o&m contract management

SUMMER INTERNSHIP REPORT

ON

Developing a Strategic Business Model of Operation &

Maintenance Contract Services for Thermal Power Plant

Study done at:

Thermax Limited,

Pune (MS)

Submitted By:

PRAVEEN THAKRE

ROLL NO. 63, II Year

MBA (POWER MANAGEMENT)

August-2011

Affiliated to:

MAHARSHI DAYANAND UNIVERSITY, ROHTAK (HARYANA)

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DECLARATION

I, Praveen Thakre, Roll no. 63, student of MBA (Power Management, 2010-2012) of Centre

for Advanced Management and Power Studies at National Power Training Institute,

Faridabad (Haryana), declare that the Summer Training Report entitled Developing a

Strategic Business Model of Operation & Maintenance Contract Services for Thermal

Power Plant is an original work and has not been submitted to any other institute for the

reward of any other degree.

A seminar presentation of the training report was made on..and the suggestions as

approved by the faculty were duly incorporated.

Dr. Rohit Verma Praveen Thakre

Project Incharge MBA (Power Mgmt)

NPTI Faridabad NPTI Faridabad

Counter Signed

Director/Principal of the Institute

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CERTIFICATE

This is to certify that Mr. Praveen Thakre student of MBA (Power Management), IX-Batch

(2010-12), of Centre for Advanced Management and Power Studies, at National Power

Training Institute, Faridabad (Haryana), has successfully undergone 8 weeks professional

summer training from 13th-June-2011 to 5

th-August-2011 at our Pune Head Office.

During the training he has worked on the project entitled Developing a Strategic Business

Model of Operation & Maintenance Contract Services for Thermal Power Plant.

He took keen interest in this assignment and also actively participated in development activities

related to other projects.

We wish him all the best in his future endeavour.

(Santosh Katkar)

Dy. Manager, O&M Group

Thermax India Ltd. Pune

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ACKNOWLEDGEMENT

Words shall never be able to pierce through the Gamuts of emotions that are suddenly exposed

during the routine of our life. They shall never be able, neither to describe the spirit with which we

worked together nor shall they ever be able to express the feeling I felt towards my guide

Mr. Santosh Katkar (Deputy Manager, O&M Group).

On the behalf of my MBA career, first of all, I am highly obliged to Mr. J.S.S. Rao, Principal

Director (CAMPS) NPTI, MR. D.M. Lokhande, Director (CAMPS) NPTI, Mrs. Manju

Maam, Deputy Director (CAMPS) NPTI, and Mrs. Indu Maheshwari, Deputy Director

(CAMPS) NPTI, who gave me the opportunity to do summer internship in a pioneer organization

like Thermax Ltd. I am also thankful to my internal guide Dr. Rohit Verma, Deputy Director

(CAMPS) NPTI, for his constant encouragement and valuable advice during the course of my

project.

I take the opportunity to thank Mr. Anurag Chincholkar (Assistant Manager, O&M Group);

Mr. S.K. Jit (Associate Manager, O&M Group); Mr. Aseem Barkule (Associate Manager, SPP

Group); Mr K.P. Narayanan (Sr. Executive, O&M Group) and all those who have been

instrumental in completion of my training and also sincere thanks to Mr. P.K. Das (HOD, O&M

Division, Thermax) for showing me the appropriate path to follow.

I am very much thankful to my Facultys Ms. Farida Khan, Senior Fellow (Economics),

Mr. K.P.S. Parmar, Mr. Amit Mishra and to all my seniors for their overall support and

guidance.

At last but not the least, I am also very much grateful to my PARENTS for their moral support as

this project was a struggle that was made much more difficult due to numerous reasons; some of

error corrections were beyond our control. Sometimes we were like rudderless boat without

knowing what to do next. It was then the timely guidance of that has seen us through all these

odds. We would be very grateful to then for their inspiration, encouragement and guidance in all

phases of the discretion.

PRAVEEN THAKRE

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ABBREVIATIONS

TL Thermax Limited

OEM Original Equipment Manufacturers

O&M Operation and Maintenance

CPP Captive Power Plants

IPP Independent Power Producers

SBU Strategic Business Unit

T&T Tools and Tackles

PO Purchase Order

OTF Order Transfer Form

EHS Environment, Health & Safety

FY Financial Year

SPP Small Power Plants

MPP Medium Power Plants

LPP Large Power Plants

BOP Balance of Plant

BTG Boiler, Turbine & Generator

AFBC Atmospheric Fluidized Bed Combustion

CFBC Circulating Fluidized Bed Combustion

PF Pulverized Fuel

LSTK Lump Sum Turn Key

EPC Engineering, Procurement & Construction

BOO Build, Own & Operate

OPEX Operation Expenditure

PAT Profit After Tax

6

Ha Hectare

MoU Memorandum of Understanding

NOC No Objection Certificate

CAPEX Capital Expenditure

CAGR Compound Annual Growth Rate

SOP Standard of Performance

PF Provident Fund

EBITDA Earnings Before Interest, Taxes, Depreciation and Amortisation

EPCOM Engineering, Procurement, Construction, Operation & Maintenance

PFC Power Finance Corporation

BHEL Bharat Heavy Electricals Limited

OHSAS Occupational Health and Safety Assessment System

MoEF Ministry of Environment and Forests

SPCB State Pollution Conservation Board

CRZ Central Regulation Zone

DPR Detailed Project Report

CWC Central Water Commission

AAI Airport Authority of India

BCG Boston Consulting Group

EIA Environmental Impact Assessment

IAA Impact Assessment Agency

EMP Environmental Management Plan

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TABLE OF CONTENTS

S. No. Topic Page No.

1 Executive Summary 9

2 About the Organisation 10

2.1 Thermaxs Profile 10

2.2 Business Areas 13

2.3 Joint Ventures and Strategic Alliances 13

2.4 Realizing The Vision 14

2.5 Power Division 15

2.6 Operation and Maintenance Group 16

2.7 Thermax Quality (EHS) Policy and Customer Focus 17

2.8 Firms SWOT Analysis 18

3 Project Objective 20

4 Significance of The Study 21

5 Introduction 22

6 Review of the Initial Base 23

6.1 Operation and Maintenance Business 23

6.2 Operation and Maintenance Experience 26

6.2.1 Current Revenues 26

6.2.2 Profit and Loss Calculations 27

6.2.3 Analysis of Variances 28

6.2.4 Learnings from the Operational Proceedings 29

6.3 Critical Assessment and Evaluation of Operation and

Maintenance Business (SWOT)

30

7 Conceptualization 32

7.1 Spend Analysis in Operation and Maintenance Contracts 32

8 Focus on the problem 33

8.1 Operation and Maintenance Contract Management 33

8.2 Sub Contract Scope 35

8.3 Various Regulations 36

8.4 Statutory Compliance at Site 37

8.5 Sub Contractor Selection 47

8.6 Sub Contractor Performance Rating Index 48

8.7 SOP for new site mobilisation - w.r.t. Compliance 50

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TABLE OF CONTENTS

9 Mandatory Clearances- Initial set-up of Thermal Power Plant 52

10 Research Methodology 57

10.1 Survey 57

10.2 Data Collection 59

10.3 Value Chain Analysis 59

11 Results and Discussion 60

11.1 Entrepreneurship Opportunity in Operation and

Maintenance Business

60

11.2 Suggestions and Recommendations 61

12 Limitations of the Study 62

13 References 63

13.1 Websites 63

13.2 Books and Journals 63

14 Annexure 64

14.1 Order Transfer Form (OTF) 64

14.2 Manpower Rate Comparison 65

14.3 Data for all Running Sites 66

14.4 Site wise Budgets 67

14.5 General & Administrative Breakup 68

14.6 Statutory Audit Checklist 69

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1. Executive Summary:

1.1. As a student of MBA Power management at CAMPS, National Power training Institute

(Faridabad), I worked as a summer trainee with Thermax Ltd. for a period of two

months from 13th

-June-2011 to 05th-Aug.-2011. During this tenure I was directly

involved in the live projects of Thermax.

1.2. As a part of my summer training I got the opportunity to work as a team member of

O&M group of Thermax due to which I was able to extract all the knowledge about

O&M Contract Management as well as the Spend Analysis of a SBU (O&M division).

This project is the outcome of excellent communication and interaction with higher

dignitaries as well as with vendors, contractors and engineers.

1.3. This report deals with the effective management of O&M contract through its different

phases viz. Mobilization, Stabilization etc, and shall be able to make you aware about

the different statutory compliance existing and cost reduction potential of a power

plant with upcoming and totally new financial valuation method called as Spend

Analysis.

1.4. This report says that the primary objective of every power plant owner is to get

constructed and to operate the plant as cost-effectively as possible to maximize profit.

This means that the owner has to minimize besides the investment costs for

construction the life cycle costs, which are influenced by different- factors. One of

them is the operation and maintenance cost incurrent in course of operation period of

the power plant.

