Tata Power is planning to rope in McKinsey & Co to advise it on a massive cost reduction.

McKinsey had undertaken a similar exercise for Tata Steel and Tata Chemicals and in the mid-90s advised the group on a restructuring to be competitive in a post-liberalised environment.

"We are talking to a number of consultants including McKinsey for institutionalising the cost reduction process. My job is to see to it that cost reduction becomes a way of life in Tata Power and not an ad-hoc exercise," Firdose Vandrevala, managing director of Tata Power, said.

"In Tata Steel and Tata Chemicals, the cost reduction came after a crisis. The challenge here (in Tata Power) is to do it before there is a crisis."

Tata Power's total expenditure stood at Rs 3,775.59 crore (Rs 37.75 billion) in 2002-03 against Rs 3,487.24 crore (Rs 34.87 billion) in 2001-02.

He refused to spell out the names of other consultants with which the company was talking. Vandrevala also made it clear that the primary brief of any consultant who bagged the mandate will be to institutionalise the cost reduction.

The ideas for reducing cost will come from the employees themselves. At present, the company is in the midst of soliciting ideas on cutting costs right from the shop-floor to administration and operations.

"The people in the company have tremendous ideas. We want the approach to be bottoms up and not top down," Vandrevala added.

Tata Power's cost cutting initiative comes at a time when the sector is expected to undergo a massive change following the passage of the Electricity Act, 2003.

Generation has been delicenced and open access allowed in transmission. Over a period of time, even distribution will be delicenced, which will allow more than one company to supply power in the same area.