All Posts in "Distribution franchisee"

Fresh lease of life to privatization process

In a very significant recent development, Torrent Power moved closer to taking over power distribution in the Union Territory of Dadra & Nagar Haveli and Daman & Diu (DDN&DD). The Gujarat-based company, with a significant presence in the entire power value chain, has signed an agreement with the said UT administration to acquire controlling 51 per cent in the JV that will be responsible for power distribution activities in the UT of DNH&DD.

This is a major step forward for the government’s proposal, announced in May 2020, to privatize power distribution in all UTs.

The modality to be followed is the joint venture route where the private sector player will own 51 per cent equity stake (and management control) with the respective UT administration holding the remaining 49 per cent.

If matter progress well, power utility CESC will also take over power distribution in the UT of Chandigarh, on similar lines.

Privatization of power distribution of UTs is inherently different from the earlier attempts at privatization, which largely had to do with the asset-light distribution franchisee model. It must also be borne in mind that attempts at privatization were targeted in areas with high AT&C losses. However, in the case of UTs, the power distribution sector is not loss-making, if not highly profitable. This was precisely why several employee unions opposed the move, leading to some delay in finalizing the process.

The distribution franchisee model has not left a positive impression; there have been more failures and abortive attempts, than successes. What the government is now following is the distribution licensee model through the JV route where the private sector holds 51 per cent equity stake and management control, with the state government or UT administration holding the remaining 49 per cent.

This JV route has been phenomenally successful in Delhi, with Tata Power and Reliance ADAG Group being the private partners in two separate JVs. The recent attempt at similarly privatizing power distribution in Odisha, through four separate JVs with Tata Power, is also showing positive signs.

Power distribution is that area where the revenues for the entire power value chain are ultimately generated. It is also the only customer-facing link in the value chain. This being so, it is best that power distribution, in general, is handled by the private sector. Most state government discoms have a long legacy of commercial inefficiency. It is time that the private steps in.

While privatization needs to be pursued, it is also imperative that the much debated separation of “wire” and “supply” businesses of power distribution is implemented. This will bring more competition amongst private sector players in the “supply” side, which is in the ultimate interest of the end-consumer.

(Featured photograph, sourced from Torrent Power, shows replacement of electricity meters in Bhiwandi before and after Torrent Power took over as the distribution franchisee.)

(The author of this article, Venugopal Pillai, is Editor, T&D India. He may be reached on venugopal.pillai@tndindia.com.)

by Venugopal Pillai — April 15, 2022 in Power Distribution 0

JVs appear to be the best route for power distribution privatization

In recent weeks, there were two significant episodes regarding privatization of power distribution—a traditionally controversial subject in India’s power sector.

by Venugopal Pillai — December 9, 2020 in Power Distribution 0

Tata Power’s presence could boost DF model

Tata Power Company’s recent appointment as the distribution franchisee for the Ajmer circle in Rajasthan could do well for the languishing DF model.

On April 21, 2017, Tata Power Company announced that it has signed the distribution franchisee agreement with Ajmer Vidyut Vitaran Nigam Ltd for power distribution in designated areas of Ajmer city in Rajasthan. This development is significant on several counts.

For Rajasthan, this represents furtherance in its endeavour of privatizing power distribution under the DF model. Ajmer represents the fourth city after Kota, Bharatpur and Bikaner to come under the distribution franchisee ambit.

For Tata Power, amongst the oldest power utilities in India, it is another attempt at experimenting with the DF model. The utility in late 2012 was appointed as distribution franchisee for the Jamshedpur circle in Jharkhand but the agreement was called off in 2015. However, this development follows the state government’s decision to work on the DF model afresh and cancel all previous agreements. Accordingly, the DF agreement with CESC for the Ranchi circle was also annulled. Incidentally, Jharkhand had initiated the process of inviting DFs for seven circles (including Ranchi and Jamshedpur) but elicited poor responses from bidders.

Tata Power has done a wonderful job in making power distribution a profitable business in Delhi. However, Tata Power’s involvement in Delhi is through the licensing model. It has formed a joint venture Tata Power Delhi Distribution Ltd, in which the Government of NCT of Delhi is also a stakeholder. The Delhi government, for that matter, is also a stakeholder in the other two private power utilities BSES Yamuna Power and BSES Rajdhani Power, in which the private party is Reliance Infrastructure (Anil Ambani Group).

Under the licensing model, the private entity (licensee) undertakes capital expenditure in improving the distribution grid. It is therefore an asset-heavy model. The DF model is a relatively asset-light model where the primary focus is on improving the commercial efficiency of the designated area through enhanced recovery of dues from customers.

The distribution franchisee model has generally not been successful. Since there aren’t too many successful precedents, there are not many emulators as well. There are several cases where the DF model has failed—Aurangabad and Jalgaon in Maharashtra; Ujjain, Sagar and Gwalior in Madhya Pradesh; Ranchi and Jamshedpur in Jharkhand; and perhaps some more.

Also read: Making the distribution franchisee model work

As a seasoned power utility, Tata Power has tremendous experience in handling both the B2B and the B2C segments in the power value chain. It is therefore expected that Tata Power’s involvement in the Ajmer circle could bring much needed credibility and support to the power distribution franchisee model, per se. According to information available, Tata Power did bring about efficiency in Jamshedpur during its tenure as the distribution franchisee. However the appointment was cancelled more as government ideology rather than inadequate performance by the private franchisee.

First for Ajmer discom

Rajasthan has three power distribution companies—Ajmer, Jaipur and Jodhpur. For Ajmer Vidyut Vitaran Nigam Ltd (AVVNL), the Ajmer circle is the first instance of appointment of a distribution franchisee. AVVNL handles power distribution in 12 circles spread over eleven districts—Ajmer, Bhilwara, Nagaur, Sikar, Jhunjhunu, Udaipur, Banswara, Chittorgarh, Rajsamand, Doongarpur and Pratapgarh.

Ajmer district has two circles called “Ajmer City” and “Ajmer District”. The Ajmer City circle, in turn, has three divisions, out of which two (City Division-I and City Division-II) will be taken over by Tata Power.

by venu — April 27, 2017 in Power Distribution 0

Making the distribution franchisee model work

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.