After a long lull, there are now takers for the franchisee model in power distribution business. The debt-ridden Rajasthan government will hand over the distribution business...
After a long lull, there are now takers for the franchisee model in power distribution business. The debt-ridden Rajasthan government will hand over the distribution business in two cities in the state — Kota and Bharatpur — to CESC, owned by the RP-Sanjiv Goenka Group, shortly. CESC, which won the bids floated by the debt-ridden state electricity board (SEB), will have to make a mandatory investment of Rs 1,525 crore and Rs 477 crore for Kota and Bharatpur, respectively, over 15 years.
Keen to reduce the SEB’s commercial losses as mandated under the Ujwal Distribution Assurance Yojana (UDAY), the government has also floated tenders inviting franchisee operator for Ajmer. The current levels of technical and commercial losses in Kota and Bharatpur are 25% and 27%, respectively.
The distribution franchisee model has been around for nearly a decade but after the initial success in Maharashtra, the model has lost its sheen. The first city to undergo this experiment was Bhiwandi in Maharashtra. The franchisee, Torrent Power, managed to cut losses in the city’s distribution business from 58% to 18% in five years.
In the so-called input distribution franchisee model, private operators look to cut commercial losses of the respective SEB by improving billing efficiency and expanding the consumer base through strategic investments. The operator agrees to purchase power from state distribution company at the input point to distribution circle at an annual fixed input energy rate for a contract period. Its responsibilities include executing distribution responsibilities including metering, billing, revenue collection, repair, maintenance, consumer service, capital expenditure and allocating new connections.
Sources said in the latest round of auction by Rajasthan SEB, the competition among the bidders was rather muted with only three companies — CESC, Tata Power and Essel Infra — participating. Tata Power, the only other player for Kota, remained in the fray till the financial round of the bidding while only CESC submitted final bids for Bharatpur. Analysts said that the recent setbacks of distribution franchisee model had resulted in a loss of appetite among companies.
“Reduced participation over time for distribution franchisee tenders means that only companies with a strong experience in distribution sector participate,” a state government official told FE. He added that the response to bids did not show a lack of appetite for the franchisee business.
Several cities across states including Jalgaon, Aurangabad, Ranchi, Jamshedpur, Gaya and Ujjain failed to replicate Bhiwandi’s success due to a variety of reasons. At some places, the assets could not be transferred to the company because of opposition from the employees of the state discoms. At other places, the state discoms took over the reins after the selected company defaulted on payment.
Currently, four states have adopted this model for various cities that include Maharashtra (Bhiwandi, Nagpur, Aurangabad, Jalgaon), Madhya Pradesh (Sagar, Ujjain, Gwalior), Bihar (Muzaffarpur, Bhagalpur, Gaya) and Uttar Pradesh (Kanpur and Agra). The VK Shunglu committee report on the financial state of distribution companies had identified 255 towns in need to be put under the DF model.