Cost reduction by outsourcing of O&M activities is one opportunity to meet

such requirements. Outsourcing Operation & Maintenance (O&M) of the power

station means optimum performance and utilisation of the power plant.

1.5. High availability, reliability & reduced risks: are the key objectives of a power plant

operator. Outsourcing the complete operations and maintenance of the plant to the

Original Equipment Manufacturer (OEM) can be the best solution for maximising the

performance of the power plant.

anurag rawatHighlight



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2. About the Organisation:

2.1. Thermaxs Profile:

Thermax Limited-Exploring new opportunities for growth:

Thermax Limited is an engineering multinational headquartered in India with its

subsidiaries and offices spread over 25 locations in 13 countries across the globe.

Over the past three decades, Thermax Limited has established itself as a leading

equipment supplier in the energy & environment space. The company, which has so far

catered primarily to the captive power generation segment, is now looking to enter the

utility market. Thermax took the initial steps towards this by winning its first

equipment supply contract from an independent power producer in September 2009,

and is currently setting up a 3000 MW supercritical boiler manufacturing facility in

Maharashtra. The company also plans to expand its presence in the renewable segment

with a number of innovative projects in the pipeline.

Thermax Power-Where Experience meets Expertise:

The first to commission captive power projects and cogen systems on

EPC basis across a wide spectrum of industries like steel, sponge iron,

cement, textiles and chemicals.

Dedicated and well staffed functions exclusively for EPC.

Completed largest number of plants with high plant availability,

delivered on time.

Expertise in wide range of fuels including waste heat recovery solutions

especially for cement & steel.

Over ` 3500 crore worth (over 900MW) power projects on EPC basis

alone.

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Thermax Firsts-Leading the EPC revolution with Indias first:

EPC based power project on CFBC boiler, and combined cycle cogen

plant in captive segment.

Pioneered the EPC concept in mid-range for power.

Waste heat recovery project on EPC in Steel & Cement Industry.

Petcoke based power plant on EPC basis.

Gas/Naphtha fed EPC plant with zero liquid effluent discharge.

The unique distinction of completing CPP projects ahead of schedule and

winning series of bonuses.

Only experienced EPC Company offering O&M (EPCOM) contracts.

Performance Matrix-

In the Power Sector, Thermax has contracted over 60 turnkey projects aggregating over

1600 MW of capacity. In addition, the company has installed boilers aggregating over

4500 MW of capacity and baggasse-based boilers aggregating 1400 MW.

Thermaxs total order book stood at ` 57.94 billion in 2009-10, which was 62% higher

than the previous years order book of ` 35.57 billion. With this the companys order

backlog increased by about 86% to ` 56.81 billion as on March 31, 2011. By the end of

third quarter of 2010-11, Thermaxs total order backlog increased to ` 63.54 billion.

This comprised ` 52.95 billion and ` 10.59 billion from its energy and environment

solutions businesses respectively. The order backlog from its power division stood at `

27.4 billion as of December 2010.

The lower order book during 2009-10 was also reflected in the companys financials.

Thermaxs total income during the year declined marginally to ` 32.35 billion from `

33.35 billion in 2008-09. Profit after tax (PAT) declined significantly during the period

owing to a one-time expense of ` 1.15 billion towards a business settlement. During

the period 2005-10, the total income of the company increased at a compound annual

growth rate (CAGR) of about 21 per cent, while PAT grew by 3.5 per cent.

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The companys financials have improved in the current fiscal year. During the

December 2010 quarter, it posted an operating income of ` 12.41 billion, which was 66

per cent higher than the ` 7.48 billion registered during the corresponding quarter of

the preceding year. The companys profit before tax also increased to ` 1.47 billion in

the December 2010 quarter from ` 0.86 billion in the corresponding quarter of 2009.

Financial Performance (Rs. Billion) Financials 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

(April-

December)

Total Income 14.98 22.1 32.46 33.03 32.35 31.12

EBITDA 2.09 3.16 4.51 4.53 4.34 3.39

PAT 1.23 1.88 2.81 2.87 1.14 2.56

Investments 4.17 5.78 5.8 1.76 3.78 --

EBITDA: Earnings Before Interest, Taxes, Depreciation and

Amortisation

Source-Thermax

Limited

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2.2. Business Areas:

Thermax Limited-Improving your Business is our Business: Thermax offers products,

systems and solutions in energy and environment engineering to industrial and

commercial establishments around the world. Its business expertise covers:

Boilers and Heaters

Absorption Cooling

Waste and Water Solutions

Chemicals for Energy and Environment applications

Captive Power and Cogeneration Systems

Air Pollution and Purification

Power Plant Construction on Turnkey Basis

Power Plant Operation & Maintenance Services

Thermax brings to customers extensive experience in industrial applications, and

expertise through technology partnership and strategic alliances.

Operating from its headquarters in Pune, Maharashtra (Western India), Thermax has

built an international sales and service network spread over South East Asia, Middle

East, Africa, Russia, UK and the US. It has a fully fledged manufacturing setup that is

certified for ISO 9001:2000, ISO 14001 and safety management according to OHSAS

(ISO 18000).

2.3. Joint Ventures and Strategic Alliances:

Thermax has sourced cutting-edge technologies for its business operations through

joint ventures and alliances with world technology majors, like Babcock & Wilcox,

USA; Kawasaki Thermal Engineering Company, Japan; Eco Tech, Canada;

Honeywell, USA; Bloom Engineering, Germany; Balcke Durr, Germany; Struthers

Wells and Ozone Systems, USA.

Thermax has 5 manufacturing facilities including one in China. The company has also

developed a technology research and development facility, and has 120 patents, and 82

national and 16 international trademarks to its credit.

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2.4. Realizing the Vision:

Our Vision:

To be a globally respected high performance organization offering sustainable

solutions in energy and environment.

To become a leader in Operation and Maintenance of power plants, delivering

high value to the customers.

A commitment to excellence in what we do.

Our Mission:

We aspire to become a leading technology company with a global outlook

delivering world-class products and services to customers.

We exist to fulfil the needs of our customers best understood through an

enlightened partnership with him.

Our challenge is to continually expand and define new markets by expanding

the frontiers of research and engineering and customer applications in our

chosen field of business.

We seek dependable partnership with our suppliers to generate a strong

mutual interest in each others welfare.

We live by high value of integrity and excellence in management.

We strive to contribute substantially to the global priority areas of energy

conservation, environment protection and enrichment of society.

Our commitment is to create an organisation, which nurtures the talent and

enterprise of our people, helping them to grow and find fulfilment, in an open

culture.

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2.5. Power Division:

The Power Division of Thermax was set up in 1995 to address Indias burgeoning need

for Power. The division single mindedly focused, pioneered and popularized the EPC

(Engineering, Procurement and Construction) concept of setting power plants in mid-

segment.

The Power Division is divided into following groups:

1. SPP (Small Power Plants) < 12 MW

2. MPP (Medium Power Plant) 12-60 MW

3. LPP (Large Power Plant) > 60 MW

4. O&M (Operation and Maintenance) Group Up to any Size

It offers captive power systems including cogeneration. The power plants from

Thermax can utilize fuels like Coal, lignite, husk, and even agricultural waste (like

baggasse in Sugar Power plants) to generate inexpensive energy, thus reducing overall

energy costs up to 50%.

Backed by strong competencies in thermal engineering, energy management and its

close familiarity with a wide range of fuels, Thermax provides competitive power

solutions. The Thermax Power Division offers captive power and cogeneration

systems on EPC or LSTK basis.

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2.6. Operation and Maintenance Group:

O&M division was set up in the FY 2005 with the understanding of need arises

due to lack of knowledge to non-power players in operating the power plant.

It was felt that through O&M, Thermax can create a close and ongoing

relationship with the customer, and be the first to know the of additional

business opportunities from the existing customers.

The operating data collected from power plants would also provide a deeper

insight to improve the quality and reliability of power plants that will planned

for future.

The key objective is to keep the customers investment productive by

continuously optimizing their operations with an aim to enhance availability,

output, efficiency, plant life and hence indirectly creating a resource of revenue

stream for TL.

Being in a position to operate and maintain the power plants, and thus assuring

the customer of long term asset productivity.

Thermax offers special customer oriented single window features:

Dedicated team of Managers, Engineers & Experienced Technicians.

Routine, preventive and scheduled maintenance activities.

Periodic overhauling.

Complete plant management by Thermax professionals ensuring:

Measurement and Recording of operational data.

Monitoring of operating costs.

Spares management.



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Key customer benefits:

Improvement in overall efficiency.

Increased equipment availability.

Single source service provider for all products.

Data related to Key Performance Indicator ( KPI)

Co-ordination with statutory bodies like Boiler Inspectorate, PCB,

insurance etc.

2.7. Thermax Quality (EHS) Policy and Customer Focus:

Thermaxs quality policy starts and ends with the customer as a focal point:

understanding the customers requirements, designing optimal solutions to meet those

requirements, building systems and processes in place to ensure quality at every stage,

and achieving our commitments on delivery and service before & after sales.

