Technical Assistance Consultant’s Report

Project Number: 35486 (TA 3801) May 2004

Bangladesh: Corporatisation of the West Zone Distribution Operations of the Bangladesh Power Development Board {(Financed by the <source of funding>)}

Prepared by British Power International, e-Gen, and Norplan

For {Executing agency} {Implementing agency}

This

consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and e Government cannot be held liable for its contents. (For project preparatory technical

assistance: All the views expressed herein may not be incorporated into the proposed project’s design. ADB and th

2

WZPDCL Business Plan Contents

• Vision

• Mission

• Key External Performance Measures

• Key Internal Objectives

• Financial headlines

• Financial Model Summaries

• Legal & Governance Action Plan

• Financial Action Plan

• Human Resources Action Plan

• Technical Actions Plan

• Operations Action Plan

• Proposed Organisational Structures

• Senior Job Descriptions

• Corporatisation Risk Register

3

WZPDCL Business PlanVision

WZPDCL has been established as the first Corportised Distribution Company in Bangladesh. WZPDCL has a vision to develop into a company that is respected in Bangladesh for the quality of service it delivers to its customers and for the Corporate Governance and codes of ethics and probity under which it operates. Through its success it will serve as a model for future corporatisations.

The Directors of the Company recognise the challenge of this transformation. They commit to working in co-operation with all stakeholders to deliver this vision, actively seek and welcome the constructive input of Government, Shareholders, Advisors, Donors, Suppliers, Customers, Trades Unions and, most importantly, Staff in taking the vision forward.

The Directors commit to improving the safety of WZPDCL employees and the public, taking a responsible approach to environmental issues and improving the training, facilities and general working conditions in the company, whilst operating as a business creating and improving shareholder value.

4

WZPDCL Business PlanMission

WZPDCL will develop its network and processes to enable it to effectively deliver to its customers a supply of electricity that is:

Reliable

Affordable

Accessible to all

In a way that is sustainable from business, ethical and environmental perspectives.

5

WZPDCL Business PlanKey External Performance Measures

• Achieve a return of 5% Return on Operational Assets within 5 years(or earlier depending upon rigorous review of Five Towns plan)

• Create and maintain a positive cashflow with effect from 1 July 2004

• Maintain a gearing ratio below 160% over first ten years

• Maintain an ongoing DSCR of at least 1.5

• By 2010 support all network investment from own balance sheet

• Reduce Customer Interruptions by 20% p.a. to levels in proposed Guaranteed Standards (measurement system must be introduced)

• Reduce Customer Interruption time by 30% p.a. to levels in proposed Guaranteed Standards. (measurement system must be introduced)

• Within three years implement Safety systems to ensure zero accidents causing absence from work of greater than three days

6

WZPDCL Business PlanKey Internal Objectives

• Reduce Operating costs to business plan targets within first year of operation

• Implement capital investment appraisal and authorisation process by 1 September 2004

• Implement training programmes to address all key skills shortages by 1 October 2004

• Implement proposals to address Guaranteed and Overall Standards of Service by 1 October 2004

• Deliver headcount reductions necessary to achieve operating cost targets by 31 December 2004

• Implement network maintenance programme by 1 January 2005

• Fully implement organisational structure to deliver key performance measures by 1 July 2005

7

WZPDCL Business Plan Financial Headlines

• Assumed unit sales increase of 5% per annum

• Improve revenue collection to 98% over 10 years

• Reduce total losses by 50% in 10 years

• Invest capital of ~ 690 MTk per annum between 2005 and 2010 to deliver quantified and measurable network performance improvements

• Commit annual expenditure of ~ 8 MTk on routine network maintenance

• Reduce overall operating costs by ~ 15MTk per annum

8

WZPDCL Business Plan Financial Model

A full financial model of the new WZPDCL business has been developed under ADB TA 3801-BAN covering all financial aspects of the business.

The following pages present the highest level output of the model.

The model will be handed to WZPDCL and presented in the workshopsession to sign on to the business plan.

9

WZPDCL Business PlanFinancial Model Headlines

Criteria:

Average return on assets 5% 9%Cash and bank balance positive f01/01/2006

Requirements:

PPA Purchase price in 2004: 2.05PPA inflation adjustment: 2.0 %

End user tariff adjustment in 2004 0.0 %End user tariff inflation adjustmen 2.0 %

Five Town Project Downscale: 30%Loss of kWh sales as result: 5%Increase in system losses as res 2%

O&M cost as % of fixed assets: 1.50%

Initial valuation of plant & machin 2691166

Interest on loan to BPDB: 8%

REB Sales included to: 2010

Demand growth rate: 5%

EBITDA and net profit

-2000

200400600800

10001200

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Mtk

EBITDA Profit after tax

Return on Assets and Liquidity Balance

0%2%

4%6%8%

10%

12%14%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% p

.a.

-1000

-500

0

500

1000

1500

Mtk

.

Return on fixed assets Cash and bank balance

10

WZPDCL Business PlanRETURN ON ASSETS & LIQUIDITY

Return on Assets and Liquidity Balance

0%2%4%6%8%

10%12%14%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% p

.a.

