www.pwc.com/Consulting Task C: Supporting Electricity Sector Reform Deliverable 2.2.: Process mapping & identification gaps of staff skills and performance Strictly private and confidential Final 14 December 2017 Important message to any Any person who is not an addressee of this report or who has not signed and returned to PricewaterhouseCoopers a Release Letter is not authorized to have access to this report. person not authorized to have access to this report. Should any unauthorized person obtain access to and read this report, by reading this report such person accepts and agrees to the following terms: 1. The reader of this report understands that the work performed by PricewaterhouseCoopers was performed in accordance with instructions provided by our addressee client and was performed exclusively for our addressee client’s sole benefit and use. 2. 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Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 2 The process mapping & gap analysis in staff, skills, performance report is the second part of the Institutional development phase of Task C Task C project plan 1 2 3 Financial 4 5 Customer service Project set-up / Institutional performance Review and final performance Inception report Development assessment & report improvement financial models 1.1 2.1 3.1 4.1 Improving financial 5.1 Strategy for institutional Tariff framework Findings review and final Data collection performance of customer development review report service 1.2 2.2 Process mapping & 3.2 4.2  Methodology, team and Tariff structure Improving technical approach validation identification of gaps in set-up and reform staff, skills, perform. performance pathway 2.3 3.3 Manpower / org. Tools (excel model) rationalization review & Trainings 2.4 ERP System review 6 Workshop & Training 7 PMO (progress reporting) Source: Task C inception report Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 3 The report focused on 5 key processes, functional to help GECOL responding to the issues identified with Task A (Rapid sector assessment) Issues identified Increasingly unbalanced tariff Increases of costs in the rapid framework sector Raising commercial losses and limited assessment Worsening sector technical performances collection ability Process 1 2 3 Budgeting 4 5 Budgeting Invoicing / Cash identified for Maintenance Development (OPEX) Billing Collection each issue (CAPEX) Financial Contracts and Transmission Process Owner Affairs Development Customers Service Department Department Department Department Key area GECOL financial performance impacted by the issue and Maintenance Budgeting Consumer Services related process  How many types of maintenance does the  How are yearly plans developed and managed Questions Transmission Department in between two separate processes (opex, capex)  Who is in charge of billing and addressed to GECOL carry out?  How is the budget developed and approved? collecting the invoices?  How does the budget processes looks like  How does the process start and end improve the  What are the limitations and process obstacles faced  How does the maintenance process looks like Note: process have been identified in accordance and alignment with GECOL project team Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 4 The approach used for the process mapping & identification of gaps have been different depending on the data and information availability Task C Phase 2 GECOL Institutional development Task C Step 2.2 Process mapping & identification of gaps in staff / skills & performance A Definition of the Design of the Description of Data Identification of mitigation / TO-BE / the AS-IS available gaps / key issues improvement improved process areas process Approach / methodology B Test the feasibility of No data / Analysis of the Identification of information the best practice ideal process based on actions to achieve the available implementation best practices ideal process through interviews Used when the Interviews with GECOL / process owner mapping of the AS-IS is not documented or was not feasible to be Review of international best practices re-constructed through interviews Note: Not all processes and information could be analysed on a bottom-up basis (Approach A) Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 5 Maintenance Process (Transmission) Budget Process OPEX Budget CAPEX (Development) Budget Invoicing/Collection Process Appendix – Price Control Case Study Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 6 GECOL transmission BU is mainly focused on maintenance activities, and was thus selected as proxy for this maintenance process mapping exercise Organization of GECOL transmission department Legend Executive Manager Assistant Department focused Department on maintenance Sub-department Transmission General Department Administrative Affairs sub- Assistant to the GM department Darna extra high voltage Supplies sub-department maintenance sub-department Programming maintenance Mechanization and development National Training & Administration Technical affairs department department department Maintenance of Western Maintenance of Eastern Maintenance of Western Lines Maintenance of Eastern Lines Transmission Networks department Transmission Networks department department department Maintenance of Central transmission networks department • The Transmission general department includes 9 departments and 43 sub-departments; • The Transmission general department activities does not include:  Commercial activities;  Transmission projects activities. Source: GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 7 GECOL transmission department today is composed by 2,444 FTE, mostly technicians & engineers Staff Specifications #FTE 0% Admin 82 61% 3% 4% 28% Drivers 87 Engineers 691 0% Financial 20 Software 23 1% 1% Research 2 Services [manual] 36 2% Technician 1,502 Admin Drivers Engineers Financial Software Research Services [manual] Technician Translators Translators 1 Total 2,444 90% of the general transmission department staff are technicians and engineers Source: GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 8 The department today manages over 30k km of HV lines and almost 300 substations GECOL Transmission Network 400 KV Network Map Voltage level Lines (km) No. of Substation Substations Capacity (MVA) 400 kV 2,290 14 9,600 220 kV 13,706 81 15,458 66 kV 14,311 195 4,359 Total 30,307 290 29,417 Lifetime of GECOL 220 kV substations Region Average Remaining life • The oldest substation in operation was commissioned on 1974 Commissioning time* (Agelat substation) Year • The newest substation in operation was commissioned on 2012 West region 1984 28% (RIYADIA substation) • The average commissioning year of all operating substations is Tripoli region 1991 42% ~1990. Central region 1989 38% • The oldest is the network the more emphasis on the importance of Sebha region 1999 60% the maintenance. Kufra region 1988 36% • The substations in the West and East regions have the least Benghazi region 1990 40% remaining lifetime, which shall be considered by GECOL when planning for maintenance and spare parts. East region 1985 28% GECOL 1990 39% * Assuming 45 years life time of substation Source: GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 9 GECOL currently uses three different types of maintenance approaches to maintain the network Overview of maintenance approaches in use 1 2 3 Predictive - Condition Based Corrective (breakdown) Preventive maintenance maintenance maintenance Maintenance approach that is regularly Maintenance approach that is performed Maintenance approach that is performed on an equipment to check the to predict when equipment failure might performed when equipment failure likelihood of its failing. Preventative occur (that monitors the actual condition occurs Definition maintenance is performed while the of the asset to decide if maintenance equipment is still working, so that it does needs to be done). not break unexpectedly • For all substations equipment • For all substations equipment • When equipment fails • For high voltage lines • For high voltage lines Criteria used by • For substations indoor feeders GECOL • For lines remote protection • For load shedding scheduling Scheduled (Periodically) Frequent Triggered by asset/equipment condition Triggered by failure Daily, weekly, monthly, semi-annually, annually etc Source: GECOL, PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 10 GECOL maintenance activities are initiated by the maintenance programming department which prepares yearly the maintenance plan 1- Substations preventive and predictive 2- Indoor feeders preventive maintenance maintenance  It includes preventive plan for the