It is our endeavour to create the culture of Total Quality where continuous

improvement of our people, our processes and our products becomes a way of life.

Customer Focus: The Company depends upon customers for its survival, and hence it

believes that everyone can contribute to customer satisfaction.

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2.8. Firms SWOT Analysis:

A scan of internal and external environment is an important part of strategic planning

process. Environmental factors internal to the firms usually can be classified as

strengths (S) or weakness (W) or opportunities (O) or threats (T). Such an analysis of

strategic environment is referred to as a SWOT Analysis.

The SWOT analysis provides information that is helpful in matching the firms

resources and capabilities to competitive environment in which it operates. As such it

is instrumental in strategic formulation and selection.

Strengths:

The major source of companys revenue and profit comes from project

divisions. The major divisions are Boilers & Heaters, Absorption

Cooling Division, Waste & Water Solutions, and Chemicals for

environment and energy applications, Captive Power and Cogeneration

Systems, and Air Pollution and Purification. They altogether contribute

60% to the company revenue.

The company has created niche in the market through its several brands

like hot water generation- Aquamatic & Aquatherm, coil type steam

boilers- Steamatic, Revotherm, and Revotherm plus, shell type

boilers- Shellmax, thermal oil/thermic fluid heaters- Deltatherm and

various solid fired boilers - Woodpac, Combipac, Multipac,

Multimax, Huskpac, Multitherm.

Thermax has a very rich technical expertise. The companys long

involvement in energy business has led to very deep understanding of

fuels. The Thermax offer to the industry on fuels: you name it, well

burn it.

Thermax has excellent management information system in the form of

dedicated intranet called THERMNET and E-mail system called

LOTUS. Thermax sales engineers can immediately load an order with

complete specification from any part of the world through Thermanet.

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Weaknesses:

The company requires steel as raw material. The steel prices have

shown a sharp increase, hence affecting the profit margin.

The company has to pay high compensation to retain talented engineers;

accountants, this can be seen from the balance sheet of the company.

Unavailability of strategic information on Thermax website, which

causes threat to communicate the brand name of Thermax among

seekers.

Opportunities:

Thermax Ltd. has established itself in energy solutions. Now its the

correct time to expand & diversify their business in Power Generation,

Transmission and Distribution.

The company should try to recruit multi-skilled technocrats. This would

reduce the redundancy level for the company.

Company can improve quality of operations, products and inventory

management by taking the help of expert consultants.

The manufacturing operations should try to standardize so that output

of the company can be improved.

Threats:

The profit margin of the company is under pressure. The other boiler

manufacturers are giving Thermax a stiff competition. This restricts the

company from increasing margin.

Some of the major orders which company failed to grab, directly point

towards the presence of another good competitor in the market.

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3. Project Objective:

The O&M division (a sub-group of Power Division) of Thermax Ltd had been facing some

problem with management of contracts, mobilisation of the plant and some other issues

related to the statutory compliance etc.

So as part of their live project at 20+ sites across India, I was awarded with the following

objectives to develop an appropriate Business Development Model or say Strategy by

matching steps with them, and hence in this way, I got the fantastic opportunity to explore

and utilize my MBA skills in this project. Here are the tasks:

To study about O&M Contract Mobilisation.

To construct a unique Mobilisation Master depicting streamlined process.

To prepare guidelines for action steps taken for mobilisation of New Site.

To construct Order Transfer Form (OTF), essential for proper flowing of

information when a new order comes.

To provide the platform for Sub-contractor selection and appraisal.

To review the Statutory Compliance of the sub-contractor.

To prepare Statutory Checklist for Auditing of plant site.

To construct a Financial Model of O&M division.

To prepare Spend Analysis in O&M Contracts.

To analyse Manpower Rate Comparison across various sites, right from the

Day 1 of Purchase Order (PO).

Mandatory Clearances to be taken for setting up of a Thermal Power Plant.

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4. Significance of the Study:

It is a very common saying that, To achieve a TOP position is very easy but difficult is to

maintain that position. Similarly to build a Power Plant is a one-time expenditure but to

run the Power Plant in a cost-effective manner for years of time is the major task.

Centuries after electricity was discovered, the power struggle across India continues

unabated. While capacity addition is taking place, a plethora of other critical issues have

raised their collective heads crying for attention. Among these is the burning issue of

What is the best way to build and run the power plant?

Now a days everyone needs power to survive. For any energy intensive company in non-

power business, in these days of severe crunch of trained manpower, retention of highly

experienced and dedicated team to set and run power project is a challenge not related to

core business, exposing the business to unwanted risk. Due to the high availability demand

and the life cycle cost reduction requirements of power plants, a permanent improvement

of the O&M services is requested.

Thermax is amongst top company and also one of the first to offer O&M services of power

plants in India. Currently they have 20+ live projects in hand for which there is

continuous development of O&M division is going on and its my fortune to be a part of

this developing organisation for my two months internship project.

The study mainly focuses on the O&M of thermal power plant and signifies the value of

contract management with detailed analysis of contract mobilisation w.r.t. the Statutory

Compliance and developing a core business opportunity in the relevant field.

The Biggest Significance of this study is that, now I am aware of:

Managing an O&M Contract.

How to mobilise resources for running a Power Plant.

All Statutory Compliance that need to be focused.

Auditing of any running site w.r.t. Compliance & Sub Contractor Performance.

Mobilisation Process to be followed on receiving a new contract.

Mandatory Clearances taken for setting up of a Power Plant.

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5. Introduction:

The Power sector in India is one of the fastest growing sectors in the world with a huge

capacity addition in last decade as well as planned for the next decade.

Power is one of the prime movers of economic development. The basic responsibility of

power industry is to provide electricity at economic cost, while ensuring reliability and

quality of supply.

India offers huge opportunity in the renovation and modernisation, upgrading and life

extension of old thermal and hydro electric plants. More than 2/3rd

of the installed capacity

consists of plants that are at least 10 years old.

The market for O&M is thus very big, especially in the fields of spare parts or renovation

and modernisation. It is estimated that the total O&M market is worth b/w $ 2-2.5 billion a

year.

In todays scenario the power plant owner move towards the EPCOM type contract of the

plant means the company which provides Engineering, Procurement & Construction

Contracts also provides Operation and Maintenance services.

The ultimate opportunity arises from non-power players requiring only power and thus

offload their O&M Services, so that they will focus on their core business.




23

6. Review of the Initial base:

6.1. Operation and Maintenance Business:

An O&M type contracts represent long-term partnership agreements, it is important

that the owner and supplier maintain common goals and incentives throughout the life

of agreement.

Thermax ensures that an O&M agreement puts the responsibility of managing the

power plant into their hands freeing you to concentrate on your core business.

Outsourcing O&M of the Power Station means optimum performance and utilisation of

the power plant.

There are namely 3 phases of an O&M Contract:

Phase-in Period

Operational Period

Phase-out Period




24

Responsibility in O&M Agreement:

Mobilisation of the complete O&M organisation

Management, O&M of the entire plant

Delivery of all Spare parts

Delivery of all Consumables

Other responsibilities include

Staffing the plant

Day to Day Management

Administration

Training

Dispatch

Power production

Maintenance Planning

Major Overhauls

Troubleshooting

Performance Reporting &

General Logistics

Performance guarantees on parameters such as

Availability

Production

Heat Rate

Lube Oil Consumption

Emissions

Advantages for the Power Plant Owner:

Competitive O&M Costs

Predictable lifetime cost forecast

Substantial Risk Mitigating

Performance guarantees ensure continuous optimisation of the plant

Sustained asset value through best practices for O&M

Maximum Return on Investment (ROI)

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Financial Benefits:

Spare parts optimization

Sustained reduction of OPEX in a very short period of time

Independent interface b/w OEM & Client will save time and money

Longer Asset life, leading to postponed decommissioning costs

HRM Benefits:

