Friday, April 22, 2011

Power Distribution Franchisee - Evolution from Rural to Urban and back to Rural

The Power Distribution Franchisee (DF) model is a precursor for privatization of distribution business in India. Under the model, the state retains ownership of the distribution asset and only leases O&M for defined contract period. On account of heavy capex already laid by the Government and its desire to keep its influence on this major portfolio, DF model will be the next generation model before the sector will start seeing full privatization.

The idea of DF first originated from Rural Electrification with the need of a low cost local agency to manage billing and collection at remote villages. Now that model remains no longer economically viable because of shortage of power directed to rural feeders. Then the shift of DF model application from Rural to Urban happened with piloting of new emerged Input Franchisee model for urban cities with heavy ATC losses. The selection of urban cities for DF model is driven by they having:

  1. steady demand loads
  2. relatively better collection efficiency, 
  3. less subsidized customers 
  4. good power supply
  5. political will and attention
in contrast to rural villages which are characterized by: 
  1. uncertain and volatile loads, 
  2. low paying capacity
  3. heavily subsidized agri base
  4. constricted power supply
  5. Low enforcement and lacking political will
These above challenging characteristics of rural electric power loads and networks has lead to failure of good conceived RGGVY scheme - which aimed to establish distribution network in all villages of India. (More on RGGVY and specific failures and gap analysis in future blogs)

One metric of success of existing DF model would be its re-emergence in rural areas after establishing successfully first in urban cities. The urban journey has started from Bhiwandi circle and it is hoped that DF will evolve into a robust model. With that cycle complete from rural-to-urban-back to-rural, Distribution Franchisee business would have reached scale. 

Post by: Rahul Bagdia @ pManifold

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