USAID-funded Sector Reform and Utility Commercialization (SRUC)

1. USAID-funded Sector Reform and Utility Commercialization (SRUC) EDM COMMERCIAL LOSS REDUCTION Project Meeting with the USAID/Mozambique 26 January 2017 This document was prepared for the United States Agency for International Development by Deloitte on contract AID-OAA-TO-14-00006. The contents are not the responsibility of USAID, and do not necessarily reflect the views of the United States Government.

2. Overview . . . EDM LOSS REDUCTION PROJECT SCOPE • The scope was to provide EDM technical assistance to support their ongoing efforts to reduce commercial losses as part of ongoing company-wide transformation process • EDM believes their total ATC losses are 20% of generation, of which 7% are technical and 13% non-technical (commercial) • Total financial cost to EDM for ATC losses is roughly $50 million annually, with non-technical (commercial) losses costing $33 million in lost revenue • Deloitte to develop a loss reduction strategy focusing on commercial losses • Complete a meter testing lab design and road map

3. TRENDS FOR EDM LOSSES Distribution Losses as % Distribution loss volumes GWh

4. EDMLOSSREDUCTIONPROJECT TEAM • Experienced team with extensive experience working in, or consulting to major state-owned utilities around the world • Skills and experience cover a range or technical and managerial capabilities including technical (meter types, communications systems, Meter Data Management Systems) and business transformation skills (strategy, engineering , process design and project management. • Extensive knowledge of SSA power issues and specifically EDM • Craig VanDevelde, Deloitte-US • 20 years’ experience in govt-owned utility turnaround, including designing loss reduction programs • 25 years’ experience in field-based consulting • Jose Cavaretti, Deloitte-US • 33 years’ experience at a major power utility in technical, commercial & regulatory operations • Fluent Portuguese • Mario Fernandes, Deloitte-Moz • 15 years’ experience consulting to SA power utilities on the design & delivery of Smart Metering systems • Fluent Portuguese • Santiago Goicoechea, Deloitte-Moz • 13 years of experience in Strategy Consulting • Leading Infrast. & Energy Projects • Fluent Portuguese • Sophia Peters, Deloitte-US • 10 years experience in the electricity and energy industries • Focus on demand side management, distribution / metering, and customer engagement

5. METER VALUE CHAIN ASSESSMENT Full Revenue Cycle Commercial Metering Value Chain (“Meter-to-Cash”) 9 7 8 6 5 4 3 2 1 Metering Procurement Data Capture Management Billing Data Collection Billing Issuance & Support Payment Collections Maintain Customer Account Fraud Policy Implementation Meter Installation a Meter Reading b Meter Inspection & Control c • Value chain sequencing for post-paid modality: 1-2-3-4-5-6 • Value chain sequencing for pre-paid modality: 1-2-3a-(4-5-6)-3b-3c

6. METER VALUE CHAIN ASSESSMENT (CONT’) 3 5 6 4 1 2 Metering Procurement Data Capture Management Meter Operations Processes Billing Data Collection Billing Issuance & Support Payment c a b Meter Reading Meter Control & Inspection Meter Installation Receive and Process Electronic Payments Metering Technology Specifications Enter Read Data Perform Bill Certification and Validation (Revenue Assurance) Schedule Read Cycle Definition of criteria Costumer registration Collect Readings Upload Readings Resolve Read Data Discrepancies Update Route Schedule Action plan Order of service Meter & Supplier Selection Receive and Process Physical Payments Revise Request from Customer for Off-Cycle Read Perform Bill Computation Results control tool execution Create and Maintain Special Road Instructions and Maps Perform Automatic and Manual Entry Supplier & Outsourcing Management Process Exception Payments, Final Accounts, Payment with Unidentified Customer Account Create Work Order for Off-Cycle Check Reads Training program supervision Requisitions & Orders Management Perform Single and Mass Estimation Determine Requirements for Remote Metering and No-Access Meters Audits Management reports Read Off-Cycle and Final Meter Testing Management reports Perform Data Collection and Validation Receive Agent Lockbox Payments Schedule Daily Read Routes Audits Download Accounts to Meter Readers Management reports Process Carrier/ Clearinghouse Payments/ Settlements Audits Credit Customer Account and Record Payment

7. METER VALUE CHAIN ASSESSMENT (CONT’) 3 5 6 4 1 2 Metering Procurement Data Capture Management Meter Operations Processes Billing Data Collection Billing Issuance & Support Payment c a b Meter Reading Meter Control & Inspection Meter Installation Receive and Process Electronic Payments Perform Bill Certification and Validation (Revenue Assurance) Metering Technology Specifications Enter Read Data Schedule Read Cycle Definition of Criteria Costumer Registration Collect Readings Upload Readings Resolve Read Data Discrepancies Update Route Schedule Action plan Service Order Meter & Supplier Selection Receive and Process Physical Payments Revise Request from Customer for Off-Cycle Read Perform Bill Computation Results Control Tool Execution Create and Maintain Special Road Instructions and Maps Perform Automatic and Manual Entry Supplier & Outsourcing Management Process Exception Payments, Final Accounts, Payment with Unidentified Customer Account Create Work Order for Off-Cycle Check Reads Training Program Supervision Requisitions & Orders Management Perform Single and Mass Estimation Determine Requirements for Remote Metering and No-Access Meters Audits Management Reports Read Off-Cycle and Final Meter Testing Management Reports Perform Data Collection and Validation Receive Agent Lockbox Payments Audits Schedule Daily Read Routes Management reports Download Accounts to Meter Readers Process Carrier/ Clearinghouse Payments/ Settlements Audits Key Credit Customer Account and Record Payment Strong Medium Weak