Flexibility

Increased Safety

Fewer Human Resource issues

Improved utilization of Clients own personnel resources

26

6.2. Operation and Maintenance Experience:

6.2.1. Current Revenues:

AR as of End JUN 11

Rs Lacs

OC CODE CUSTOMER NAME 0-30 31-60 61-90 91-120 121-180 181-365 366-730 731 & Above TOTAL PROVISION TOTAL

DDM001 MADRAS CEMENTS LTD 37.88 0.10 0.05 0.00 38.04 38.04

DDM004 J K LAKSHMI CEMENT LTD 92.65 46.33 0.35 5.45 1.72 0.16 146.66 0.08 146.58

DDM006 J K CEMENT WORKS 72.34 0.00 0.00 72.34 72.34

DDM007 MADRAS CEMENTS LTD 81.61 1.25 1.13 2.36 0.00 0.00 86.35 86.35

DDM009 J K CEMENT WORKS 50.36 0.00 0.00 0.00 0.32 50.68 0.32 50.36

DDM010 DCW LTD 233.85 3.34 116.93 10.69 0.15 0.13 365.08 0.06 365.02

DDM011 CHEMPLAST SANMAR LTD 145.71 125.71 5.39 0.25 0.20 277.26 0.10 277.16

DDM012 SAURASHTRA CEMENTS LIMITED 98.03 45.71 8.22 0.00 151.97 151.97

DDM013 J K WHITE CEMENT WORKS 86.20 1.72 0.00 87.92 87.92

DDM014 SANGAM (INDIA) LIMITED 2.40 2.40 2.40

DDM015 HINDUSTAN ZINC LIMITED 135.12 3.41 0.52 8.03 3.31 0.90 151.29 0.90 150.39

DDM016 JAYKAYCEM LIMITED 114.07 63.45 0.00 0.76 0.00 0.00 178.28 178.28

DDM017 BHARAT OMAN REFINERIES LIMITED 158.96 44.30 9.31 212.57 212.57

DDM018 KAMAL SPONGE STEEL & POWER LTD 21.24 21.24 21.24 -

DDM022 URJANKUR SHREE DATTA POWER CO LTD 9.59 2.27 11.86 11.86

DDM023 MADRAS CEMENTS LTD 38.83 0.00 38.83 38.83

DDM024 ASR MULTIMETALS PRIVATE LIMITED 26.04 0.00 0.26 26.29 26.29

DDM025 SONA ALLOYS PRIVATE LIMITED 9.64 21.31 30.94 30.94

DDM028 KUDOS CHEMIE LTD 0.73 0.73 0.73

TOTAL 1391.61 21.31 333.59 123.23 52.61 5.43 21.73 1.23 1950.74 22.71 1928.03

DSO - Days 82

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6.2.2. Profit and Loss Calculations:

Source- MIS & Financial Modelling data Thermax Ltd.

The Vertical Y-Axis represents the cost incurred in Lacs and the Horizontal X-Axis

represents the O&M sites.

The Profit margin showed by blue line indicates the profit for various sites maximum

up to ` 145 Lac and minimum tend towards loss up to ` 20 Lacs.

28

6.2.3. Analysis of Variances:

FY 2010-11

JUN 11 YTDRs Lacs

PARTICULARSABP ACTUAL VARIANCE REMARKS

INVOICING 2114.00 2139.44 25.44 Invoicing Less than ABP

MATERIAL COST 380.52 343.52 37.00

% 18% 16%

ODC (Includes Provision for Doubtful debts) 466.79 552.95 -86.16 OVERRUN

DOE 540.00 459.80 80.20

GROSS MARGIN 726.69 783.17 56.48

GROSS MARGIN % 34% 37%

G&A 96.04 76.79 19.25

Other Income 0.00 -2.31 2.31

Depreciation & Interest 21.00 36.26 -15.26

PBT 609.65 672.43 62.78

PBT % 29% 31%

O&M Inventory as on End-June 11 (Gross) 548.75

O&M Inventory - Days 145

AR as on End June -11 ( Gross ) 1,950.74

DSO 83

Points for O&M Action:

Review AR & make necessary collection.

Review - Non Moving Inventory .

YTD - Year To Date

AR - Acount Receivables

ABP - Assumption Based Planning

ODC - Other Direct Costs

PBT - Profit Before Tax

G&A - General and Administration

DOE - Direct Operational Expenditure

29

6.2.4. Learnings from the Operational Proceedings:

By the analysis of financial sheets and the Thermaxs annual report, it is clear that the

O&M Contract proves to be a profit making business because O&M service doesnt

depend on the market fluctuation; rather it depends on the plant size and years of

operation.

O&M division helps:

For Customers For Thermax Ltd.

Non-core (Power ) customers Add Revenue

Single Window Service Build on Expertise

HR / Recruitment Savings More Value added to Client

Turnkey Solution Risk Mitigation

To verify the Budget Vs Actual Thermax has prepared a chart showing the allocation of

cost depicting different scope of O&M.

Scope Cost Head % Manpower +

Services

Manpower +

Services +

Consumables

Manpower +

Services +

Chemicals +

Consumables

Manpower +

Services +

Spares +

Chemicals +

Consumables Labour % 30 28.5 26 22

Material % 1 4 9.5 18 Salary % 34 33.5 30.5 26 Total % 66 66 66 66



30

6.3. Critical Assessment and Evaluation of O&M Business:

After being familiar with the actual work and our project responsibilities, now we are

able to evaluate the organizational business through management point of view. So

here we do the critical assessment by SWOT analysis:

Strengths:

To provide the full regulation for power plant is the biggest strength of

Thermax O&M Business.

To do the O&M of self EPC plants as well as those EPC which had not

done by Thermax and this proves that they are mature enough to provide

O&M to non-EPC plants also.

To use captive knowledge of existing manpower.

Expert in handling any type of Boilers.

Backend support from business vendors to engineering group for

efficient control and with OEM for in-house accessories, and Chemical

division for water treatment.

O&M of Thermax tries their best to mobilize the power plant within 45

days.

Thermaxs record book include:

a) Highest no. of projects finished in time.

b) Highest no. of repeat orders in category.

c) Highest no. of bullet bonuses earned.

Weaknesses:

Scarcity of experienced manpower.

Poaching of manpower.

Engineers moved out due to attraction towards more salary.

Burgeoning issue of labour laws.

Inadequate information of non-EPC contract.

Company has to pay high compensation to retain talented engineers.

31

Like every giants there is a lack of proper approach and communication

hence bureaucratic culture exists.

Absence of adequate skilled support staff and lack of motivation due to

non-managerial approach

Opportunities:

BUILD OWN OPERATE(BOO)- (BOO) is a form of project financing,

wherein a private entity receives a concession from the private or public

sector to finance, design, construct, and operate a facility for a specified

period, often as long as 20 or 30 years. After the concession period ends,

ownership is transferred back to the granting entity.

MOTIVATION- To trained lower level employees to give them the

promotion and acts as the motivation factors for others employee.

Past performance on O&M will help Thermax to grab more projects.

Company can go ahead to improve quality of operations, products &

inventory management by taking the help of expert consultants.

Threats:

Increasing competition from foreign as well as Indian companies.

Poaching of manpower.

Migration is the key threat, not only at the bottom level but also at the

top level, as they leave the organization and become entrepreneur.

Another major factor is coal which is diminishing day-by-day; hence it

acts as a threat for surviving of small power plants.

32

7. Conceptualization:

7.1. Spend Analysis in Operation and Maintenance Contracts:

Labour & Materials MCL 1 MCL 1 MCL 2 MCL 2 MCL 3 MCL 3 JKL 3X18 JKL 3X18 JKL WHRB JKL WHRB JKCW 22 JKCW 22 USDPCL USDPCL

Actual till

July

Projected

Aug+Sept

Actual till

July

Projected

Aug+Sept

Actual till

July

Projected

Aug+Sept

Actual

till July

Projected

Aug+Sept

Actual till

July

Projected

Aug+Sept

Actual

till July

Projected

Aug+Sept

Actual

till July

Projected

Aug+Sept

Regular Serv Provider Charges 28 14 32 16 28 14 36 18 20 9 21 15 22 16

Cost of Addnl. Services 21 11 41 4 4 2 26 15 1 1 1 35 2 2

Spare or Consumable cost

incurred34 9 33 15 23 10 31 30 0 0 21 55 9 9

Sub Total->> 83 34 106 35 55 26 93 63 21 10 43 105 33 27

Total->>

Labour & Materials DCW DCW CSL CSL JKM JKM SCL SCL HZL HZL JKWC JKWC BORL BORL

Actual till

July

Projected

Aug+Sept

Actual till

July

Projected

Aug+Sept

Actual till

July

Projected

Aug+Sept

Actual

till July

Projected

Aug+Sept

Actual till

July

Projected

Aug+Sept

Actual

till July

Projected

Aug+Sept

Actual

till July

Projected

Aug+Sept

Regular Serv Provider Charges 39 20 32 16 28 14 20 10 84 52 20 10 60 45

Cost of Addnl. Services 56 20 17 20 15 8 8 20 6 15 7 20 30 15

Spare or Consumable cost

incurred151 80 94 40 35 15 32 20 12 8 7 10 20 40

Sub Total->> 246 120 143 76 78 37 60 50 102 75 34 40 110 100

Total->>

Scope is M,C,S

Scope is M, C, only

Site - unstable/pre-commng.

Actual till

July

Projected

Aug+Sept

Projected

for

Q1+Q2

TOTAL->> 1207 798 2005

210

60

366 219 115 110 177 74

O&M - April - July 2011 YTD + projection of Aug and Sept (Rs. Lacs.)