-1000

-500

0

500

1000

1500

Mtk

.

Return on fixed assets Cash and bank balance

11

WZPDCL Business PlanEBITDA and net Profit

EBITDA and net profit

-2000

200400600800

10001200

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Mtk

EBITDA Profit after tax

12

WZPDCL Business PlanAction Plans - Notes

These action plans have been prepared as a first set of high level actions for the senior managers of WZPDCL to address.

They should be used as a management tool and reviewed at regular meetings by the senior management team to assess progress against target.

The actions are all allocated to the highest level owners at this stage and one of the first steps should be to reallocate to the appropriate levels within each directorate / division as they are appointed.

Target dates that are realistic have been proposed and should be reviewed at an early workshop to check cross dependencies between tasks and gain sign on to the busines splanby all stakeholders.

As new appointments are made further detailed level action plans should be produced as control documents

13

WZPDCL Business PlanLegal and Governance Action Plan

Ref Action Owner Target Date

Completion Date

L1 Finalise business transfer / asset sale agreement and ensure viability for WZPDCL Minister/MD 30/6/04

L2 Finalise PPA and ensure viability for WZPDCL Minister/MD 30/6/04

L3 Ensure all employment transfers / provisions for provident funds are addressed appropriately MD 30/6/04

L4 Implement internal scheme of delegated authority Board 30/6/04

L5 Appoint and brief Audit sub committee Board 31/5/04

L6 Appoint and brief Appointments sub committee Board 31/5/04

L7 Review the requirements of BERCA and consider appointment of Regulation Manager Exec. 30/6/04

L8 Ensure compliance with all employment transfer legislation requirements Exec. 30/6/04

L9 Review compliance with all relevant statute Exec. 30/6/04

L10 Identify insurance obligations and requirements Exec. 30/6/04

L11 Identify all taxation issues Exec. 30/6/04

L12 Review WZPDCL licence requirements under all statute Exec. 30/6/04

L13 Obtain all land schedules and land registration details Exec. 30/6/04

L14 Review needs for external legal advice and appoint counsel Exec. 30/6/04

L15

L16

L17

L18

L19

L20

14

WZPDCL Business PlanFinancial Action Plan

Ref Action Owner Target Date

Completion Date

F1 Carry out business based review of all capital investment plans within WZPDCL FD 31/10/04

F2 Prepare operating budgets for all sections of WZPDCL targeting headline cost reductions FD 31/5/04

F3 Implement budget monitoring process at cost centre level FD 30/6/04

F4 Implement process for authorising capital expenditure at project level FD 31/5/04

F5 Prepare timely management accounts FD 31/5/04

F6 Identify all budget holders / controllers from delegated authority and ensure information flow FD 31/5/04

F7 Implement internal audit procedures FD 31/7/04

F8 Standardise meter reading, billing and collection arrangements FD 31/12/04

F9 Open appropriate banking arrangements FD 31/5/04

F10 Implement financial asset management process FD 30/6/04

F11 Review MIS requirements FD 31/8/04

F12 Implement MIS system to address business needs FD 30/6/05

F13

F14

F15

F16

F17

F18

F19

F20

15

WZPDCL Business PlanHuman Resources Action Plan

Ref Action Owner Target Date

Completion Date

HR1 Appoint high quality Executive Directors Minister 30/4/04

HR2 Deliver Induction and Clear Brief to Executive Directors Minister 31/5/04

HR3 Confirm high Level Organisational Structure Exec.

HR4 Review appointment of WZPDCL Chairman Minister 30/4/04

HR5 Revise WZPDCL Board modus operandi Minister / Board 30/4/04

HR6 Develop communication plan Exec. 30/6/04

HR7 Arrange CBA briefings Exec. 31/5/04

HR8 Develop internal staff assessment process Exec. 30/6/04

HR9 Identify skills gaps GM HR 31/8/04

HR10 Prepare external recruitment process Exec. 31/5/04

HR11 Implement recruitment process Exec. 1/6/04

HR12 Complete key appointments Exec. 30/9/04

HR13 Confirm lower level organisation Exec. 31/10/04

HR14 Develop plan for dealing with surplus staff BPDB 31/7/04

HR15 Identify surplus staff Exec. 31/8/04

HR16 Develop training plan to address skills shortcomings of existing staff Exec. 31/8/04

HR17

HR18

HR19

HR20

16

WZPDCL Business PlanTechnical Action Plan

Ref Action Owner Target Date

Completion Date

T1 Carry out accurate current condition assessment of asset TD 31/7/04

T2 Implement routine maintenance programme TD 30/9/04

T3 Identify detailed needs for operational expenditure TD 31/8/04

T4 Prepare process for authorising capital investment plans TD 30/6/04

T5 Complete compilation of accurate network asset register TD 30/6/04

T6 Produce and verify accurate single line network diagrams TD 30/9/04

T7 Implement effective Safety Rules TD 1/1/05

T8 Implement effective network operational procedures TD 31/12/04

T9 Produce appropriate standards and specifications for items on WZPDCL network TD 31/3/05

T10 Implement appropriate recording methods to report on Guaranteed and Overall Standards TD 31/10/04

