Tuesday, August 30, 2011

Pre-Bid conference take-away from Madhya Pradesh Distribution Franchisee bids

Madhya Pradesh (MP) Energy Dept. has taken a bold step with decision to private franchise 9 MP district’s Power Distribution simultaneously. This is unique as there is less than 9 total operational Input based Power Distribution Franchisees (DF) pan India at the district level scale while the model is still emerging. The associated officials and transaction advisory have incorporated good learning in current RFPs for the 9 districts from previous awarded Distribution Franchisee RFPs (across India) and emerging Distribution Franchisee implementation scale-up issues. There is appreciable effort from Energy Dept GoMP to engage various stakeholders to raise a strong and standardized Distribution Franchisee model.

A second revision in RFPs was made post first pre-bid conference after consulting with participating prospective bidders (See first pre-bid conference minutes). A second pre-bid conference was organized in Bhopal on 25th August jointly for all 9 districts. The meeting was chaired by Hon. Energy Secretary GoMP, Mr. Mohd. Suleman and was attended by overwhelming 20+ prospective bidding companies. pManifold participated in this pre-bid conference based upon their relevant work in the Distribution Franchisee space and having collected valuable customer satisfaction data on local electric utilities performance in the 9 MP districts.

Some key points of discussion raised by Licensee (the utility) for opinion from participating prospective bidders were:
  1. If and how utility not only avoid financial losses as established in baseline, but also make profits in a truely win-win Distribution Franchisee model in long term?
  2. How could utility protect its and its end-consumer's interests better while in Distribution Franchisee long term contractual arrangement? In specific what could be better contract and company structuring - whether utility should sign contract with SPV (Special Purpose Vehicle) or the Parent company?
  3. If and how 'urban' and 'rural' Power Distribution Franchisees could be clubbed together? In specific with current all 9 MP districts having high rural characteristics, how bidders look upon viability of a combined Distribution Franchisee model at entire district level?
It was encouraging to see the utility's Top Management and participating prospective bidders recognizing 'Customer Satisfaction' as the most important performance objective for Distribution Franchisee. In light of this, there was discussion to add some mandated customer services in the RFP and DFA in addition to current 100% Electronic Metering, Billing and Payment as part of Capex roll-out plan. 

The pre-bid conference engaged the prospective bidders very well, seeking their active suggestions in further improving the model and if required follow up with another revision in RFP terms and agreements. Some interesting questions that were raised by the prospective bidders:
  1. Power supply guarantee: What guarantees utility could give on supply quantity and quality at the input point to the Distribution Franchisee? Without any such guarantees, how could Distribution Franchisee hold on its objectives of Power Quality & Reliability and Customer Satisfaction and avoid any defined failure under 'Major Incidents'? Who will pay for additional power purchased, in case if required to meet customer's expectations?
  2. Minimum Benchmarking Input rates: Under existing RFP, bidders have to meet minimum 'Reserve Price' for all 15 years. There was suggestion if this minimum could instead be set only on 'Levelised Reserve Price' instead of all independent 15 years reserve price. One another request was if utility could share their assumption sheet to design minimum 'reserve price' to allow bidders to better understand utility's perspective and numbers. 
  3. Relaxation on performance in first 1-2 years: First challenge for any new Distribution Franchisee is to keep up with existing system performance and get stable on ground resources and management transitions before taking up any major loss level reduction interventions. In light of this coping with change management in first 1-2 years, there was request to not have mandated loss level reduction targets for first 1-2 years.
  4. Data authenticity in RFP: There were many questions on base-line data authenticity shared in RFP in absence of any strong data logging processes followed at utility.
  5. Subsidy share: There were discussion that Rural Input based Distribution Franchisee gets further into the red zone of viability if subsidy is not shared with the Distribution Franchisee and hence need to treat and evolve different arrangements. It was suggested that a more involved 'Risk-Return framework' needs to be developed for all stakeholders involved in Distribution franchisee business - Utility, Distribution Franchisee and End-customers. 
There were few other discussion points raised by participating prospective bidders requesting - still some changes in technical and financial qualification criterion; changes in Tariff-Index-Ratio (TIR) based current offsetting of input price, no-charging of surcharge on arrears, longer (atleast 6 months) utility employees transitory support etc. 

One significant message this pre-bid conference was successful in delivering was the importance of measuring 'customer satisfaction' to monitor performance of electric utility. pManifold's research in objectively quantifying customer satisfaction in the 9 MP districts was introduced to the bidders. Mr. Faiz Wahid and Mr. Rahul Bagdia (Co-founders and Directors at pManifold) shared sample research study with participants post the completion of the pre-bid conference.

Independent all 9 districts reports on 'Electric Utility Customer Satisfaction Reports 2011' is available for purchase with pManifold. Sample report could be viewed online. For more details contact Rahul Bagdia @ 95610-94490.

Post by: Rahul Bagdia @ pManifold

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