Early last month there was some good news on the power distribution front when private utility CESC Ltd (part of the RP-Sanjiv Goenka Group) was appointed the distribution franchisee for the Bikaner circle in Rajasthan. For the northern desert state, this was the third case of appointing a distribution franchisee. In July 2016, Rajasthan had appointed distribution franchisees for Kota and Bharatpur. Incidentally, both these mandates were won by CESC Ltd.
The question here is that is the distribution franchisee (DF) model staging a comeback. Overall, the DF model has been quite a failure. It is disconcerting to accept that despite the Shunglu Committee recommending that over 250 towns in India need to appoint DFs to improve commercial viability of discoms, less than 10 DFs are actually operating in India as of today. What is worse is that nearly a dozen distribution franchisee agreements have been cancelled for a variety of reasons but mainly that of non-payment of dues by the appointed DF to the power distribution utility. Some DF agreements have been cancelled due to alleged political pressure as well.
According to information compiled from various sources, the DFs currently active in India include CESC (three aforementioned circles in Rajasthan), Essel Utilities (Nagpur in Maharashtra and Muzaffarpur in Bihar), Torrent Power (Bhiwandi in Maharashtra and Agra in Uttar Pradesh), India Power Corporation (Gaya in Bihar) and SPML Infra (Bhagalpur in Bihar). [This list represents power distribution franchisees and not licencees.]
So many cancellations – distribution franchisees
In Madhya Pradesh, the DF licence awarded to Essel Utilities for the Ujjain circle was cancelled due to alleged non-fulfillment of obligations by the DF. Ironically, Essel had also won DF rights for the Sagar and Gwalior circles, but this appointment was also cancelled. With the result, Madhya Pradesh has come back to naught position with respect to appointment of DFs. Much similar is the case with Jharkhand. With much fanfare, Tata Power was appointed DF in Jamshedpur while CESC won the DF mandate in Ranchi. This was somewhere towards the end of 2012-13. Both these appoints were rescinded in May 2015 and Jharkhand embarked on a fresh drive to appoint DFs in seven circles – Ranchi, Jamshedpur, Dhanbad, Hazaribagh, Ramgarh, Giridh and Deogarh. Till date, no appointment has been made in any circle.
Maharashtra is also in a dubious position with respect to the DF mode of privatization power distribution. Torrent Power was appointed distribution franchisee for the highly loss making Bhiwandi circle in January 2007. This was first case of DF appointment in the country. Torrent remarkably turned around the Bhiwandi distribution circle by cutting ATC losses from nearly 60 per cent at the time of takeover to around 25 per cent in FY16. Maharashtra attempted privatization of power distribution via the DF route for the Jalgaon and Aurangabad circles but both these agreements were subsequently cancelled.
Read more: Maharashtra makes progress on DF front
Uttar Pradesh also could not sustain the appointment of a DF (Torrent Power) for the Kanpur circle due to insurmountable antagonism of state power utility officials. UP however has awarded the Agra circle to a private DF—once again, Torrent Power.
With so many cancellations of licences taken place, it is difficult to say whether the DF model found favour amongst private entrepreneurs. Power distribution is a very murky business and it is not of immediate appeal to private enterprise. Essar had bid for the distribution franchisee offer for the Gurgaon (now Gurugram) circle in Haryana, but later backed out. Being a distribution franchisee is meant for seasoned players in the B2C segment, and certainly not for first-generation entrepreneurs. However, power distribution utilities that concede circles under the DF model must engage in meaningful hand-holding, at least in the initial tenure of the private sector player. If power distribution circles are simply handed over to private DFs with the expectation of returns to come in, it is never going to work. Bhiwandi in Maharashtra is a good example of turnaround and so is Agra in Uttar Pradesh. In principle, the distribution franchisee model can work but it needs an enabling and supportive policy framework in which it can take root and eventually grow.