Friday, April 1, 2011

Distribution Power Franchisee - Evolving PPP model

Distribution Franchisee (DF) model has only recently picked traction since 2009 after successful demonstration by Torrent Power Ltd. at Bhiwandi, Maharashtra, which got operational in 2007. The success there has sparked private businesses interest into the sector with more than 30 corporates jumping into the fray. Many of the businesses comes from very diverse background of telecom, IT, infra, media, iron & steel etc. and it will be there new entry into the power sector, starting with distribution.

The emerging nature of the DF model, high return promise, low entry barriers, closer to end-consumers, focused high capex with predictable cash flows and easy financial leverage under energy efficiency are some of important investment attractors. The risks of operationalization of DF are still getting unearthed with less than 3-5 implementors. Most businesses are intuitively betting on capitalising the high ATC losses in range of 30-50% in DF selected areas. The 15-20 years DF contracted period with estimated 4-5 years to bring losses to range of 15% makes viable ROI.

While the credibility of delivery from new players is still to be tested, there stands a strong chance of these new players bringing professionalism, technology, IT, measurements driven performance, analytics, strong SLAs (Service Level Agreements), and much forgotten customer focus back to the utility business.

Under light of this, is DF a good PPP model? Does it has potential to scale? We will continue sharing our views and also from best industrial experts on this in coming articles under label of 'Smart Distribution'.

Post by: Rahul Bagdia @ pManifold.

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