117 141 81 156 31 148

33

8. Focus on the Problem:

8.1. Operation and Maintenance Contract Management:

To survive in this competitive world, every organisation wants to enter into profit

making business where there is a continuous flow of earnings takes place. Talking

about the market uncertainty, when there is a downfall or recession going on, which

directly affects the companys profit and loss account; it is then necessary for the

company to avoid its capital expenditure (CAPEX) in order to remain safe in the

fluctuation period.

As stated above and keeping in view the market strategy now we shall focus on our

actual problem of contract management. In the recession period where nobody wants to

invest their money in the market, sometimes it may happen that many companies

wants to build their own power plant on EPC contract but they dont have adequate

amount to invest or say they are not able to invest in this period particularly, which is

indirectly a loss to Thermax.

In this condition if Thermax didnt have any EPC contract then how could they

survive, is a big Question Mark? Also it is said that, when you are not in touch with

your core field then your boon becomes your curse. Thermax is also one of the experts

in EPC field, and hence to remain in this field, Thermax put their step forward with a

clear & broad vision to initiate a unique O&M Division in the year 2006 and started

taking the O&M Contracts.

Operation & Maintenance Contract Management refers to the effective management of

contract to sustain in the field of Power Sector in terms of handling the whole plant and

its activities so that our knowledge and experience becomes the biggest hallmark

towards our giant mission and vision.

At present Thermax O&M Division has 20+ ongoing O&M contracts across India

helping them to understand the basic problem arising at different sites regarding coal

supply, unavailability of manpower, poaching of manpower due to unsuitability in

some parts of India, means North side people finds it difficult to adjust in South and

34

vice-versa. This type of issues creates panic for the whole process of O&M of Power

Plants and hence to manage all these problems on-site as well as off-site is termed as

Contract Management.

Due to the rapid industrialization which is necessary for countrys economic

development, all companies need a huge amount of power and as per the present

scenario the cost of electricity is increasing at a continuous pace and expected to reach

at its climax within this decade. In order to meet the electricity demand, companies

move towards setting up their own Captive Power Plant (CPP) or become Independent

Power Producer (IPP), so that they are able to control their electricity cost and hence

able to save a handsome amount which they utilize for further development.

Throw a light on industries setting up CPP & IPP; we came to the conclusion that these

industries are those who doesnt have knowledge about the running of Power Plant e.g.

Industries like Cement, Textile, Steel, Chemicals, Sponge & Iron etc. or the industries

who want to offload their operation and maintenance of Power Plant on contract basis

to other experienced giants in this field. Now look at this particular point which

provided the clue and this is the actual reason why we (Thermax) came into picture and

started providing O&M services to Power Plant and emerged as one of the top O&M

Service provider.





35

8.2. Sub Contract Scope:

After receiving the O&M contract of any Power Plant, Thermax soon started their

mobilization with all formal clearances and trying their level best to complete it within

the given time period of 45 days due to which they awarded many times.

O&M service refers to the complete understanding and working of Power Plant which

is further divided into lot of subcategories viz. Fuel Handling, Consumables, Waste

Management, Water Treatment, Ash Utilization, Spare Part Maintenance, Boiler

Accessories, BTG & BOP maintenance etc. All these activities are not possible for a

single contractor and here arises the scope for Sub Contract.

Sub Contract basically means to work under Contractor. The Sub Contractor is then

responsible for all minor works which are beyond the scope of main contractor or in

other words if the main contractor shows unwillingness to do some work then it gives

sub contract to the third party. It is correct in the sense that (taking Thermaxs

example) the giant firms are not interesting in hiring and recruiting the unskilled

workforce which are required to work at site as labour.

After analysing the appropriate problem of Contractor and Sub Contractor management

we can easily conclude that as EPC Contracts increases there is sudden jump in:

Industrialization

O&M Service Provider

Contract Management

Sub Contract scope

Jobs for unskilled workforce

Literacy level


36

8.3. Various Regulations:

Apprentices Act

(Bombay) Labour Welfare Fund Act

(Bombay) Industrial Relations Act

(Bombay) Shops & Establishments Act

Building & Other Construction Workers Act, 1996 (with Mah. Rules, 2007)

Contract Labour Act (with Central and Mah. Rules)

Child Labour Act

Employers Guide to Labour Laws

Employees Provident Funds Act with Scheme

Employees State Insurance Act

Employment Exchange (Compulsory Notification of Vacancies)

Equal Remuneration Act

Factories Act (with Mah. Rules)

Industrial Disputes Act (with Central and Mah. Rules)

Industrial Employment (S.O.) Act

Maharashtra Mathadi, Hamal & Other Manual Workers (Regulation of

Employment & Welfare) Act, 1969

Maharashtra Pvt. Security Guards (Regulation of Employment & Welfare) Act,

1981

Maharashtra Workmens Minimum House-Rent Allowance Act & Rules

Maternity Benefit Act

Minimum Wages Act with Mah. Rules (with Notifications Fixing Revising

Minimum Rates of Wages in Mah. State for Schedule Employment)

M.R.T.U. & P.U.L.P. Act

Payment of Bonus Act

Payment of Gratuity Act with Mah. Rules

Payment of Wages Act with Mah. Rules

Private Security Agencies (Regulation), Act, 2005 with Mah. Rules, 2007

Sales Promotion Emp. Act

Trade Unions Act with Mah. Rules

Weekly Holidays Act

Workmens Compensation Act with Mah. Rules

37

8.4. Statutory Compliance at Site:

Objectives:

In present global business competition, it is imperative to outsource certain

independent activities. Such outsourcing can be assigned to vendors / contractor at

our works as well as customer premises at site.

To safeguard the organization, vendors & customer from legal prosecution under

various applicable labour laws as well as other local laws.

To extend & ensure benefits to all contract labours as prescribed under labour laws

& other local laws at site.

To maintain optimum / highest level of statutory compliance at site at all times

operating following standard procedure and control mechanism.

Appointment / Selection of Contractor / Vendor:

Contractors / vendors who possess their own independent registration under

following acts & who will professionally strong in statutory compliance shall be

appointed as professional contractor / vendor at site.

1. Registration under Employees State Insurance Act 1948 (E.S.I.C Code)

2. Registration under Employees Provident Funds Act 1952 (P.F Code)

3. Workmen Compensation Insurance Policy under WC Act 1923 in case of

non ESIC coverage area.

4. Labour License under Contract Labour Act 1970 if applicable.

5. Labour License under B & O C W Act 1996 if applicable.

6. Registration under Labour Welfare Fund Act if applicable.

7. Firm / Business Registration with local authority (Shop Act).

8. Professional Tax

9. Income Tax (Pan No)

10. Service Tax Registration

38

Thermax Ltd shall ensure followings while appointing the

contractor at site:

1. Agreement with contactors / vendors on 100/- Rs stamp Paper apart from

purchase order / work order etc

2. Indemnity bond to be taken from contactors / vendors on 100/- Rs stamp

paper

3. Strictly ensure appointment of supervisor by the contractor & to avoid direct

employee - employer relationships. The said supervisor will monitor day to

day activities of the contractor. Such supervisor may be one among the

contract labour also.

4. Ensure safety training to all contract labors.

5. To provide personal protective equipments to all contract labors.(PPE)

6. Strictly adhered all Labour laws which are applicable at site.

7. Undertaking from the contractors & his employees for observing safety

norms.

Contractors should ensure following before entering at site:

1. To keep bio- data cum application of all workmen with photo.

2. To keep age proof of all workmen / labors.

3. To issue identity card with photo to all labors.

4. To keep records of medical fitness of all labour

5. To issue appointment letter to all employees

6. To issue PF numbers to all labours / employees.

7. To obtain ESIC numbers for all labours / employees.

8. To appoint supervisor at each site.

9. To keep copies of all records at site at all times for Govt. Officer Inspection.

39

Site Location:

1 Principal Employer is Customer

2 Contractor is Thermax Ltd

3 Sub-contractor - Contractor appointed by the Thermax Ltd

Applicability of the Act:

Principal Employer, who has directly & in-directly employed (employees of

contractors & sub-contractors) the persons in his factory premises are too be taken

in to consideration of applicability of the Act.

Contractor shall strictly ensure statutory compliance under following labour laws at

site.

SN Regular Labour Laws at Site

S

N

Silent Labors Laws at Site

1 The Contract Labour Act 1970

1 The Factories Act 1948

2 The Minimum Wages Act 1948

2 Labour Welfare Funds Act 1953

3 ESIC Act 1948

3 The Maternity benefit Act 1961

4 PF Act 1952

4 The Equal Remuneration Act 1976

5 The Payment of Wages Act 1936

5 The Industrial Disputes Act 1947

6 The Payment of Bonus Act, 1965

6 The Profession Tax

7 Workmen Compensation Act 1923

7 House Rent Allowance Act. In

Maharashtra state it is mandatory

8

Building & Other Construction

Workmen Act 1996 & Cess Act

1996

8

The Child Labour (Prohibition &

Regulation) Act 1986

9

The Interstate Migrant Workmen's

Act 1979

9

The Industrial Employment

(Standing Order) Act 1946

10 Other State Acts & Central / State

Rules if any.

