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'Power'ing India through change

Sound procurement methods like rate contracts for standardized low-value items and market prices for non-standardized high-value items ensure better quality and control.

Satyaki Dey        Last Updated: November 12, 2014  | 10:26 IST
Satyaki Dey
Satyaki Deyis student of the Post Graduate Programme (PGP Class of 2015) at the Indian School of Business.

Even after 20 years post liberalisation, India is yet to meet its commitments on 'Power for All'. Interestingly, this stands in stark contrast to the fact that as on August 2014, India had an installed capacity of 250 GW (with another 88 GW capacity addition planned for 2017), positioning it 4th in the list of nations having the highest power generating capacity on the planet. However, on closer look it would seem that the Five-Year Plans, while planning for capacity addition, didn't adequately plan for the impediments that typically come in the way of such massive projects. Identifying some key stakeholders and their roles in India's power capacity addition plans can provide valuable insights as to how some of the bottlenecks can be removed.

Foremost among the causes can be traced to the award stage of any infrastructure contract. Government contracts especially should focus more on quality of final deliverables than on execution methodology. This eliminates time delays associated with micromanagement and additional compliance costs. In fact, 30 per cent of tender awards are delayed due to inability of bidders to meet strict compliance criteria. Next we notice that most national power projects also fare poorly when it comes to execution. Unscientific project planning and inefficient resource and skill deployment of the executing agency often lead to cost and time overruns. A McKinsey study estimates that an improvement in execution alone can bring in several billion dollars in savings over the next five years. Therefore, the execution agency on its part should focus on project planning activities, quality compliance and efficient resource deployment. Often, it also helps to outsource non-core activities such as design and engineering to specialists. Finally, at the heart of any power project are the EPC contractors, who own almost 80 per cent stake in the completion of any project. These agencies are typically integration experts who work with clients, execution agencies and a plethora of government bodies to facilitate project completion by providing end-to-end solutions from conceptualization to project hand-over. Some ways in which EPC agencies can contribute to efficient project completion are listed below.

1. Scope of work needs to be clearly defined to avoid coordination delays and cost overruns. At present, a 250MW coal-based plant in India takes anything between 35 and 48 months and costs Rs 1,500 crore. Similar or bigger projects in the US or China, which follow sound project management practices, get completed in 24 months and cost half as much.

2. Sound procurement strategies such as rate contracts for standardized low-value items and market prices for non-standardized high-value items ensure better quality and control. The EPC agencies should also aggregate orders for items across projects to gain volume discounts. Items such as steel when aggregated across projects can alone save 10 per cent of all project costs.

3. Efforts should be made to adopt value-based approaches. Contracts should be designed to encourage minimalistic designs, value engineering and smart construction practices and discourage redundancies. Huge cost reductions have been realised in several captive power projects employing these practices alone.

4. EPC players should equip themselves with end-to-end approval mechanisms, skilled workforce and sufficient manufacturing capacity with related supply chain to achieve timely completion and payment realisation.

Thus, when sound management principles and industry best practices alone provide a way of realising a staggering $200 billion of additional GDP, it makes tremendous sense that concerted efforts by all the stakeholders be taken to help India achieve its objective of 'Power for All'.

Satyaki Dey is student of the Post Graduate Programme (PGP Class of 2015) at the Indian School of Business. Satyaki did his B.Tech from NIT Trichy and has close to four years of hands-on experience in BHEL's project management division. He was actively involved in the engineering and commissioning of several turnkey supercritical power projects for NTPC, DVC and SEBs.

Disclaimer: Views expressed are personal.

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