indoor  It includes predictive and preventive plan feeders in 80 substations in 2 regions for 97 substations in 12 areas in the year (Eastern & Western) in the year  It sets the maintenance period (starting date  It sets the maintenance period (starting and the end date) for each substation date and the end date) for each substation Substations Indoor feeders preventive preventive and predictive maintenance maintenance 5 Transmission lines preventive and 3- Lines Remote protection schedule predictive maintenance  It includes preventive plan for 108  It includes predictive and Transmission high voltage lines in 2 regions preventive plan for 175 line (220 & lines Lines Remote (Eastern & Western) in the year 400 kV) in 2 regions (Eastern & preventive Maintenance protection  It sets the maintenance period Western) in the year and predictive Plan testing (starting date and the end date) for  It includes cleaning plan for 154 maintenance each substation lines (220 kV) in 2 regions (Eastern & Western) in the year  It sets the maintenance period (starting date and the end date) for Load each line 4- Load shedding Testing schedule shedding schedule  It includes preventive plan for 63 substations in 12 areas in the 4 quarters  It sets the maintenance period GECOL do not use its ERP system for preparing the (starting date and the end date) for maintenance plan each substation Source: Transmission Department – 2017 maintenance plan Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 11 Baseline analyses identified that the execution of GECOL maintenance plan is often interrupted by many unscheduled maintenance Work Orders (WO) Number of GECOL Maintenance Work Maintenance Plan Completion Rates (%) 2012-2015 The highest completion Orders - 2015 rate. This year GECOL 100 92 was assisted by local 25000 90 83 77 78 contractors 80 73 66 67 68 20000 70 61 60 55 51 8894 50 15000 50 44 46 8113 40 10000 30 20 12576 20 5000 10 0 8027 0 0 Maintenance of Maintenance of Cleaning of Maintenance of fiber WO - 2015 Completed - 2015 substations % transmission lines % transmission lines % network % Planned Unscheduled 2012 2013 2014 2015 • In 2015 GECOL maintenance plan aimed at • During the last period, the execution of maintenance plan is negatively affected by: execution of 12,576 maintenance work order but only 1. Security situation succeeded in executing 8,027 (i.e. 63.8% completion 2. Receiving emergency/unscheduled/unplanned maintenance work orders rate). 3. Lack of some tools in particular service vehicles (cranes, forks utility vehicles, etc.) • In addition to the WO included in the maintenance plan, GECOL had 8,894 • In 2012 GECOL contracted local contractors to assist in the maintenance of the emergency/unscheduled/unplanned maintenance 400KV & 230 KV lines and achieved the highest completion rate in the period 2012- work orders and executed 8,113 work order out of 2015 them (i.e. 91.2% completion rate) Source: Transmission Department – Annual reports Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 12 Benchmarking GECOL maintenance critical success factors against best practice highlighted a number of gaps 1 2 3 4 5 Inventory of Processes & Documentation Staff Tools Maintenance Plan Assets Procedures • Aims at: • Maintenance  Improve system • Manufacturer Processes reliability • Equipment manual & data • A clear step-by-  Decrease cost of inventory/Asse Best Practice sheets. step inspection replacement ts registrar Reference instructions  Decreases system • Staff selection • Right tool for • Planned materials procedures downtime and the job replacement • Health check including safety  Reduce injury specifications • In good (spare parts) list requirements • Usage of • Training condition • Critically • Historical • Includes man Computerized ranking - performance hour to execute Maintenance Prioritize records the procedure to Management calculate cost System (CMMS) • Involved • Missing Gaps within GECOL only in the some tools • Has a full initial the (specially • Does not use the documentati preparation of vehicles) features of the ERP on of main • Training • Does not the spare parts • Missing state system to be able to equipment / restarted in include needs of art tools use it as CMMS and assets 2015 in a small maintenance • Do not such as live- generate the including scale cost parameters critically line maintenance plan health check rank maintenance list (prioritize) the and drone assets inspection Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 13 GECOL should consider to critically rank its equipment / assets and the involvement of its maintenance team in spare parts planning to increase its maintenance efficiency Illustrative example of assets ranking for maintenance purposes that GECOL may adopt Rank Effect Consequence 1 Minimal The failure will cause minimum reduction of operation or will require minimum investment to restore full operations. 2 Marginal The failure will have impact on the network and may have to shut down. Some investment may be necessary to restore operation 3 Critical Will cause personal injury and or considerable economic damage. Failure will force part of network or facility to shutdown its operation immediately and temporarily and would require significant investment 4 Catastrophic Will cause death or multiple death or injuries or impact on operations will be disastrous which will shutdown the network of facility in long-term. Assets to be critically ranked according to their failure consequence effect and GECOL to include ranking in the preventive maintenance approach criteria GECOL maintenance team participates in the initial planning for spare parts but not in the final decision The maintenance team is to participate in the final decision in spare parts planning and to share information for forecasting the needs of spare parts, due to: 1. Their knowledge of the conditions of different equipment / assets 2. Optimizing spare parts based on assets / equipment ranking Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 14 In addition GECOL shall take advantage of the ERP features to enhance maintenance planning and monitoring Computerized Maintenance Management System (CMMS) Budget Inventory and 01 02 03 04 05 Management purchasing reports GECOL ERP System (IFS) Accounts Equipment parts list Payables Equipment file with Accounts Equipment history Data Files parts list Receivables reports Reports Payroll Equipment history Maintenance Preventive Fixed Assets Administratio Procurement reports Maintenance and work order schedule n Cost analysis General Employee Work Order Repair history file Warehousing (Actual vs. budget) Ledger Management Inventory of spare parts Sustainabilit Work Orders IFS IFS y IFS Supply • Scheduled Maintenance Personal Data Financials TM Management Chain TM • Unscheduled TM TM • CMMS can decrease the cost of labor by automating job functions and completing them more accurately and on time. • CMMS gives the ability to use the historical data gathered to make more informed maintenance decisions. • Access to this data allows GECOL to identify trends, better understand maintenance costs, and improve inventory control. Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 15 The “AS-IS” Preventive Maintenance (PM) process in GECOL could be summarized in 12 sequential steps AS-IS Preventive maintenance process 6 Shutdown Process Operation 1 Issue PM schedule Frequently – daily/weekly/monthly/ etc (list of working Maintenance orders Three types of work permission are given by the operation: Based on department  A: direct maintenance on the equipment (After shutdown), mechanical Maintenance Plan or admin unscheduled WO  B: Conduct testing on the equipment (After shutdown), Protective  C: Visual check 11 12  update w.o 2 Yes No Validate status to close W/O  Update assets End Receive/Review Continue in Predictive condition PM WO B Supervisor Yes maintenance process  Report to Admin 4 5 Check if Coordinate with shutdown is operation required 13 7 Perform maintenance No Report to supervisor Maintenance procedure inspection team tasks incl. HS No 3 9 8 10 Yes Work Receive PM work Results order Report to supervisor order are ok complete Source: PwC Interviews Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 16 The “AS-IS” Predictive - Condition Based maintenance process is carried out through 17 key processes AS-IS Predictive- Condition Based maintenance process 17 10 1 2 3 No Regular Inform Control Shutdown Process Operation examination Compare equipment deviatio real condition against Center (monitoring of n equipment) equipment checklist Yes 4 16 Work order Issue PM schedule identification. B Maintenance (list of working orders Issue PM department schedule. Based on admin Maintenance Plan* List of working orders 15 9 Check if Yes 14  update w.o Coordinate with status to close shutdown is 6 operation Yes required Validate  Update assets End W/O condition 5  Report to Supervisor Receive/Review No No Admin Check if 11 12 PM work order Yes materials Issue materials Material receive 7 needed requested process No 16 Work Yes order Maintenance 8 complete team Receive PM work 13 order Work order No 17 execution Report to supervisors * Predictive maintenance WO that needs special tools (such as thermography) to monitor the equipment's are included in the maintenance Source: PwC Interviews plan and performed by the maintenance team Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 17 From the analysis of the AS-IS transmission maintenance processes, we identified four issues to be considered by GECOL going forward Issues related to GECOL transmission maintenance process 1 • GECOL is missing the ranking among the different assets to determine the order of Ranking/ each in the maintenance plan and to separate what must be done now from what Prioritization can be done later 2 • GECOL does not take advantage of the functions existing in its ERP system. CMMS Maintenance plan, WO, scheduling etc. shall go through the CMMS to enable monitoring and calculating costs. 