Power supply franchisee model cuts losses, improves supply quality  

November 19, 2009

Franchisee models for power supply could significantly help to cut down losses. This is an observation made regarding Bhiwandi town, which had high technical and commercial losses in the pre-franchisee period, says a report by Prayas, a Pune-based NGO which specialises in energy research. Supply quality has also improved considerably after implementation of the franchisee model.

However, recovery of arrears and lack of customer confidence in the franchisee for metering and billing systems remains a problem, says the NGO.

The report, made public on Wednesday, revealed that the franchisee, Torrent Power Ltd (TPL), has been able to significantly reduce losses in the Bhiwandi circle. In the first two years of operation—since the agreement was inked in 2007—aggregate technical and commercial losses have come down from 63% to about 19% as per the data made available by the Maharashtra State Electricity Distribution Company Ltd (MSEDCL). These reductions in the technical and commercial losses have been brought about by a capital infusion of over Rs200 crore in the first year of operations to upgrade the distribution system coupled with several management and administrative changes.

The study also reported improvement in the supply quality post implementation of the franchisee model. Consumers in Bhiwandi are finding it much easier to get new connections. Transformer failure rates and accidents have reduced significantly and about 66% of respondents surveyed by Prayas opined that the change has been good for consumers, stated the report.

However, lack of post-franchisee monitoring by the licensee has also been highlighted as an important shortcoming in the model.

MSEDCL handed over power distribution in the power-loom town of Bhiwandi to TPL under a 10-year franchisee agreement in January 2007. The urban, input-based franchisee model is considered to be the next step in distribution reforms. Prayas carried out a detailed study of this model for the Planning Commission of India.

The input-based franchisee model, as implemented in Bhiwandi, is an arrangement under which a private company (in this case, TPL) was appointed to manage distribution business of the Bhiwandi circle of MSEDCL for a period of 10 years. The franchisee pays an agreed input rate to the licensee for input energy injected into the franchisee area.

Though there have been significant reduction in the losses and improvements in the supply services, a certain amount of customer dissatisfaction on billing rates and failure in recovering arrears remains a serious concern. As per the Prayas survey, a few consumers do not have confidence in TPL’s metering and billing systems. High bills and fast-moving meters were common complaints voiced by consumers during the survey.

As per the report, TPL has collected less than Rs10 crore towards accumulated arrears till date. The claimed total arrears amounted to Rs1,000 crore, according to the NGO.

The franchisee agreement stipulates certain processes and timeline (quarterly and annual) for undertaking audits of average billing rates, subsidy claims, metering & billing systems and customer databases. In case of the Bhiwandi franchisee model, even after two years after signing of the deal, none of these audits had been completed by the franchisee and independent auditors assigned for such exercises.

Some lacunae in the bidding process for such franchisee models have also been reported in the study. In case of the Bhiwandi model, major changes in the franchisee terms were affected after completion of the bidding process. The request for proposal (RFP) circulated to all prospective bidders contained only principles of the franchisee agreement, and the actual franchisee agreement was prepared after awarding letter of intent to the winning bidder.

In Nagpur, where a similar model was implemented, there was a major improvement over the Bhiwandi bidding process. The RFP contained a full-fledged franchisee agreement and not just principles of agreement. But here the shortcoming was in the bid evaluation process. A three-tired entity comprising MSEDCL, the High Court and the Maharashtra Electricity Regulatory Commission (MERC) failed to point out un-viability of the winning bid. These two instances, of major shortcomings in the process of awarding franchisee contracts in Bhiwandi and Nagpur highlight the underlying dangers and weakness in the ability of State-run utilities to conduct a transparent and rational bidding process, stated the report.
- Amritha Pillay [email protected]