40

Very Important:

Every Act contains following three important aspects.

1 Central Act Applicable to whole India

2 Central

Rules

Applicable to concern state, those who are not having their

own state rules. All Central Govt. undertakings as well as

supported by Central Govt. are coming under said rules even

though they are operating in various states.

3 State Rules If the concern state is having its own state rules it is mandatory

to follow state rules including operating procedure like legal

fees, security deposits, legal forms / formats etc.

8.4.1. Compliance under Contract Labour Act 1970:

The said act is applicable to contractors, who are employing 20 or more workmen as

contract labour. (PI checks individual state applicability). Every Contractor to whom

the act applies must obtain licence in Form No. VI.

Procedure for obtaining license under Contract Labour Act 1970 (Central Rules)

1 Form IV Application in duplicate

2 Annexure Declaration by the Contractor

3 Form V To be obtain from Principal Employer

4 Security Deposit To be deposited in SBI through Govt. Challan.

5 License Fees To be deposited in SBI through Govt. Challan.

6 Form VI License issued by the Govt. Authority to the contractor

7 Form VII Application for renewal of license along with renewal fees

8 Power of

Attorney

If required for signing the documents

It is mandatory to keep copies of all statutory records in the 3 KM of radius of work

site.

41

8.4.2. Compliance under Minimum Wages Act 1948:

It is mandatory to pay minimum wages applicable to customer location at site.

Each Sate Govt. is declaring minimum wages as per the category of the industries & as

per the applicable zones. Before paying minimum wages Pl take following details

from customer / principal employer.

1 Type of Industry To be check with customer

2 Under which zone the said

industry is coming

1 or 2 or 3 or 4 To be check with customer

3 Applicable minimum wages To take from customer as per below format

Skill Category Un Skilled Semi

Skilled

Skilled

Basic To check To check To check

Govt. DA / Special All To check To check To check

Total

HRA 5% of Basic + DA

If you are paying more than minimum wages, the amount over & above minimum

wages should be shown as Conveyance allowance, Washing allowance etc instead of

other allowance.

8.4.3. Compliance under Payment of Wages Act 1936:

It is mandatory to pay wages before 7th

of every month where the customer is

employing less than 1,000 persons (Direct & Indirect) & before 10th

of every month

where the customer is employing more than 1,000 persons (Direct & Indirect) When

the employment of any person is terminated, the wages earned by him must be paid

before the expiry of the second working day from the day of termination.

8.4.4. Compliance under ESIC Act 1948:

It is mandatory to cover each labour / employee from day one, those who are drawing

monthly wages / salary up to ` 15000/-.

42

Key Benefits under ESIC Act 1948:

1 Sickness

benefits

2 Medical

benefits

3 Disablement

benefits

4 Funeral

Benefits

5 Accident

benefits

6 Maternity

benefits

7 Depends benefits

8.4.5. Compliance under PF Act 1952:

It is mandatory to cover all labours / workmen / employees under said act from day 1.

It is mandatory to deduct 12% PF on Basic + DA from Rs 0001 to ` 6500/- PM.

Employee can contribute PF deduction on entire Basic + DA Amt (above ` 6501/-) but

it is not binding on employer to contribute his share on or above ` 6501/-.

Key benefits under PF Act 1948

8.4.6. Compliance under Workmen Compensation Act 1923:

The said act is applicable to non ESIC coverage area.

The said act is also applicable to ESIC coverage where employees are getting monthly

wages more than ` 15000/- (out of preview of ESIC coverage).

In case of accident it is mandatory to pay following benefits under said act.

Key benefits under WC Act 1923:

1 Temporary disablement 3 Permanent Total disablement

2 Permanent Partial disablement 4 Death

1 Long life pension to nominees in case of death

2 One time EDLI benefit in case of death

2 Pension after completion of superannuation age

4 Non refundable loan for various reasons

43

8.4.7. Compliance under Bonus Act 1965:

The bonus is payable as per financial accounting year from Apr to Mar. It is

mandatory to pay the 8.33% bonus to the labors / employees those who are drawing

wage (Basic + DA) up to Rs.10, 000/- per month and who has worked for minimum

period of 30 days in a accounting year. Bonus must be paid within a period of 8

months from the close of accounting year.

Procedure for calculation of bonus Under the said act wage ceiling for bonus

calculation is locked by Govt. An employee who draw a salary or wage (Basic +DA)

more than Rs.3500/- to Rs 10,000/- per month, bonus will be calculated on Rs 3500/-

only. In other words 8.33% bonus will be calculated only on Rs 3500/- PM even

though his wages (Basic + DA) are more than Rs 3500/- PM.

Labour /

employees is

getting monthly

wages (Basic +

DA) Rs 10500/-

Labour / employees

is getting monthly

wages (Basic + DA)

Rs 2800/- (below Rs

3500/-)

Labour /

employees is

getting monthly

wages (Basic +

DA) Rs 3500/-

Labour / employees

is getting monthly

wages (Basic + DA)

Rs 6500/- (above Rs

3500)

Not eligible for

bonus

2800 X 8.33% = Rs

233/-

3500 X 8.33% =

292/-

3500 X 8.33% =

292/-

8.4.8. Compliance Building & Other Construction Workers Act 1996:

The said act is applicable to every establishment which employs, or had employed 10

or more building workers in any building or other construction work. The said act is

mostly applicable to green field areas & upcoming factories those who are not

registered under the factory act 1948.

44

8.4.9. Compliance Building & Construction Workers Cess Act 1996:

The said act is second part of the building & other construction workers act 1996.

Once registered under the said act, Cess Act is applicable automatically. Under the

said act we have to pay cess to Govt. Labour Office not exceeding 2% but not less

than 1% of the cost of construction incurred by the employer. (Excluding cost of land

& Compensation paid under WC Act 1923)

8.4.10. Compliance Inter State Migrant Act 1979:

Every establishment or contractor who employs or who employed five or more inter-

state migrant workmen (whether or not in addition to other workmen) on any day of

the preceding 12 months is required to take license / registration under the said act.

8.4.11. Report of Accident under Factory Act 1948:

It is mandatory on the principal employer as well as contractor to inform following

authorities immediately in case of fatal accident & with in 48 hrs in case of other

accident of Direct or In-direct employee. It is mandatory on each contractor to intimate

any type of accident to principal employer immediately.

Factory

Inspector

Nearest Police

Station

ESIC

Authority

Next kin or other

relatives.

Principal

Employer

8.4.12. Report of Accident under Building & Construction Workers

act 1996:

It is mandatory to inform following authorities immediately in case of fatal accident &

with in 48 hrs in case of other accident of Direct or In-direct employee.

Regional Labour

Commissioner

Nearest

Police St.

Districts

Magistrate

Next kin or

other relatives

Welfare

Board

Principal

Employer

45

8.4.13. Site Closure Procedure:

As per the provisions of the respective Acts, Govt. Inspectors are checking party

ledgers along with supporting documents for verification of payment of PF / ESIC

dues on labour charges other than regular wage muster. If the payments of PF & ESIC

dues are not tally with labour charges, inspector will issue non compliance legal notice

along with dues, interest penalty & damages to the company.

By considering future legal liabilities under various acts as well as legal prosecution, it

is mandatory on each site In-charge as well as site contractor to complete following

site closing procedure. Pl ask contractor to submit followings:

Site commencement on Site completion on

Contractor Name Contractor Address

Site Name Site Location

Total period of site Number of employees

PF Code No ESIC Code No

Govt. Inspectors are asking following information along with supporting documents.

SN Month Total

Billing

Material Cost &

other cost etc.

Labour

Cost

Total PF

Paid

Total ESIC

Paid

1

2

Total

The above information will help us to define PF / ESIC liabilities on labour charges

otherwise the Govt. Inspectors will charge PF / ESIC on entire billing amount.

46

Check List to be completed by Thermax Officials:

SN Particulars Y

e

s

N

o

NA

Remark

1 Has notice of completion of work given to Labour office

in form VI A. under Contract Labour Act 1970

2 Has contractor surrendered license to Govt. Auth in form

VI under Contract Labour Act 1970

3 Has contractor taken back security deposit from Govt.

auth after surrendering above license (form VI)

4 Has notice of completion of work given to Labour office

in form IV under B & O C W Act 1996

5 Has contractor surrendered license to Govt. Auth in form

II under B & O C W Act 1996

6 Has contractor taken back security deposit from Govt.

auth after surrendering above license (form II)

7 Has contractor paid 1% cess under B & O C W W Cess

Act 1996 to Govt. Auth

8 Are we holding 10% payment of total contract value of

the contractor against the statutory compliance

9 Has contractor submitted copies of all records from site

start to site end date (Muster Roll, Wage sheet, OT

Register etc)

10 Has contractor submitted copies of all PF records? Forms

2,5,10,12A,3A,6A, PF Challan (PF members list)

.11 Has contractor submitted copies of all ESIC records?

forms 1,3,5,7A, ESIC Challan (ESIC member list)

12 Has contractor properly / legally terminated service of his

employees

13 Has contractor taken receipt for payment of full & final

settlement of his employees?