8. Overview . . . FINDINGS • The formula EDM uses is not in line with international practices • Responsibility for calculating losses does not reside in one office but is spread across different business units; each office using a different approach and different data • EDM lacks systems to adequately capture data for losses calculation. Data, IT systems, physical infrastructure insufficient to develop targeted programs: • Cannot localize commercial losses by customer type or by region • Cannot disaggregate between technical and commercial losses • Really cannot estimate total ATC losses • Determining technical and commercial losses can be influenced

9. Overview . . . FINDINGS (CONT’) • Poor communication amongst senior leadership resulting in poor coordination, duplication of effort and general inefficiency • EDM does not have a long-term systemic and sustainable approach or the internal capabilities for their projects, and tend to implement point initiatives or allow vendors to drive solutions • Benefits from investments are not fully realized • Limited capacity to move from the ‘projects’ phase to ‘steady state’ • The planned electrification program (approx. 400k per year) will worsen EDMs losses situation • EDM has significant vandalism, fraud and lethal accidents, which has resulted in them starting a limited community program

10. ROAD MAP • Internally, as a guide to identify initiatives that: • Build meter-to-cash capabilities sustainably within EDM • Maximize the contribution of the meter-to-cash processes to EDM’s strategic vision of “sustainable high growth” • Reduce commercial losses, increase customer satisfaction, build business intelligence and reduce operational costs along the meter-to-cash value chain • Externally, as a suite of transformative initiatives that EDM partners can support (private sector, public sector, donors, etc.) • In terms of next steps, the strategic Roadmap should be followed by a Business Plan for all targeted initiatives, that includes a cost-benefit analysis and a time line for implementation. • The cost-benefit analysis applied to the testing lab can be used as a guideline

11. STRATEGIC INITIATIVES Scoring based on industry expertise with EDM validation Scale: 1 – initiative with less impact 4 – initiative with significant impact

12. IMPACT – EFFORT ANALYSSIS 6 Loss Analytics & Management Capability 1 1 8 7 4 • Meter Policy Definition 2 2 9 Highest Impact/Effort Impact 5 Procurement & Supplier Qualification 3 Inspection Field Crew 4 Medium Impact/Effort Quick Wins Meter Asset Management Plan 5 3 6 Meter Reading Process 7 • Integrated Network to Customer Information System Lower Impact/Effort Establish a Policy for Human Capital 8 Develop a Policy for Community Education 9 Effort 7700 Outcome Areas Loss Reduction Community Education Meter Operations Human Capital

13. DURATION OF IMPLEMENTATION Years 2 3 5 4 1 1. Loss Analytics & Management Capability Revolving 2. Meter Specification Policy Definition The capability needs to be reinforced over time in a revolving way 3. Procurement & Supplier Qualification 4. Inspection Field Crew Focus on weak commercial metering processes 5. Meter Asset Management Plan 6. Meter Reading Process Impacts go beyond the meter-to-cash value chain 7. Integrated Network to Customer Information System 8. Establish a Policy for Human Capital 9. Define a Policy for Community Education

14. STRATEGIC INITIATIVE OVERVIEW (7/9) 7. Integrated Network to Customer Information System 7.1. Technical Standards 7.2. Mapping 7.3. Registration • Problem Statement • There are issues identified in the customer information network. It includes CMS registered customers and their integration with the geo-referenced system (GIS). • Another problem is the current point-to-point methodology that hinders the integration between systems (current and future). • Description • Re-registering all customers and being able to link them with the Network to Customer Information System (NCIS) allows for efficient planning of the distribution system, expansion projects, distribution network improvements, asset management and contributes towards different activities to combat losses such as consistent client registration, field inspections, meter problems mapping, etc. • For system integration, an Enterprise Service Bus (ESB) implementation would facilitate the communication between systems

15. Overview . . . NEXT STEPS • The material was very well received by EDM and they definitely want to move forward, and other donors also want to participate • Discussions ongoing with EDM on how USAID SRUC can help: • At the request of the COO develop the action plan and ‘prospectus’ for key initiatives • Develop business cases for selected initiatives to help EDM pursue financing • Work with EDM to advance their top priority initiative, NCIS, through a pilot project to test the business case and prepare EDM for the larger rollout • Discussions on other forms of coordinated USAID assistance (DCA programs, SPEED+, etc.) is being discussed • Continue supporting EDM to involve other ESWG donors

16. QUESTIONS?

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