What is holding back franchisee model in power distribution?

It’s been over a decade since India’s first franchisee model for power distribution was launched in Bhiwandi. The reason was simple. The stateowned discom had failed to curb theft and non-payment of electricity bills from this powerloom town. Could the private sector succeed where the government had failed? Torrent agreed to take up the challenge. It won the bid, got the contract. Even though it was able to bring down the losses but to date it has not been profitable yet. Over the years, other states have also tried franchisee model but many have failed.

Now Maharashtra’s energy ministry is planning to privatise power distribution in three more cities including Mumbra-Kalwa, Malegaon and Akola. And this has raised a key question: Should reducing losses be termed as success or should it be attaining profitability. While industry experts state this model is not even close to complete success (in eliminating losses entirely) because local mafia still prevails, but a Care Ratings’ Analyst adds that it is too early to give a verdict over it.

An industry expert familiar with the working of discoms stated, “It worked for the initial five years but now the losses are not going down beyond that.” The model needs to be tweaked in order to achieve the positive results. The expert further added, “Firstly, the mafia is still strong in remote areas. And to break this mafia, there is tremendous need for support from the administration.” The second reason for its failure is because some noncompetent players in the IT or software industry have won the bidding process in various regions. “This was despite a transparent bidding process, non-financial and safety-related conditions were not included.” Power is a utility that needs to be supplied with a keen eye on safety as it can kill human. Care Ratings’ Ashish Nainan clarified that, “Performance benchmark indicators have to be set. There is a need for a new mechanism or policy with no intervention whatsoever expected from the regulator.” This is what worked in Delhi, he added.

Apart from a fight against anti-social interventions, there is a need for strong political willpower to make it a success. “This also includes cutting down on sops. Power is a strong political tool,” added Nainan. Companies like Tata and Reliance have a model in place and there is no intervention. So they operate efficiently, he added.

One model cannot be followed in every region, it has to be tweaked for each state based on the needs of the respective state. Going back to the Bhiwandi model, which recently got an extension of 10 years (from 2017), the franchisee brought down the losses from 61 per cent in 2006-07 to 23.4 per cent in 2015-16. But as per MSEDCL data, in 2011-12, aggregate technical and commercial (AT&C) losses stood at 17.44 per cent. However, with an increase in the number of customers from 98,835 in 2006-07 to 2,97,779 in 2015-16, power losses are back to 23 per cent. This is despite collection efficiency climbing from 68.2 per cent to 97.65 per cent over the same period.