The Clean Way to Power

Image: Madhu kapparath for Forbes India

Amit Mital of A2Z

Till the year 2000, Amit Mittal was the regular middle-class guy you’d meet on the roads. He was safely ensconced at state-owned gasoline retailer Hindustan Petroleum. He had a comfortable job as a civil engineer, setting up projects all over the country. And to top it all, as a signal of his status as a high-performer, the company had allowed him a perk reserved only for its top officers: He was entitled to fly on official duty. Yet, one fine day, the 34-year-old Mittal did something that shocked his family: He put in his papers, without another job in hand. His father, a professor at a local college, was aghast. His mother was in tears. “There was a huge emotional drama playing all around me,” says Mittal.

The immediate provocation: His bosses at Hindustan Petroleum wanted him to move to a new assignment in Visakhapatnam in Andhra Pradesh. He had already gone through 15 transfers in 10 years. And he simply wasn’t ready to leave the Capital, just when the idea of starting his own enterprise had begun swirling in his head. After a few months in the wilderness, he finally chose an assignment at Sapient to set up operations in the country. But as Mittal scurried between different government offices to get the necessary permissions to start up Sapient’s business, his resolve increased. “I thought, if I could do it for someone else, I should be able to do it for myself too,” he says.

That’s when Mittal set up A2Z, initially as a facility management company. His team of men, whose salaries were his only liability, would do housekeeping and manage facilities for clients, especially the electric part including power usage, maintenance of air ducts and meters. The quest to seek larger clients in this business led them to mobile telephony companies, who needed assistance in managing their large network of towers. All this while, A2Z acted only like a labour contractor, taking on sub-contracting work from a clutch of larger firms.

Of course, the social stigma associated with low-end work didn’t go away. Every time he would meet acquaintances in firms like Fidelity and KPMG to pitch for business, they would give him unsolicited advice. As an engineer, why did he choose such an unglamorous business of housekeeping services?

Fortunately, Mittal wasn’t swayed by their advice. Today, he’s built a Rs. 1,200 crore enterprise. He has Big Bull Rakesh Jhunjhunwala on board as a strategic investor. The marquee investor, who has a knack of spotting promising startups early, bought a 22 percent stake for Rs. 30 crore four years ago, when A2Z had a mere Rs. 50 crore in turnover. That stake is now worth hundreds of crores. Merchant bankers peg A2Z’s enterprise value at about Rs. 4,000 crore. And Mittal and his family hold more than 50 percent in the firm.

In many ways, Mittal’s breakthrough is a clear signal of the emerging opportunities on the fringes of the huge infrastructure build up taking place all over the country. In October, Chennai-based VA Tech Wabag, a sewage treatment company, listed in the bourses and is valued at Rs. 1,750 crore. Hyderabad-based Ramky Infrastructure, which also does waste management among infrastructure projects, has a valuation of Rs. 2,150 crore. “These are the smaller stories of the infrastructure play, especially in areas where you don’t need a lot of capital,” says S. Venkatraghavan, director, IDFC, one of the lead managers to the initial public offering of A2Z.

Mittal is already relishing his new avatar as a serial entrepreneur. He sees a big future in generating power from agricultural waste across the country. He’s also planning how to create a new, private distribution network across India’s numerous cities and towns. There’s yet another plan to replicate a successful waste management model in Kanpur to other large cities like Mumbai.

All these ideas are, of course, far removed from the original facility management business he started with.

The Big Breaks
It was while Mittal was managing the mobile tower business that he picked up the scent of a new opportunity. Soon after, he began working as a subcontractor for BSES, the Capital’s power distribution company, to replace old, analogue meters with digital ones. That’s when he figured another opportunity in reducing transmission and distribution (T&D) losses.

But Mittal says his big break came when he spotted a newspaper report that spoke about the impending overhaul of the Electricity Act in 2003.

Backed from field experiences in Delhi and from manning mobile towers, Mittal made his first bid at a real business in 2005. The Rajasthan government had floated a project to bring down power distribution losses in Jodhpur and Pali. A2Z bid, alongside biggies like L&T and ABB. The bid was about 3 percent lower than the two rivals. Soon after he won the contract, Mittal figured out a set of basic innovations that helped drive out the extent of T&D losses.

In villages around Jodhpur, Mittal found that the same electricity feeder line supplied power to both households and tube wells. But tube wells required a higher rated power supply only for a few hours a day and farmers ended up illegally tapping the common line to draw power. A2Z segregated the power lines for household and rationed the tube well power for those few hours a day, thereby reducing losses.

At some locations, A2Z stepped down the power needed for each tube well by installing thousands of transformers, making power theft almost impossible. In just six months, power losses came down from 36 percent to 16 percent. In Karnal, in Haryana too, A2Z has brought down losses from 29 percent to 13 percent. “It is difficult to bring down commercial losses as it involves people and theft. A2Z is among the promising companies in that field,” says K.K. Goel, chief engineer, Uttar Haryana Bijlee Vikas Nigam.  

It’s again while managing facilities for the railways in Kanpur that Mittal first began thinking of managing waste. The railways, as part of managing their premises, wanted A2Z to take care of its garbage too. Two years later, Mittal claims that A2Z’s Kanpur operations is the largest integrated garbage processing one in Asia. The usual practice everywhere else is that two different companies collect and process garbage.

Mittal found there were only two big costs to collect garbage — diesel for the collecting vehicles and people. Most municipal programmes didn’t work, as contractors maximised profits by saving up on diesel. The processors didn’t make money as the valuable recyclable stuff had already disappeared by the time it reached the sorting depots. So, in a novel move, residents will now pay a monthly fee to municipality to have their garbage cleared.

The company has used the “polluter pays” concept. So each household, which is the polluter, pays around Rs. 30 - Rs. 50 a month. Commercial establishments pay around Rs. 100 per month. This money goes to the Municipal Corporation. The Corporation, in turn, pays “tipping charges” to A2Z for collecting the garbage.

“We wanted to make sure that the company has a business model that is profitable to them and also covers our cost. A2Z’s business model, though just started, looks to be the right one. The Municipal Corporation, as per initial estimates, is expected to save Rs. 1 crore a month,” said Vikram Singh, Municipal Commissioner, Kanpur Nagar Nigam.

There are four by-products of the garbage generated — organic waste is made into compost used as fertilisers, concrete waste like stones is recycled into making bricks and tiles and plastics and rubbers are made into RDF that can be burned to generate electricity. About 100 tonnes of RDF is needed to generate 1 MW of power. A2Z plans to generate 50 MW through its MSW (management of solid waste) business across more than 20 cities.

IDFC’s Venkatraghavan, however, cautions that the future of these kinds of infrastructure plays hinge on scalability and sustainability. He says that companies would need to show there is enough opportunity to build on the model they have already established.

Mittal admits that the engineering, procurement and construction (EPC) contracts will peak in the next five-six years and then plateau, but he does see a lot of opportunity in managing municipal waste. The total waste generated in Indian cities alone is 150,000 tonnes per day, and only 1 percent of that is managed today. Mittal’s other big bet is making power out of recyclable agricultural waste. The company has set its sights on generating 235 MW of power from materials like bagasse and paddy husk. Says Mittal: “There is a big opportunity in setting up and running distributed power plants of 2 MW capacity around the country.”

At a time when there is a lot happening in the power and infrastructure sectors, Mittal may well be in the right place at the right time. With a supportive market, he may just get a big premium for his shares. If he is now able to emerge as the entrepreneur who can clean up India’s cities and generate clean power, Mittal reckons he would have achieved his dream.