3 Local contractors • GECOL used local contractors in 2012 which increased the efficiency of maintenance. GECOL to assess the potential of using such contractors 4 Cost • GECOL maintenance report are missing the information related to the maintenance cost and budget. Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 18 GECOL maintenance workflow process should be aligned to best practice by ranking, inclusion of costing parameters and by using CMMS Existing vs. To-Be maintenance work-flow process Existing Workflow Process Maintenance Schedule WO Allocate WO Feedback & Execute WO Plan for next period to the teams Reporting Unscheduled WO Workflow Process aligned to best practice Feedback , Allocate WO costing Maintenance Calculate & Schedule WO Execute WO Prioritize WO to the teams & Plan Authorize cost for next period Reporting Allocate WO Unscheduled to local WO contractors Continuous Improvement Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 19 The “To-Be” Preventive Maintenance (PM) process envisages more responsibilities for the maintenance adm department & supervisors … To-Be Preventive maintenance process 11 Shutdown Process Operation 1 Issue PM 2 5 21 3 6 schedule (list of 4 WO to be Issue Yes Request approval Maintenance Review working orders Calculate unscheduled Prioritize executed by on budget from Approval invoice Based on cost using department and report Maintenance CMMS WO using WO local finance received CMMS contractor department admin to finance Plan using Yes CMMS No No  update w.o 12 13 7 Continue in To Be C Yes status to close No Validate  Update assets Predictive maintenance W/O Receive/Review process condition End PM WO  Report to Admin Supervisor Yes  Update CMMS  Update MP 9 10 Check if Coordinate with shutdown is operation required 14 16 Perform No maintenance Report to supervisor Maintenance procedure inspection team tasks incl. HS No 8 18 15 17 Work Receive PM work Results Yes order Report to supervisor order are ok complete 20 19 Local Issue invoice Continue at step 9 Receive PM work Contractors order New/modified step Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 20 … Similarly to the new Predictive - Condition Based Maintenance process To-Be Predictive – Condition based maintenance process 13 1 2 3 Regular Shutdown Process Operation examination Compare equipment (monitoring of real condition against deviation equipment) equipment checklist No Yes 24 4 Work order 8 9 5 6 Review identification. C 7 Request approval Maintenance Issue PM Calculate WO to be on budget from Approval invoice Prioritize executed by department schedule. cost using finance received and report WO local List of working CMMS department admin to finance orders contractor Yes Yes No No using CMMS 10 11 12 21 25  update w.o status Check if Coordinate with to close Receive/Review shutdown is operation Validate Yes  Update assets PM work order required Yes End W/O condition Supervisor No 15 16  Report to Admin 14 No  Update CMMS Check if Yes Issue materials Material receive  Update MP materials requested process needed No 19 Work 17 Yes Maintenance order 18 complete team Receive PM work order Work order 20 No execution Report to supervisors 23 22 Local Issue invoice Receive PM work Contractors Continue at step 5 order New/modified step Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 21 GECOL management should also use new technical and financial KPI’s to measure the quality and effectiveness of implementation of their maintenance plan Recommended maintenance KPIs Indicator Calculation formula Status in GECOL Number of maintained substations Maintenance of substations % Number of substations planned to be maintained Number of maintained lines Maintenance of high voltage lines % Number of lines planned to be maintained Number of cleaned lines Cleaning of high voltage lines % Number of lines planned to be maintained Number of maintained fiber lines Maintenance of fiber network % Number of fiber lines planned to be maintained = Hours each equipment is available to run at capacity Equipment availability % Total hours during the reporting time period = Total hours worked on scheduled jobs Schedule compliance % Total hours scheduled = Total hours worked on emergency jobs Emergency maintenance % Total hours worked = Total maintenance overtime during period Maintenance overtime % Total regular maintenance hour during period = Preventive maintenance actions completed Preventive maintenance completion % Preventive maintenance actions scheduled = Total maintenance cost Maintenance cost/budget % Total maintenance budget = Work orders closed Work orders completion % Work orders generated Used by GECOL Recommended to be used by GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 22 Maintenance Process (Transmission) Budget Process OPEX Budget CAPEX (Development) Budget Invoicing/Collection Process Appendix – Price Control Case Study Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 23 Budgeting within GECOL is split into two separate processes, one for operations (OPEX) and one for development projects (CAPEX) Evolution of GECOL budgeting process and related stakeholders • Law 17 - GECOL Establishment and assigning its responsibilities • In 1999, GECOL established a new • Development projects (essentially expansions to General Department, Contracts & In 2009 Projects GD have been divided into 3 the infrastructure) were handled then by the Development Accounts, for separate GDs dealing with Generation, Secretary of Electricity with some minor to none Budgeting, Contract preparation and Transmission and Distribution follow-up from GECOL’s Planning Department Projects Accounting 1984 1993 1999 2002 2009 • Law 17 - was amended in 1993 to entrust • In 2002 the Planning & Projects GD was GECOL with the planning, budgeting, tendering, split in two separate GDs: contracting, and execution of development • Studies & Planning GD for planning and projects tendering • Consequently between 1993 and 1999 GECOL • Projects GD for following-up on project embedded these new activities in its mandate execution (Planning & Projects, Budget and Finance) Several legal and structural implications explains the reason behind the split Source: PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 24 Maintenance Process (Transmission) Budget Process OPEX Budget CAPEX (Development) Budget Invoicing/Collection Process Appendix – Price Control Case Study Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 25 The operating expenses (OPEX) budget covers GECOL operating expenses for its normal operations during the whole year Characteristics of GECOL OPEX budget process Scope Phases Timeframe Expenses related mainly to operations, OPEX budgeting cycle is split into two OPEX budgeting process runs from typically, smaller investments that only phases: October till March/April each year. require expenditures within the annual Preparation phase; and budgeting period (e.g. Maintenance). Completion (approval & dissemination) phase Committee Budget reallocation Sources of Fund A budget committee comprised of all Any department can request additional GECOL’s income (with subsidy from GECO general managers and chaired budget during the year. The finance Government Chapter 4 to cover the by the finance general manager oversee GM is in the power to approve/reject deficit). Deficit is usually used to cover the budget cycle. such request based on the impact of salaries. budget reduction