14 Are we taking site closing undertaking on 100/- Rs stamp

paper from the contractor while closing the site for future

legal & other liabilities if any

15 Has contractor submitted receipt of bonus paid to his

employees (site start date to end date)

16 Has contractor submitted copies of PF settlement claims /

dues of his employees

47

8.5. Sub Contractor Selection:

Statutory Compliance Audit - Check Point STATUS

SN Registration and Licence

1 Whether contractor is registered under Labour Contact Act, 1970?

2 Whether contractor has obtained a licence under the act?

3 Workmen employee should not exceed maximum no specified in the licence

4 Wages are payable to workmen as per Minimum Wages act, 1948

5 Licensee should submit a return to Inspector within 15 days of commencement

of contract work

6 Copy of the licence shall be prominently at the premises of work.

7 No female contract labour employed, before 6 a.m. and after 7 p.m.

8 Every licence shall be renewed after 12 months.

9 In case of immediate labour requirement at work place, principal employer

should apply for temporary registration or lecence to the registering authority.

Welfare and health care of contract labour

1 Facilities should be provided by the contractor like First-aid, Wholesome

drinking water, a sufficient number of toilets, washing facilities etc., within

seven days of the commencement of work.

2 If these facilities are not provided by the contractor, then principal employer

has to provide these facilities.

Registers and Records

1 The principal employer shall ensure the presence of his authorized

representative at the place and time of disbursement of wages by the contractor

to workman and it shall be the duty of the contractor to ensure the disbursement wages in the presence of such authorized representative.

2 The authorized representative of the principal employer shall record under his

signature a certificate at the end of the entries in the register of wages or the

1[Register of Wages-cum-Muster Roll as the case may be in following form:

Certified that the amount shown in column No---------- has been paid to the workmen concerned in my presence on -------- at --------- .

3 Register of contractors:-Every principal employer shall maintain in respect of

each registered establishment a register of contractors in Form XII.

4 Register of persons employed.-Every contractor shall maintain in respect of such registered establishment where he employs contract labour a register in

Form XIII.

5 Employment card.-(I) Every contractor shall issue an employment card in

Form XIV to each worker within three days of the employment of the worker.

6 (II) The card shall be maintained up to date and any change in the particulars

shall be entered therein.

7 Service certificate.-On termination of employment for any reason whatsoever

the contractor shall issue to the workman whose services have been terminated

a Service Certificate in Form XV.

8 Following registers and records to be maintained by the contractor under these

rules, namely:

9 Muster Roll

10 Register of wages

11 Register of deductions

12 Register of overtime

13 Register of advances

14 Register of fines

15 Wage slip

Sign by Site Incharge

48

8.6. Sub Contractor Performance Rating Index:

Site Name:

Name of Contractor:

Performance Appraisal Period: Apr-Sept / Oct-Mar

(Pink Copy For HO, Yellow Copy For Subcontractor, White Copy For Site Records)

Sr.

No. Scaling Attributes Score

A-Man Power

1 Qualification of Manpower

2 Knowledge of Manpower about Operation (CHP, AHP, WTP)

3 Skills of Manpower in Mechanical Maintenance

4 Adherence to Safety Practices

5 Attendance of Manpower

6 Man Management & Control by Sub-Contractors Site Incharge

7 Fulfilment of extra Manpower in case of Exigency

8 Corrective Actions & Improvement done based on past feedback

9 Consistency in Performance

B-Tools, Tackles & PPEs

10 Tools and Tackles supplied as per list given in PO

11 Training to Manpower for safe use of Tools & Tackles

12 Supply of all PPEs

13 Replacement / maintenance of Tools & Tackles

C-Billing & Documentation

14 Correctness of Bills

15 Timely Submission of Bills

16 Bills submitted along with all mandatory documents, which are

49

necessary for payments (Attendance, T&T List, PF, WCP / ESI)

D-Communication

17 Adequate communication facilities provided at their office

18 Communication Effectiveness

19 Timely response to communication from Thermax

E-Records

20 Proper record maintenance regarding attendance

21 Proper record maintenance as per all Statutory Laws

F-Other Issues

22 Ability of contractor to mobilize at another site anywhere in India

23 Capability of contractor to handle bigger size power plant contract

24 Training and development programs organized by Contractor

25 Suitability of this contractor for future contracts with Thermax

TOTAL SCORE

Instructions:

1. Every attribute has to be given its proper score as per the assessment of the Station Manager.

2. Every Attribute should be given score in the range of 0-4.

(0 = Very Poor, 1 = Poor, 2 = Satisfactory, 3 = Good, 4 = Very Good)

3. Contractor Performance Score shall be out of 100.

4. Yellow Copy should be formally handed over to Sub-Contractor.

Issued by:

Thermax Station Manager

Date:

50

8.7. SOP for new Site Mobilisation w.r.t. Compliance:

Colour Legend used for Activity Number

Zero date to Mobilisation Target - 45 days

Zero Date to Stabilisation

Post Stabilisation or Review

Activity

Colour

Activity Milestone - Remarks and

Points for completion

Target in days Target Date Actual Date Scope

C = Client

T = Thermax

B = Both

Owner dept. -

SCM

Responsibility

assigned to

Activity-

Classification

Zero Date - Shall be communicated

by Marketing based on Receipt of

Advance or Contract or LOI or Notice

to Proceed - A formal letter from

Marketing / Commercial approved by

LV or PKD

25-Jul-11 Documentation

OC Creation - Data Entry into

System, Circulation of Budget

2 27-Jul-11 Thermax Documentation

OK from Commercial Dept.- Billing

and Shipping addresses for material

movement, Road permits need and

scope, taxation rules

2 27-Jul-11 Thermax Documentation

Labour license formalities for TL as

well as for the Manpower Contractor

30 24-Aug-11 Thermax Documentation

OPMS Circulation - O&M Philosophy,

Preventive, Periodic, Shutdown,

Breakdown etc,

90 23-Oct-11 Thermax Documentation

Making Spares lists and defining

scope - Typical terms used are

Capital Spares, Real Spares,

Consumable Spares, General Spares,

OEM Spares etc

60 23-Sep-11 Thermax TL to submit lists Documentation

Site Safety Compliance - Site Visit of

HO safety coordinator, Safety Manual,

Training, OHSAS, Posters etc

60 23-Sep-11 Thermax Documentation

OE visits - Based on As Built and PG

test reports, Focus on warranty and

guarantee claims, FOC spares etc,

here timing is important

25-Jul-11 Client Expert

Requirement

Site Transit House - Quarters from

client or Rented Facility, Bachelor

Hostel

15 09-Aug-11 Thermax Infrastructure

Site Office Setup - Building and

Furniture

30 24-Aug-11 Client Infrastructure

Site Office Setup - Computers and

Printer


Depositing of Mobilization Advance

(Site Fund) to enable commencement

of Site Operations


Site Communication Facilities - Email

facility, Internet Connection, CUG

mobiles

30 24-Aug-11 Both Infrastructure

Walkie Talkies - Decide quantity and

license formalities


Site Canteen / Mess Facility 45 08-Sep-11 Thermax Infrastructure

Site Stores - for TL owned material 45 08-Sep-11 Client Infrastructure

Site Stores - for Client owned

material? Upkeep of the store?

Security of the store? Stocking?

Inventory Management?Inwarding?

45 08-Sep-11 Client Infrastructure

Chemical Lab - Building, Lab

Equipments, Lab ware


Site ERP / EAM - Setup, training etc 90 23-Oct-11 Both Infrastructure

Manpower (TL) - Org structure,

Manpower plan, transfer, ID, Roles &

Responsibilities, Recruitment,

Interview, Appointment, Induction,

Deputation

45 08-Sep-11 Thermax Manpower

WTP Chemicals and Plan - Boiler

Water Chemicals / Cooling Water

Chemicals / RO Chemicals / Anion

Cation Resins

30 24-Aug-11 Client Material

PPE's - First Lot 25 19-Aug-11 Thermax Material

Consumables - First Lot of Lubricants

and Oils


Consumables - First Lot of

Maintenance Consumables


MOBILISATION MASTER FOR O&M SITE - KAMACHI SPONGE AND POWER CORP

51

Consumables - First Lot of Fuses 60 23-Sep-11 Client Material

Consumables - First Lot of Bearings 60 23-Sep-11 Client Material

Consumables - First Lot of Gaskets 30 24-Aug-11 Client Material

Consumables - First Lot of CHP and

AHP Spares

60 23-Sep-11 Client Material

Mechanical Tools and Tackles -

Common Tools, Tools Boxes,

Contractor Tools TL Scope

20 14-Aug-11 Thermax Material

Electrical Lab - Test Equipments 20 14-Aug-11 Both Material

C&I Lab - Test Equipments 20 14-Aug-11 Both Material

Scaffolding 20 14-Aug-11 Client Material

Bed Material - Scope and

Management


Master Spare Plan - Study of plant 90 23-Oct-11 Thermax Review

Site Taxi Facility 15 09-Aug-11 Thermax Service

Manpower Contractor - Define Scope

for Manpoweras well as T&T

30 24-Aug-11 Thermax Service

Coal/Fuel Yard Management - Earth

Moving Equipment, Stacker

Reclaimer, Yard Area etc

25-Jul-11 Client Service

Ash Disposal 25-Jul-11 Client Service

AMC Pest Control 30 24-Aug-11 Client Service

AMC - PV and Lifting Tackles Sling

testing - In case of new eqpt demand

copy of certificate else schedule

testing as per need.

