Syndicate content

The power of Public-Private Partnerships to turn around dysfunctional utilities: The case of Tata Power Delhi

Praveer Sinha's picture
Student benefitting from quality power supply
Credit: TPDDL

Around the world, many state-owned public utilities, regardless of their unique circumstances, face similar challenges – including rampant losses, an inability or unwillingness to collect fees from users, political interference, and lack of managerial skills among senior staff.  These problems infect the sector, making healthy investments in power generation impossible, and striking systems with severe power shortages and blackouts. India has been racked by this same sickness, but the case of Tata Power Delhi Distribution Ltd., which inoculated itself against financial ills rampant in other parts of the world, demonstrates how a utility can nurture itself back to fiscal health.  
 
As recently as the early 1990s, India’s capital city, Delhi, endured frequent power cuts and outages that disrupted civic life. It was only in mid-2002 that Delhi’s government began to restructure the power distribution. One of the three entities in the PPP restructuring was Tata Power Delhi Distribution Ltd. (TPDDL), a joint venture between Tata Power Co. Ltd (51%) and the Government of Delhi (49%). The turnaround of the utility was not without challenges -- but today, only 13 years later, the utility is a vibrant and financially viable enterprise.

To get to this point, all of the stakeholders overcame deeply entrenched practices supported by vested interests in a politically charged scenario. The turnaround demanded innovation, persistence, and forward-thinking management skills. The initiatives we adopted and the lessons we learned have been shared widely so that others can benefit from the experience. Here, I’d like to focus specifically on the three-pronged strategy that allowed us to deliver uninterrupted service to low-end customers.
 
Getting from loss to gain
 
Investments of about $620 million from 2002 until today have led to a reduction in aggregate technical and commercial (AT&C)  losses from 53.1% in 2002 to below 10% today, improving system reliability and availability.  The Average System Availability Index (ASAI) increased from 70 to 99.55, providing a world class experience to consumers.  Low tariffs were maintained because benefits from the reduction of losses were passed on to customers or used to offset the increase in procurement price of power. In the last 11 years, nearly 50 percent of the average tariff increase has been offset by the reduction in AT&C losses.
 
Since the start of its operations on July 1, 2002, TPDDL paid about $58 million in dividends to its shareholders, Tata Power and the Delhi Government. These payments add to an initial payment of $29 million for 51% of the shares and to the payment of income and other taxes.  This allowed Delhi’s government to invest in other much-needed infrastructure, such as metro rails, elevated roads, flyovers (bridges that carry one road over another), education support, and social support. This situation contrasts sharply with earlier years, when the power sector was a strain on the government budget, and would have led to outflows calculated at $2.3 billion up to 2014, exclusively on account of Tata Power Delhi Distribution Ltd. service area if the restructuring had not taken place.
 
These figures speak for themselves.  However, investment alone is not the solution -- nor are pre-paid meters, though they were a key part of the strategy.  The overall success of Tata Power Delhi Distribution Ltd. required imagination, skill, and drive. The first step toward this goal was to reduce AT&C losses that went from 53% to 17% in five years.  To do this, Tata initially focused on curbing theft among high end industrial and commercial consumers —in other words, businesses that had the capacity to pay but did not. Once these efforts began, AT&C losses were reduced to 15% in FY 2009 in most areas.
 
However, further research showed that loss levels were as high as 89% in slum areas (also known as JJ clusters) – and over 220 of these exist in Tata’s area. We realized that to reduce loss levels further, the company should also focus on the low end consumers.  In the JJ clusters, theft was the main contributor toward last mile AT&C losses. In the slums, people were stealing electricity primarily due to inability to pay, and also because legitimate electrical connections were not available due to lack of proof of residential ownership, lack of electrification of the area, and political intervention, among other reasons.  It became clear early on that giving these consumers a skill set was key to improving their capacity to pay for our services.
 