on other departments. Highest Authorities to Approve GECOL’s General Assembly. Source: PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 26 The financial affairs general department has the major role in the OPEX budget preparation GECOL Financial affairs department organization Legend Executive Manager Assistant Department Financial Affairs General Department Sub-department General Manager General Manager Assistance for regions Assistance for Financial Materials accounting Accounting department Administrative affairs accounting Planning department Financial Material accounting Assets management departments in the sub-department sub-department different regions General ledger & Budget sub- Finance sub- financial reporting Fuel accounting sub- department department sub-department department Financial follow up Financial planning Risk management sub-department sub-department sub-department The financial planning department includes 6 sub- departments, with key tasks being the preparation Strategic finance Costing sub- of budget sub-department department Source: GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 27 GECOL’s OPEX Budget is split into 7 general expense categories GECOL’s OPEX Budget – General Categories General Category Main Sub-Categories General Category Main Sub-Categories 1  Basic salaries 4  Buildings maintenance services  Benefits  Vehicles and cars maintenance Salaries  Overtime Maintenance services  Social security  Other  Other 5  Travel expenses 2  Heavy/ Light fuel  Lodging allowances  Natural gas Other Services  Ports and airport expenses Fuel  Lubricants  Other  Other 6  Customs, Maritime expenses 3 Financial Expenses  Bank expenses & Power Purchase  Power purchase  Other  Chemicals  Spare parts for generation/ Material & Spare transmission/ distribution stations 7 parts  Cars and vehicles  Spare parts vehicles and cars  IT equipment  Spare parts street lighting Capital  Training  Fuel and oil for vehicles and cars Expenditures  Other  Other Source: Finance General Department, PwC Analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 28 The budget is allocated across 21 primary Cost Centres (CS) and secondary CS, all of them with a great degree of autonomy over budget expenditure … GECOL’s Budget Main and Secondary Cost Centres (2017) Financial Affairs Tripoli Zliten Planning & Procurement & Control & Legal Affairs General Services Gheryan Green Mountain Studies Inventory Supervision Tubrok Central Western Mountain Southern Contracts & Dev. Companies’ Customer ICT Public Affairs Accounts Affairs Services Benghazi Western Al-Merkab Al-Khaleej Generation Transmission Distribution Tarhuna Jfara Medium Voltage HR & Com Projects Projects Projects Western coast Derna Generation Control Transmission Distribution Tripoli Zliten Western Gheryan Green Mountain Western Western Tubrok Central Eastern Eastern Western Mountain Southern Eastern Central Benghazi Western Al-Merkab Al-Khaleej Tarhuna Jfara CS have a high degree of autonomy in their Primary Cost Centres Secondary Cost Centres budget expenditure Source: GECOL Finance & Budget General Department, PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 29 … However, main and secondary CS are only engaged in the initial preparation phase of the OPEX budget Existing OPEX budget workflow process OPEX budget committee only oversee the progress in the process and have no say in the budget approval Preparation Phase Completion Phase Financial Planning Each main and secondary CS Financial Planning The MD review, The general Department request estimates its budget Department approve and/or assemble budget from each main requirements and send it to the consolidates the budgets request review/approve modification on the the budget or and secondary CS financial planning department from the CS & develop request budget before GECOL draft OPEX raising it to the modification budget the send it to the general assembly MD Engaged CS • GECOL’s Budget depends largely on the • Requests, data gathering and consolidation are done manually deficit that the General Assembly and the • Mostly, each CS relies on the previous year budget while estimating the current budget (Essentially an MoF are willing/ able to finance. extension of the past; not based on clearly articulated operational plans) • CS are not engaged in the finalization phase Issues identified Source: PwC interviews and analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 30 The “AS-IS” GECOL’s OPEX budgeting cycle is split into two phases (Prep and Finalize ) and runs yearly from Oct till Mar/Apr OPEX Budget Preparation OPEX Budget Finalization 10 Review Yes General & Assembly Data gathering and consolidation accept No are done manually 11 Yes Finalize 8 Review Allocation and MD & accept determine No reserves Budget Oversee Preparation No Oversee Finalization Committee 1 6 7 9 12 14 Finance – Consolidate Gather data & Develop Amend data and Issue Final Finalize Financial prepare Estimated Estimated estimate Budget Budget Planning requests salaries Budget Budget 2 End Estimate electricity & water production, fuel 13 Generation and other requirements (excl. salaries) 3 Distribution/ Estimate electricity sales Consumer and other requirements services (excl. salaries) Allocate Final CS are not engaged in the Budget across 4 Estimate manpower finalization phase Departments changes & other HR requirements (excl. salaries) 5 Other Estimate requirements Departments (excl. salaries) Source: PwC interviews and analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 31 After the finalization of the budget, reallocation can occur during the year (but the process show its done with limited involvement of the concerned General Managers) Budget Re-Allocation Process across different divisions of the budget* No Review Yes General Assembly 9 and approve 3 Assess the 4 11 Review Request Yes Yes situation and MD (operational and acceptable ? approve financial flexibility) No No 8 10 12 Financial Review Review Inform and and Finance Controller approve approve department 2 5 7 No Assess the Recommend Within Finance General situation Inform MD Budget Re- same (operational and End Manager Allocation “class”?(1) Yes financial flexibility) End General 6 (For “core” GDs: Department evaluate impact (whose Budget is of budget reduced) reduction) 1 General Request of Department increase in (Requesting allocated budget Budget increase) *) If the budget was to be transferred from the same class, the approval point will go up to the MD Source: Finance GD Strategy& PwC analysis: Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 32 A series of issues related to GECOL OPEX budget practices have been identified, the most important being prioritization and target setting Issues related to the OPEX Budget • GECOL is missing the prioritization among the different items of OPEX to determine the order of each type Prioritization of OPEX and to separate what must be done now from what can be done later • No targets for the different items of OPEX and the level of expenditures compatible with these targets to Targets & efficiency factors enhance operational efficiency • No efficiency factors to reduce part of OPEX • the finance departments (As per the Org chart) in each area has increased from 7 in 2010 to 15 in 2017 which Coordination complexity creates coordination complexity. Using existing GECOL ERP system will reduce the complexity (automated system) Budget Approval • GECOL approve and allocate the budget before it is confirmed with the Government. • Budgets are separated for the areas which makes it hard to follow up which will result in diseconomies of Budget follow up scale and increase in costs. Using existing GECOL ERP system will enhance monitoring efficiency Budget committee • The budget committee has no role in setting up the budget • The budgeting process is manual, and is compiled on Excel. Using existing GECOL ERP system will speed up Manual the process (automated system) Transparency & • GECOL budgeting process lacks transparency between the different departments and accountability of accountability budgeting execution Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 33 To respond to the issues identified, we recommend to increase the role of GECOL Budget committee, which shall set the budget criteria and decide on the OPEX budget (as response of the identified market challenges) Example of GECOL budget committee role & responsibilities Accountability Cost item Example of criteria for setting the targets • Freeze or reduce overtime Salaries • Benchmark salaries between the regions and departments • Priority for Gas Fuel Target budget • Generation to be done on Merit Order Committee to set the targeted budget • Prepare a spare parts strategy for Generation, transmission Material & Spare parts and distribution • Increase training activities Maintenance • Implementation of the recommendations in the ERP report Budget Other Services • Business as usual Consultation Final Draft Budget Each department Committee to Financial Expenses & to response to the develop the draft • Increase training activities targeted budget final and send it to Power Purchase MD • Implementation of remote meter reading/ revenue protection Capital Expenditures activities. • Comparison between leasing and procuring • Agreements with IPP’s and Renewable projects shall have the Transparency IPP’s and Renewable same priority as fuel Budget committee to use the different GECOL KPI’s while MD to discuss and approve the criteria deciding on the criteria Planning department can be the secretariat of the budget committee Budget Committee to check if it can enforce efficiency factor Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 34 For example, GECOL Budget Committee would consider the challenges identified with the project and decide on the OPEX budget accordingly Example of GECOL budget committee responses to issues Example of challenge identified within the Example of response through OPEX budget current project (Rapid Sector Assessment) by the Budget Committee Power generation Efficiency & affordability improv. through gas Gas to have the highest fuel priority Costs can be increased only for efficiency improvement Decreasing but unbalanced OPEX evolution purposes (i.e. maintenance & staff training) Transmission system Stable technical performance Focus on staff training and to procurement/lease the missing important tools for maintenance Heavy financial performance Follow the recommendations in the man power sizing report Distribution and supply Constant and competitive technical performance Focus on staff training Implement ERP report recommendations Heavy and worsening commercial situation Introduce energy efficiency measures Increasing costs / overstaffing Follow the recommendations in the man power sizing report Unbalanced and no transparent tariff structure and Apply energy reduction incentives framework Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 35 In the new OPEX process, GECOL’s MD together with the Budgeting committee will set-up the prioritization policy and OPEX targets … TO-BE OPEX budgeting process Operating Budget Preparation Operating Budget Finalization 13 14 Discuss with the Yes Review Government Government & accept 12 Review Yes General & Assembly accept No 15 Finalize 10 Review Yes 1 Allocation and MD & accept determine No  Set up Prioritization Yes No reserves policy  Setup the targets 9 Review if in Budget Line with prioritization Committee and targets 2 7 Consolidate 8 11 18 Finance – Gather data & Develop Amend 16 data and Issue Final Finalize Financial prepare requests estimate Estimated Estimated Budget Budget Planning through ERP salaries Budget Budget Estimate electricity & water 3 production, fuel and other Generation 17 requirements (excl. salaries) End through ERP Distribution/ 4 Estimate their requirements (excl. Consumer salaries) through ERP Allocate Final services/others Budget across Departments Estimate manpower changes & 5 other requirements HR (excl. salaries) New/modified step through ERP Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 36 … And the re-allocation process will be carried-out according to the same priorities and targets set by GECOL MD/OPEX Budget Committee TO-BE OPEX (reallocation) process 14 No Review Yes General Assembly and approve 3 Assess the 4 13 Request meets 7 Request Review Yes situation Yes Yes and MD priorities and acceptable (operational and targets criteria approve ? financial flexibility) No No No 11 12 5 15 Financial Review Review Inform Reject and and Finance Controller request approve approve department 2 8 No Assess the 6 Recommend 10 Within Finance General situation Inform MD Budget Re- same Manager (operational and Allocation “class”?(1) Yes End financial flexibility) End General 9 (For “core” GDs: Department evaluate impact (whose Budget is of budget reduced) reduction) 1 General Request of Department increase in (Requesting allocated budget New/modified step Budget increase) *. If the budget was to be transferred from the same class, the approval point will go up to the MD Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 37 Maintenance Process (Transmission) Budget Process OPEX Budget CAPEX (Development) Budget Invoicing/Collection Process Appendix – Price Control Case Study Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 38 The capital expenditure (CAPEX) budget covers GECOL capital expenditure for its projects (generation, transmission and distribution) Characteristics of GECOL CAPEX budget process Scope Initiation Timeframe Budget for expenses mainly related to Preparation of CAPEX budget is CAPEX budgeting process runs from upgrading and expanding the initiated by Ministry of Planning November till May each year electricity infrastructure Committee Highest Authorities to Approve Sources of Fund A budget committee comprised of all Prime Minister (PM) and the Central Government’s Budget GECO general managers and chaired Bank of Libya (CBL) by the finance general manager oversee the budget cycle Source: PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 39 The CAPEX budget is managed today by the Contracts and Development Accounts general department in alignment with the Planning & Studies Organization of key departments involved in the CAPEX budget Legend Contract & Dev. Accounts Executive Manager Executive Manager department and Planning General department & Studies department Assistant Contracts and Development Accounts have the major role in Planning & Studies Department / sub- CAPEX budget department preparation Administration Administration Development Contracts & Dev Information and archive Department respond and report directly to LC’s and finance the Government Strategic planning Customs Economical research and studies Projects Accounting Standards and new technology Contracts Technical research and studies Technical planning Source: GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 40 The current CAPEX process tends to engage the main and secondary Cost Centres only in the preparation phase of the budget Current CAPEX budget workflow process Ministry of Planning Contracts & Dev. • The Studies and • Contracts & Dev. • The MD discuss/ prepared the next year Accounts department Planning department Accounts department negotiate the budget template and distribute the template send to the Contracts consolidates the budget with send it to GECOL for & Dev. Accounts budget against the Ministry of • The Studies and department the next template and send it to Planning, CLB and Planning department year budget of the MD for discussions Prime Minister • Generation, planned projects Transmission and Distribution Departments • The Studies and Planning department Dilemma of discussions send to the Contracts & Dev. Accounts department the next year budget of the planned projects Engaged CS Gaps • Requests, data gathering and consolidation are done manually • GECOL has limited control over priorities as the final control is with the Government • The CAPEX budget is on yearly bases which is short term compared to the types of projects included in the budget Source: GECOL & PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 41 The current CAPEX process tends to engage the main and secondary Cost Centres only in the preparation phase of the budget Despite of the need of major investments on the network, disbursement on GECOL CAPEX has been decreasing in the recent years due to the dependence on the Government budget and GECOL limited control over the budget GECOL expenditure on CAPEX (Million LDN) 2015 disbursement on CAPEX by sector 2010-2016 Million LDN 4,500 600 4,000 Sharp decrease 500 3,500 3,000 400 2,500 300 2,000 1,500 200 1,000 100 500 - 0 2010 2011 2012 2013 2014 2015 2016 Distribution Transmission Generation Source: GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 42 The current CAPEX budget process runs yearly from Nov - Dec until March – April, led by the Contracts & Development Accounts department AS-IS CAPEX budget process (allocation phase) PM/CBL 8 Review & Budget Template accept Yes Ministry of From MoP Planning 1 No Yes 9 7 Review No Issue Final CAPEX MD & Budget accept 5 6 2 Prepare draft Distribute Budget Amend draft 10 Contracts & Dev. CAPEX Budget Distribute Final Template CAPEX Budget Accounts against template CAPEX Budget 3 Provide next year budget 11 Provide revised next year Planning & requirements of planned budget requirements of End projects (Gen, Trans & planned projects (Gen, Trans Studies Dist) from (Master plan) & Dist) from (Master plan) 4 Provide status and next Projects (Gen, year budget of on-going Tra and Dis) projects Source: Contracts & Development GD PwC Interviews Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 43 Once allocated, a special project committee supervises the implementation of the project until it comes into service AS-IS CAPEX budget process (completion phase) 3 Issue LC for the 8 Issue payment to the EPC MP/CBL EPC contractor contractor 2 7 Approves reports and issue 11 Approves project 17 Yes Approves Approves project 16 Inspection payments instruction receiving inspection MD committee committee ok report against contract milestones 1 Nominate project 10 Generation & Nominate project relevant committee incl. receiving project manager committee Departments 4 5 6 9 Collect All Project Follow up project Frequent Project progress reports Project/phase document implementation completed** Committee to GM’s and MD* 12 Inspect project, 13 15 Project receiving documents, invoices Issue preliminary Issue final committee and payments against inspection report inspection report the contract 18 20 Return invoice to 22 19 21 Invoice No Follow dispute Contracts & Dev.  