’t manage it.” The four mindsets must be measured by auditing. Auditing is a quantitative measure of a qualitative thing!

  49. Change Assessment Management System (CAMS) Measuring the Four Mindsets • Audit questionnaires are developed to assess the mindset levels using a structured approach: • Closed ended questions for compliance. • Open ended questions for understanding. • Demonstrative questions for usage. • The audit questionnaire answers get converted into a scoring scheme… • 0 for wrong or not done. • 1 for partially right or partly done. • 3 for correct or demonstrated. • The percentages of each system performance category are plotted • The target is 100%.

  50. System Utilization Status 100% 80% 60% Achievement 40% 20% 0% -5 -4 -3 -2 -1 Current Period Mechanical Understanding Usage Change Assessment Management System (CAMS) Installation Status Installation Status 100% 90% 80% 70% 60% Achievement 50% 40% 30% 20% 10% 0% -5 -4 -3 -2 -1 0 Current Period Installed Partially Installed Not Installed

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