Implementing our ideas
 
To help potential clients in low income areas pay for services, TPDDL created a separate consumer segment, a Special Consumer Group (SCG), in 2009.   The SCG was charged with developing a way to make new connections affordable to low end customers.  Our goal was to improve their socioeconomic condition (and by extension, their ability to pay for our services) via this three-pronged strategy: 

  1. Enhancing low end consumers’ capacity to pay electricity bills through various initiatives. Tata Power Delhi Distribution Ltd. started activities in JJ clusters to improve residents’ socioeconomic conditions.  These activities included insurance schemes, medical facilities, drug rehabilitation centers, women’s literacy centers, a reverse osmosis water plant, and vocational training.  There were also programs to support children’s education through scholarships for college and professional institutions, tutors, and similar initiatives.  
  2. Making legitimate electricity connections affordable at residents’ doorsteps by reducing new connection charges to one-third of the current connection fee.  The new connections were made available on the same day by holding 900+ Instant Camps (whereby a new connection is released to a slum dweller immediately).  To do this, we waived outstanding dues, reduced the requirement of proof of identification, and promoted free accident insurance cover of $1500 on metered connections. 
  3. Involving the people of JJ clusters in sustaining the electricity connection. To ensure that low end consumers paid their electricity bill regularly, TPDDL created entrepreneurship, self-help groups, and brand ambassadors within JJ clustersThe residents chosen for these groups took on jobs including metering, meter reading, and bill collection in JJ clusters.

Ultimately, these initiatives allowed TPDDL to achieve its goals while improving the socioeconomic condition of low end customers.  Specific achievements included: 

  • Metered connections in JJ clusters increased from 40,000 in FY 2008-09 to 175,000 in FY 2014-15.
  • AT&C loss level was reduced from 68% in FY 2008-09 to
  • Billed demand increased from $2 million in FY 2008-09 to $20 million in FY 2014-15.
  • This led to improvements in the living conditions of 1 million underprivileged people (0.2 million families) in slums in the capital of India.
TPDDL’s three-pronged strategy for affordable connections for low income people is a sustainable approach. Improvements in the living conditions, brought about by a combination of electricity connections and our SCG initiatives, include access to safe drinking water, education for women, and greater opportunities for employment and entrepreneurship.  This in turn results in a better quality of life for the entire community.
 
The author is the CEO & Managing Director of Tata Power Delhi Distribution Limited (TPDDL). TPDDL is a Public Private Partnership (Joint Venture) of Tata Power and the Government of National Capital Territory of Delhi.
Publication does not imply endorsement of views by the World Bank Group.
 

Comments

Submitted by Chris Hickman on

This is an incredibly story of passion and perseverance and is one of the best examples of a PPP that I have ever seen. The dramatic impact to the economy and lives of everyone touched by effort is really quite stunning. Congratulations to the TPDDL team on truly amazing project that can show the world what is really possible!

Submitted by Sanjay Jha on

Kudos to Tata Power team. Problems which seemed to be impossible to solve, has been quietly solved with sustained and well executed planned approach. We are proud of Tatas and feel that the group should try and replicate similar success stories in other medium and small cities and also think of solutions at village level too to make India truly developed.

Submitted by Kavita Sinha on

Very well said, Mr. Sinha! The multipronged strategy - social, technology, infrastructure and most of all the professional expertise /customer centricity – that Tata Power Delhi Distribution adopted were critical to the turnaround. And Delhi is much better off for it.

Submitted by Hugh on

It is especially impressive to see such tangible and dramatic benefits achieved. At the outset of the journey, I do recall Tata aiming for such ambitous goals as well as the near universal skepticism from naysayers. Thus, it is doubly great to see Tata's success in attaining such performance but also to stand as proof for the rest of India what is possible with commitment, determination and above all, professionalism. Congratulations to the entire Tata Team!

Submitted by Sanjeev Kumar on

I am from neighbouring State Uttar pradesh . We have seen Delhi before 2oo2 where there ware frequent power cuts & huge AT&C loses . Today , when we see the people of North Delhi under TPDDL area are enjoying their life with AT&C Loses from 53.1% to below 10% with ASAI increased from 70 to 99.55 with Low tariffs , it is giving us a feeling that some where in my country , something going very positive . The best part is that TPDDL has brought every section of society of the North Delhi into its ambit in very effective manner .
I wish , it should be implemented other parts of our country . I wish all the success to TPDDL team and its leadership.

Submitted by Dr. OM SHARMA on

I am a resident of Delhi. I have experienced various phases of electricity supply in Delhi. There is no doubt that power supply has shown perceptible improvement over the last few years. The demand, both in peak and off-peak hours is met efficiently. However, there are still voltage fluctuations in peak summer heat because of huge demand. Tata Power has shown commendable performance due to reduction in distribution losses partly due to decline in leakage and partly to efficient management. This experience needs to be emulated across the country as much as in Delhi. The experience over the years has also shown that unbundling of power sector activities has proven to be useful and privatization has been on right lines.

Add new comment