Review reports Invoice No No contractor to amend process as in the Accounts  Review Contractor invoice is ok contract amend ed Yes 14 Contractor Amend work 23 24 Finance Affairs Register Register assets End payments * If the estimated budget of the project is exceeded due to irregularities or delays in implementation resulting from the contractor, the contractor bears responsibility for this (there are clear provisions in each contract approved for each project), or if for reasons common to the contractors may request increase of the target value to cover the phase not implemented and not Exceeds (15%) of the total value of the contract and is addressed to the regulatory authorities in particular through the Executive Director of the company ** Phases are only acceptable for Generation project and not transmission projects Source: Contracts & Development GD PwC Interviews Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 44 The key issue connected to GECOL CAPEX budget process is the limited control by GECOL over its amount, priorities and visibility Issues related to the CAPEX (development) budget • Budget allocated for “Development Projects” is outside GECOL’s control: No Control over – Depends largely on overall Government revenue Budget – No match between approved 5-year Development plans and allocated Budget • Budget allocation across projects changes to accommodate the priorities of the Government Limited Control over • Government may request new or on-going projects to be accelerated forcing GECOL to delay Priorities planned or on-going projects by diverting funds, thereby contributing to aggravate the piecemeal development approach for the electricity sector… • Budget is a yearly commitment when most electricity infrastructure projects require at least 2-3 Short-term Visibility years from contract signature to commissioning, which causes difficulties in estimating the budget • Budget initiation, starts in Nov - Dec which is already considered late in comparison to normal Delays in finalizing standards the budget • Not enough time to finalize the budget in time for the Government Budget preparation to consider its in its development Budget Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 45 The TO-BE CAPEX budget process should become a 3-5 years plan approved and committed by the Gov’t, with a revision carried-out on an annual basis TO-BE CAPEX (development) budget PM/CBL 8 Review & 3-5 years Budget accept Yes Ministry of Template Planning 1 No Yes 9 7 Review No Issue Final CAPEX MD & Budget accept 5 6 2 Prepare draft Distribute Budget Amend draft 10 Contracts & Dev. CAPEX Budget Distribute Final Template CAPEX Budget Accounts against template CAPEX Budget 3 Provide/update 3-5 years budget 11 Provide revised 3-5 years Planning & requirements of planned projects not budget requirements of End included in the previous budget (Gen, planned projects (Gen, Trans Studies Trans & Dist) from (Master plan) & Dist) from (Master plan) 4 Provide status and next 3- Projects (Gen, 5 years budget of on- Tra and Dis) going projects New/modified step Note: According to the future GECOL organization suggested with the current project, the functions of the Contracts & Development Accounts shall be taken by the newly formed AFS (and CFO) general department Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 46 In the CAPEX budgeting process, GECOL should also include a Risk identification and management figure, with specific roles & responsibilities TO-BE CAPEX (development) budget 3 Issue LC for the 8 Issue payment to the EPC MP/CBL EPC contractor contractor 25 11 2 7 Approves reports and issue Approves project 17 Approves Approves project 16 Inspection Yes payments instruction receiving inspection MD committee committee ok report against contract milestones Risk 10 Generation & 1 identification Nominate project Nominate project relevant committee incl. & receiving project manager management committee Departments 4 6 Frequent 9 Collect All Project 5 Project progress reports Project/phase document Follow up project completed** Committee implementation to GM’s and MD* 12 Inspect project, 13 15 Project receiving documents, invoices Issue preliminary Issue final committee and payments against inspection report inspection report the contract 18 20 22 19 No Return invoice to 21 Invoice No Follow dispute Contracts & Dev.  Review reports Invoice No contractor to amend process as in the Accounts  Review Contractor invoice is ok contract amend ed 14 Yes Contractor Amend work 23 Finance Affairs Register Register assets New/modified step End 24 payments * If the estimated budget of the project is exceeded due to irregularities or delays in implementation resulting from the contractor, the contractor bears responsibility for this (there are clear provisions in each contract approved for each project), or if for reasons common to the contractors may request increase of the target value to cover the phase not implemented and not Exceeds (15%) of the total value of the contract and is addressed to the regulatory authorities in particular through the Executive Director of the company; ** Phases are only acceptable for Generation project and not transmission projects Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 47 The risk identification shall become an iterative process involving the project team and the other key stakeholders (i.e. MD / MP/CBL) TO-BE CAPEX (development) budget MP/CBL Decision on risk treatment and the project process MD Breakdown Risk identification project activities and Report to Generation & & Classify Risks MP/CBL how to management connect them treat the risks relevant with the Departments classified risks Project Committee Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 48 Maintenance Process (Transmission) Budget Process OPEX Budget CAPEX (Development) Budget Invoicing/Collection Process Appendix – Price Control Case Study Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 49 The consumers affairs department is the main GECOL department which manages the invoicing and collection processes Organization of key department involved in invoicing/collection Legend Assistant Executive Manager Department Consumer Services Sub-department Commercial Affairs Others department Follow up on bank instalments Debt recovery division Commercial Affairs Division and salaries sub department Source: GECOL Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 50 GECOL meter-to-invoice process represents a traditional process dependent upon manual field services Overview of GECOL meter reading and invoicing practices Process Process step/activity Description • Metering department sets a route plan for all meter readers defining the areas that they need to Route plan visit and the time plan. The plan to be installed on a Hand Held Unit (HHU) • The meter readers will conduct a visit to all meters assigned to them and will get the reading of Meter reading the meters on the handheld system Meter • GECOL don’t estimate the consumption of any missing readings. Reading • Once back in the headquarters or branch, customer information will be uploaded to the billing Process Export data system or the local database by the debt recovery division. • Billing department will prepare the bill and do bill verification (applicable tariff, unreasonable consumption, etc.) Generate invoice • Generate bill • Update AR • Meter readers will visit again the customers