30 24-Aug-11 Both Service

AMC - DCS and PLC systems 120 22-Nov-11 Client Service

AMC - Compressors 120 22-Nov-11 Client Service

AMC - AC Systems 120 22-Nov-11 Client Service

Testing and reviewing equipment

performance (Pre commissioning

onwards)

Both Taking Over

Collecting Technical Documents of the

plant eg O&M manuals, EPC contract

documents - Focus on "As Built",

Receive a list of drawings from

customer, Receive a list of O&M

manuals, Collect and verify drawings

and manuals from the customer / EPC

contractor.

90 23-Oct-11 Both Taking Over

Collecting PG test reports of the full

plant or sub systems, also compiling

test certificates etc - This is important

for baseline data. Atleast one copy of

all the commissioning protocols shall

be taken from customer or EPC

contractor if we do not witness /

certify. Incase we are taking over

running plant then only operating

protocols can be verified.Witnessing

and certifying commissioning

protocols

25-Jul-11 Both Taking Over

Making Base Line study of Rotating

machines and critical equipments -

Vibration analysis, oil check, capacity

checks, coal quality

60 23-Sep-11 Thermax Taking Over

Making punch point list from operation

and maintenance point of view -

Before Synchronisation and to be

closed out before stabilsation of the

plant

Thermax Taking over

Making punch point list from safety

point of view - Before Synchronisation

and to be closed out before

stabilsation of the plant

Thermax Taking over

Stock verification of spares inventory -

This is required in case we take over

a running plant

Thermax Taking over

Above information to be classified

into:

1. Manpower 2. Materials 3. Facilities 4.Coordinatio

n Reviews

5. OEM Service

/ Third Party

Expertise

6. Taking Over

Type of Sites / Clients 1. TL EPC 2. EPC by

others

3. Spilt Jobs 4. Running

Units

5. Overseas

52

9. Mandatory Clearances Initial set-up of Thermal Power Plant:

9.1. Industrial Entrepreneur Memorandum acknowledgement given by

Ministry of Commerce and Industry.

9.2. Memorandum of Understanding (MoU) to be signed with State

Government.

9.3. Land Acquisition for Power Plant, Ash Dyke, Dam Site, Colony, Coal

Handling, Cross Country Pipeline, Coal Conveyor etc. which comprises of

following types of land:

i) Government Land

ii) Private Land

iii) Forest land

i) Government Land:

a) Identify the land coming under project site

b) Meet the Patwari of that Village on which particular land is coming & then

prepare KHASRA map indicating various location of the land.

c) List the name of owners coming under that particular area based on Khasra

Mapping.

d) Obtain the No Objection Certificate (NOC) from Local Gram Panchayat.

e) With all the above mentioned information i.e. Khasra Map, List of Land

Owners, NOC from Gram Panchayat, Land Diversion application if forest

or agricultural land is coming under construction.

f) With all the information cited above:- Local Govt. issue Section 4

Notification stating that so & so govt. land is to be acquired by the Project

Owner and if any one of the land owner having any sort of objection can

write to them within 30 days of issue of notification. If any objection is

received with the time frame specified by the govt. than the issue shall be

discussed and resolved through public hearing.

g) Based on the evaluation cost of land required by the Owner (Non-Forest &

Non-Agricultural) and application fee for diversion of forest or agricultural

land, Govt. decides the total amount to be paid by the land user and request

to deposit the actual cost to the govt.

53

h) Once the applicable fees is paid, govt. issues Section 6 stating the given

land is acquired by the ultimate user and issues payment cheques to various

land owners who had sell their land.

i) Once section 6 is issued, the land is presumed to be under custody of the

Owner.

ii) Private Land:

a) Acquisition of private land is similar to the acquisition of govt. land and

initial three steps of Govt. land viz. a, b, & c is same for Private also.

b) Further, after preparation of list of land owners, direct dealing with the land

owner with negotiations can be performed to purchase the land.

c) Once the desired land is purchased, than the same shall be communicated to

the local govt. for their information and records.

iii) Forest Land:

a) Diversion of forest is necessary and permission from regional MoEF is

required if the land is

54

b) Ministry of Environment & Forests (MoEF): For MoEF clearance following

procedures has to be done:

1) PHASE-I Screening: Submit the application for site clearance to MoEF.

If the site clearance is not granted than search for alternative site and

again submit the application for site clearance.

2) The site clearances provided by MoEF have certain conditions, if the site

selected meets all the conditions than proceed for Environmental

Clearance Phase-II (Citing, EIA report preparation, public hearing etc).

3) PHASE-II:

Step-1: Base line data collection

Step-2: EIA report preparation and other approvals including

Central Regulation Zone (CRZ) for coastal area.

If diversion of forest 5 Ha apply to

Central MoEF clearance.

If use of ground water is involved than a hydrological

report is to be submitted along with EC application.

Obtain approvals for Electricity, Water Supply (Ground

Water Board or Irrigation Dept. or Municipal Corporation

etc.) and Explosives Storage / Hazardous substances (if

applicable).

Finalize Application and Environmental Appraisal

Questionnaire.

Step-3:

A public hearing required.

Submit requisite no. of copies of executive summary.

Submit 1 copy of EIA, air and water consent application

Form-1 and Form-13.

Advertise and conduct public hearing by SPCB.

Obtain details of public hearing.

Obtain NOC from SPCB.

The above mentioned Step-3 involves approx 60 days.

55

4) PHASE-III:

Step-1:

Submission of Documents (EIA-20 copies, EMP, NOC,

Public Hearing details, DPR) to MoEF.

Step-2:

Review by IAA.

If IAA feels that the data provided is sufficient then, the

expert committee will submit their assessment over the

report and application.

Step-3:

Expert committee will submit their recommendation to

IAA.

Step-4:

If the project is accepted than MoEF clearance is granted

for 5 years, however, if the case is rejected than it (case) is

closed. Reconsideration may be considered in some cases.

Step-5:

Step 1 to 3 requires approx 90 days and Step-4 requires

approx 30 days.

9.5. Water Drawl Permission:

Drawl from Perennial River: Approval from State Govt. in which

river is falling. Data such as Water feasibility Report, Gauge

Discharge and Index MAP indicating the location of Power

Plant, River Pump House etc. to be submitted to Principal

Secretary, Water Resource Department for State clearance.

If, more than one state is involved in drawl of water from the

river then in such case permission from Central Water

Commission (CWC) is required.

If construction of Dam is required, Const. of Dam Permission,

Water Drawl Permission, Royalties to be paid etc.

56

9.6. Fuel Linkage Clearance:

If coal is to brought from outside agency i.e. no captive coal mine

is allocated than permission for coal linkage is required, which

involves following procedures:

Permission for railway sidings in case rail transportation is

required from the nearest railway line.

Way of right for railway sidings.

Three party agreement etc.

Allotment of coal blocks as per the requirement from Coal

Ministry, Govt. of India.

Coal Mining Plan is to be prepared and approved from State

Govt.

9.7. Civil Aviation Clearance:

For construction of any sky rise building including chimney from Airport Authority

of India (AAI).

9.8. Permission from State Govt. for Construction Power.

9.9. Permission from State Govt. for Construction Water.

9.10. Permission for use of Explosive.

9.11. Consent to establish from the State Environmental Board for setting up

the thermal power plant.

9.12. Consent to Operate & Maintain from the State Environmental Board for

setting up the Power Plant.

57

10. Research Methodology:

10.1. Survey:

O&M Services at a site can be sustained over the long term only by satisfying

the customer and ensuring the running of power plant in a reliable and efficient

manner.

Customer is King for us and it is a well known fact that customers demand and

needs varies according to the situation. Hence to understand and walk with

customer priority is Thermaxs sole responsibility. Keeping this in view, we

classify the customers into different groups to aware you about their nature,

which are as follows:

1) EPC (TL) Customer:

O&M contract entered into with an ongoing project of TL EPC. Now EPC

groups within TL are:

Small Power Plant (60 MW)

In LPP segment usually cust

o&m contract management

Documents

power studies

year mba power management

deputy director camps

summer training report

thermal power plant

principal director camps

om group thermax india

faridabad haryana