T11 Implement effective, transparent and auditable procurement processes TD 31/12/04

T12 Develop metering specifications to support revenue collection improvements TD 30/6/05

T13 Implement / enforce WZPDCL standards of workmanship on network TD 31/12/04

T14 Implement technical losses review and set loss reduction programme TD 31/12/04

T15 Identify operational stock needs for routine business TD 31/12/04

T16 Implement process to deal with new connections to comply with Guaranteed Standards TD 31/12/04

T17 Implement technical training programme TD 30/9/04

T18 Develop and implement Environmental Policy TD 30/6/05

T19 Implement a standards / safety compliance audit process TD 31/12/04

T20 TD

17

WZPDCL Business PlanOperations Action Plan

Ref Action Owner Target Date

Completion Date

O1 Implement regional structure GM OPS 30/6/04

O2 Work with Technical Director to deliver technical requirements GM OPS 30/6/05

O3 Work with Finance Director to deliver Finance requirements GM OPS 30/6/05

O4 Implement staff communications plan GM OPS 30/6/04

O5 Develop reporting processes to headquarters on achievement against targets GM OPS 30/6/04

O6 Develop data gathering processes to report on GS / OS requirements GM OPS 31/7/04

O7 Identify local equipment / transport and tools needs GM OPS 31/7/04

O8 Develop local stores and material arrangements GM OPS 31/8/04

O9 Prepare local programmes to deliver maintenance requirements GM OPS 31/10/04

O10 Review regional staff skills GM OPS 31/12/04

O11 Develop staff development programme GM OPS 31/3/05

O12 Nominate staff to receive technical training GM OPS 31/7/12

O13 Nominate staff to receive financial training GM OPS 31/7/12

O14 Implement regular safety briefings GM OPS 31/7/04

O15 Implement regular business briefings GM OPS 31/7/04

O16

O17

O18

O19

O20

18

Managing Director(1)

Director Finance (1)

Director Technical(1)

Fig 1Board and Office of the Managing DirectorDraft Organisation Chart

BOARD OF DIRECTORS

Audit sub committee

Appointments sub committee

Company Secretary (1)

Management Auditor(1)

GMOperations(1)

GM Human Resources(1)

Internal Audit(1)

Energy Audit(1)

WZPDCL Business PlanOrganisational Structure - Executive

Headcount = (9)

Need for this post to be reviewed in workshop

19

Director Technical

GM, Proc & Logistics (1)

GM, Network Design &

Developm’t (1)

GM, Network Maintenance(1)

DGM, Safety, Standards,

Compliance and Training (1)

Transport (1) Central workshops

(1)

Pole Production Facilities etc (1) Tech Loss

Reduction (1)Reinforcement, Extensions (1)

Project Management(1 + extras as

required)

Overhead Lines (1)

Sub station Plant (1)

Metering, Protection,

Telecoms (1)

Fig 2Technical DirectorateDraft Organisation Chart

GM General ManagerDGM Deputy General ManagerOther posts not designated at this stage

WZPDCL Business PlanOrganisational Structure – Technical Directorate

Headcount = (28)

1 2 5 22 2

1

X X

20

Director Finance

GM, Finance and Accounts

(1)

DGM, Planning and Budget (1) DGM, MIS (1)

Fig 3Finance DirectorateDraft Organisation Chart

Manager, Central Accounts (1)

Mgr, Treasury and Fund Mgt(1)

Mgr, Stores and Inventory (1)

Mgr, Asset Management (1)

Mgr, Planning and Budgets (1)

Mgr, Systems Administration(1) Mgr, Operations (1)

WZPDCL Business PlanOrganisational Structure – Finance Directorate

Headcount = (40)

5 2 2 5 5 101

21

GM, Operations

Fig 4OperationsDraft Organisation Chart

Regional MgrBarisal (1)

Regional MgrFaridpur (1)

Regional MgrJessore (1)

Regional MgrKhulna (1)

Regional MgrKushtia (1)

Networks Finance and Accs

Billing and Revenue HR and Admin

Typical structure of a regional office

WZPDCL Business PlanOrganisational Structure – Operations

Headcount = (5)

22

GM, Human Resources

Fig 5Human ResourcesDraft Organisation Chart

Mgr, Human Resources (1)

Manager, Employee Relations (1)

Manager, Training and Development(1)

Manager, Administration (1)

WZPDCL Business PlanOrganisational Structure – Human Resources

Headcount = (24)

55 5 5

23

Fig 6Regional Operations (typical)Draft Organisation Chart

Networks (1)

Finance and Accounts

(1)

Billing and Revenue

(1)HR and Admin

(1)

WZPDCL Business PlanOrganisational Structure – Regional Operations

Regional Manager

Headcount = (1180)

45 46 98 43

24

WZPDCL Business PlanSenior Job Descriptions

• Managing Director

• Director, Technical

• Director, Finance

• General Manager, Operations

• General Manager, Human Resources

• Company Secretary

• Management Auditor

• General Manager – Finance and Accounting

• General Manager – Network Design and Development

• General Manager – General Manager Network Maintenance

• General Manager – Procurement and Logistics