to deliver the invoice, also it can be delivered by Invoice delivery email and soon by SMS Invoicing Process • Quarterly for residential customers Time frame • Monthly for others ( Commercial, Industrial, Agricultural) Meter Inspection: Meters readers will report back if they visual any manipulation on the meter Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 51 Once GECOL has invoiced, customers have several payment methods available to pay their invoices Overview of GECOL customers electricity bill payment methods Process Process step/activity Description 1 Cash Customers pay the invoice in Cash in GECOL branches 2 Bank Cheques Customers pay the invoice by cheques in GECOL branches 3 Invoice amount is deducted directly from customer bank account based Preauthorize bank on a prior arrangement GECOL 4 Preauthorize salary ( GECOL Invoices of GECOL employees are deducted from their salaries Invoices employee) collection 5 methods LYD pre-paid card Customers pay the invoice through LYD prepaid card 6 Netting Institutions invoices are settled (netted) through the general budget Payment: Customers are given one week to pay their invoice Collection is an important process for GECOL and features downstream in GECOL value chain. It involves direct end customer interaction and impacts the revenue of GECOL. Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 52 Today meter inspections are uploaded in the reader HHU, who visits the customer, uploads the information back and provides it to the customer services department for invoicing AS-IS metering & invoicing process 1 Issue invoices Consumer 5 prepare the bill and do bill services/Co Upload customer file on the verification (applicable tariff, reader HHU. mmercial unreasonable consumption, 6 affairs etc.) Send SMS to customer 2 3 7 Visit the customer premises Customer Yes Upload meter reading Yes Route Distribute invoices to Reader As specified in the reader meter is into the HHU completed customers route accessible Inspect meter condition No No End Consumer 4 services/ Upload customer debt information from the HHU to recovery the billing system or the local database division Source: GECOL & PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 53 Today GECOL customer voluntarily pays the invoice AS-IS collection process* Consumer End services/ debt 3 recovery Register payment on division See slides 55-58 GECOL billing System GECOL 2 Cash Box Payment by cash or bank cheque 1 Customer Receive invoices *) Not applicable for GECOL employees, customers with preauthorize bank arrangements and institutions with netting arrangements Source: GECOL & PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 54 All bank payments are checked by the accountant, internal control and head of accounting department Registration of collection through Bank-preauthorized on the billing system 1 2 3 Ensure that the bank deposit the Branch amounts in the company’s account Receive a list of collected amounts from customers Verify the source of the received receipt Accountant/ before the end of the next working day service department , and a list of deposited by calling the bank and make sure of the and extract the bank statements via e- amounts in the company’s bank account at the end Invoices, subscribers accounts, and Internal banking to confirm receiving all the of each day notifying the internal control control payments in a proper period No 5 Head of Yes Agree on the matching and 4 Payments Accounting validate the payments Match? according to the authorities department and duties matrix 6 7 Send a summery of payment receipts and supporting Accountant documents to accounting Record Daily entries department to record it in the general ledger 8 Head of Review and Post the Financial End recorded entries Affairs Source: GECOL & PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 55 Registration of collection through cash on the billing system Collection through Cash Box 1 2 Receive a list of collected 3 Ensure that the bank deposit the Branch amounts in the company’s account amounts from customers Verify and match the Accountant before the end of the next working day service department, and a list payments receipts prepared and extract the bank statements via e- of deposited amounts in the by cash box/boxes and the /Internal banking to confirm receiving all the company’s bank account at deposited amounts in bank control payments in a proper time the end of each day 9 Check the Head of No 5 differences(decrease/increase), Accounting 4 Payments Yes Agree on the matching and validate the payments and formalize an investigation Committee according to the department match? according to the authorities authorities and duties matrix and duties matrix 6 Send a summary of 7 payment receipts and the supporting documents to the accounting department to Record Daily entries Accountant record it in the general ledger 8 Head of Review and Post the Financial End recorded entries Affairs Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 56 …. Registration of collection through cheque on the billing system collection through Cheque Ensure depositing the No Receive a list of collected Branch cheques before the end amounts from customers Accountant/ of each next working day Returned service department and a Check the verify payment and issue the bank checks? list of deposited amounts in receipts and invoices Internal the company’s bank account statements on daily basis control at the end of each day to ensure that the Yes cheques are cashed. Issue a new invoice No Head of Yes Agree on the matching and Receivables/ Payments validate the payments legal procedures Accounting match? according to the authorities department and duties matrix Send a summary of payment End Accountant receipts and the supporting documents to the accounting Record Daily entries department to record it in the general ledger Head of Review and Post the Financial recorded entries Affairs Source: GECOL & PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 57 ….Registration of collection through cheque on the billing system Collection through Pre-paid card 1 2 3 Verify receiving a list of Ensure direct depositing of amount Branch subscribers who paid their and issue the bank statements Accountant/ invoices by (prepaid ) from the Check the verify payment through the web on daily basis to customers service department and receipts and invoices Internal make sure that all payment are list of deposited amount in the control received (payment of the instalment) company’s account. No 5 Head of 4 Payments Yes Agree on the matching and validate the payments Accounting match? according to the authorities department and duties matrix 6 Send a summary of payment 7 receipts and the supporting documents to the accounting Accountant department to record it in the Record Daily entries general ledger 8 Head of Review and Post the recorded entries End Financial Affairs Source: GECOL & PwC analysis Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 58 A series of issues related to GECOL invoicing and collection process were identified, some of which not directly related to the strict processes in place Issues related to the invoicing and collection processes 1 • Meters are not installed to all GECOL customers, therefore GECOL do not issue invoices to all customers which increase the Lack of installation* commercial losses 2 Disconnection Policy* • GECOL do not disconnect electricity from customers for non-paying invoices which affects negatively the payment to GECOL 3 • GECOL do not apply penalty on delay payment. Nor GECOL propose any incentives for customers for payment of old debts which Penalties/Incentives affects negatively the payment to GECOL 4 • The system is not fully automated across all regions and the presence of different billing systems was noted Billing System* • No integration between the local database billing system and the ERP. Revenues are recorded manually and the auditing employees guarantee that it is accurately recorded in the accounting system which is time consuming and causing extra cost on GECOL 5 No. of visits • The meter reader has to visit the customer twice: first to read the meter and then to deliver the invoice 6 Manual reading • Readings are done manually, leaving big room for errors 7 Missing readings • Missing readings are replaced by estimates: this forces the reader to additional visits 8 Traditional metering • GECOL does not have any pre-paid meters or smart meter installed process 9 Invoicing timeframe • GECOL invoices residential customers every three months 10 Audit function • GECOL does not invlove an external auditor *) Not highlighted in the analysis of the processes Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 59 The key change to the TO-BE process is to use estimates in case meters are not accessible as well as the introduction of penalties for late payments TO-BE metering and invoicing processes 1 8 Update customer master file Issue invoices Consumer to include all GECOL prepare the bill and do bill services/Co customers. verification (applicable tariff, mmercial Upload customer file on the unreasonable consumption, 9 affairs reader HHU. etc.) Calculate late penalty Send SMS to customer 2 5 Upload meter reading 10 Visit the customer premises Customer into the HHU Route 6 Distribute invoices to As specified in the reader 3 meter is Inspect meter condition completed customers route accessible Yes 4 Yes Reader No Estimate reading based on No formulas installed in HHU End Consumer 7 services/ Upload customer debt information from the HHU to recovery the billing system or the local database division New/modified step Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 60 GECOL shall also consider issuing monthly (estimated) invoices to its residential customers, while continuing to carry-out readings on a quarterly basis TO-BE metering and invoicing processes 2 Issue invoices Consumer prepare the bill and do bill services/Co verification (applicable tariff, mmercial unreasonable consumption, 3 affairs etc.) Calculate late penalty Send SMS to customer 4 Distribute invoices to customers Reader End Consumer services/ 1 debt Estimate customer monthly recovery consumption division New/modified step Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 61 GECOL to consider introducing multiple policies to enhance the collection process Policies to enhance collection processes The Government shall Disconnection policy support GECOL in all its to disconnect from collection efforts. non-paying customers Therefore the GECOL GECOL to update its based on a specific shall publish its customer file to include criteria such as collection policy all customers connected number of unpaid including fees, timelines, to the grid invoices. and disconnection. Collect and Introduce of Introduce Make it easy to Liaise with the Leverage maintain smart metering disconnection pay Government state laws customer data system policy file • GECOL to start implementing smart • Introducing a variety of meters on large payment chanels such as consuming customers engaging third party • GECOL to creat sub- merchant processors. department that follows • Exclusively use HHUs and monitors smart by all meter readers and meters and payments integrate them with from large customerds billing system Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 62 GECOL to send reminders then disconnect electricity if customer did not pay in accordance with the disconnection policy To-Be collection process* Consumer End services/ debt 3 recovery Enforce disconnection Register payment on division Issue A/R report See slides 55-58 process GECOL billing System GECOL 2 Cash Box / Payment by cash or bank Third party cheque merchant processors 1 Customer Receive invoices then reminder New/modified step *) Not applicable for GECOL employees, customers with preauthorize bank arrangements and institutions with netting arrangements Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 63 Contents Maintenance Process (Transmission) Budget Process OPEX Budget CAPEX (Development) Budget Invoicing/Collection Process Appendix – Price Control Case Study Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 64 CASE STUDY Authority for Electricity Regulation, Oman sets a 3 years price control (yearly budget limit) for all licensees that cover all regulated activities Price Control is developed to assist and encourage licensees to address a number of key challenges Response to the challenge through Price Key Challenge Control Licensee to develop and operate its business to meet the demand Efficiently meeting the rapid growth in demand efficiently and effectively Train and retain staff with appropriate qualifications and skills to Development and retention of appropriate technical capabilities enable the Licensees to undertake their Licensed activities Improve meter reading, billing and collection Improvements to the performance in this area Ensuring that Licensee has appropriate organizational Deployment of renewable energy sources arrangements to administer the deployment of renewable energy Ensuring critical electrical infrastructure is properly protected Maintaining cyber security against threats from cyber-attacks The Price Control is developed based on best practice including transparency and consultation Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 65 CASE STUDY And the Authority sets main criteria while deciding on the OPEX budget as a response for the challenges Cost Description Criteria for setting target Direct Costs are the costs of operating and • Benchmarking of costs per kilometer of network length. Or Direct Cost maintaining the Production and Networks • Benchmarking Direct Cost per Customer Accounts (CA) Businesses. Staff salaries • Benchmarking of average salaries and the inclusion of more staff Staff in the customer services to increase billing and collection efficiency Costs incurred in relation to a number of ancillary • Comparing the growth rate in Other G&A expenses to the growth Other G&A services such as insurance, accounting, rates in CAs and FTEs transportation, travel, communication and others. The costs associated with engaging external • Business as usual, or Consultancy expertise which can be general or technical in • Based on justified technical, managerial needs. nature. The costs related to the rent of space. • The decision to own or rent space is therefore a significant factor Rent in influencing the amount of rent expenditure that a Licensee incurs. The costs related to the training of staff. • Training on specific development matters that are relevant to the Training business and will enable Licensee to meet the challenges efficiently. The costs related to the. • Implementation of remote meter reading. Meter Reading, Billing & Collection • Comparison between outsourcing the process or to be in-house Allowance for bad debts. • The low allowance would strongly incentivize the Licensee to Bad debt collect its payments efficiently. The Authority benchmark the cost items between the different Licensees Note: Fuel cost is pass through Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 66 CASE STUDY The price controls are adjusted each year by a factor of CPI – X, where X is efficiency factor Improving Performance 01 X- Factor The Authority has determined that an X factor of 2% p.a. over the course of the price control period will apply across all RAEC businesses 02 KPI’s Title goes here The Authority has retained these assumptions despite Licensees’ Text goes here goes here goes here goes here goes here goes here arguments for a lower X-factor in their response goes here. The Authority considers that the X-factor of 2% p.a. do not The Authority decided that no financial rewards or penalties will represent an unduly onerous efficiency challenge in light of the be attached to performance during the current price control, but expected high growth over the forthcoming period and the outturn the Authority may look to introduce such arrangements at the next efficiencies achieved by utilities in other countries price control review once more robust data becomes available. Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 67 CASE STUDY The Authority runs the process in a transparent way and issue the final budget for each Licensee including the consultation results Workflow Process A B C Each Licensee response and Authority proposes the budget for each Licensee based on Authority discuss with each Licensee his comments on the Authority budget benchmarking between different Licensees and criteria response and issue the final budget proposal 2015 2016 2017 Total Authority first xxxxx xxxxx xxxxx xxxxx proposal Licensee response xxxxx xxxxx xxxxx xxxxx The Final Price Control Document is a Authority final xxxxx xxxxx xxxxx xxxxx comprehensive that decision includes the final Price Control for the Licensee and a comparison between Mr Smith to partner OldCo in new business venture Mauris consectetuer ullamcorper quam. Morbi Integer ultricies pede eu risus. Vivamus ligula leo, the Authority decision and tincidunt mi ut diam ultricies non, hendrerit quis, ultrices nec, venenatis nec, ullamcorper faucibus, pellentesque a, eros. Aenean non mauris quis massa varius tempus. nulla. Fusce eros sem, the Licensee response with full explanation Source: PwC Task C: Supporting Electricity Sector Reform Strictly private and confidential 14 December 2017 PwC Final 68