MSEDCL released revised RFP of Shil-Mumbra-Kalwa

Maharashtra State Electricity Distribution Company Limited (MSEDCL), after a long slumber has come into action back again, keeping up its leadership in the Power Distribution Franchisee (DF) segment, with already 4 operating DF models. The company has recently released the RFP for Shil-Mumbra-Kalwa, which comes under Thane Urban Circle, after having scrapped the earlier bidding that started in Dec. 2010.

Qualification criteria for the bidder company are as follows:

• Technical Capability Criteria
• Experience in handling consumer base
• The Bidder Company must have a minimum of 2 years of experience in serving at least 40,000 consumers. A consumer is defined as any entity that acquires goods or services for direct use or ownership as well as for resale or use in production and manufacturing.
• For Operational Distribution Franchisee of Utility
• The existing operational  Distribution Franchisee of Utility must have no outstanding dues excluding disputed amount if any, the current payable invoice and preceding payable invoice. A certificate of NO outstanding dues of  utility  except as mentioned above have to be submitted along with the bid. 

• Financial Capability Criteria
• Net worth
• Net worth as on March 31, 2011 should be at least Rs 70 Crore (Rupees  Seventy  Crore). Net worth is defined as Paid up Equity Share Capital plus Equity Share Premium plus General Reserves and other free reserves plus credit balance in profit and loss account less Accumulated losses less intangible assets less Miscellaneous expenditure to the extent not written off.
• Intangible assets are identifiable non-monetary assets, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. Net worth excludes statutory reserves and revaluation reserves. 
• Cash Accruals
• Average Cash Accruals, (defined as the sum of Profit after Tax plus depreciation) in the last two years (i.e. FY 2009-10  & FY 2010-11), should be at least Rs. 35 Crore (Rupees Thirty Five Crore).
• Public Limited Company
• The bidder company should be a public limited company as defined in section 3 of Companies Act, 1956.

The Bidder  must satisfy all the above-mentioned criteria to be qualified for evaluation of Financial Proposal.

Key performance parameters of the RFP and its associated weight-age are indicated below:

Parameters	Units	FY 2010-11
Input Energy	MUs	442.6
Sales (Metered)	MUs	263.64
Demand (Inc Subsidy)	Rs. Cr.	135.53
Collection	Rs. Cr.	109.30
Overall AT&C Losses (HT & LT together)	%	40.43
AT&C Loss (only LT side)	%	44.56
Loss Quantum	MUs	178.96
Collection Efficiency	%	80.77
Connected Load	MVA	122
No. of consumers	No.	1,57,699

The revised RFP for Shil Mumbra & Kalwa region is uploaded on website of Mahadiscom:

http://works.mahadiscom.in/eTender/etender. Contrary to other states DF bids, there is a downloadable price to access the RFP online and apply. The complete process will be through e-tendering.

Pre-bid date: 21st June
Bid close date: 21st July

Old RFP, which was released in Dec 2010, can be downloaded from the following link:

http://www.mahadiscom.in/RFP_DFA_JSHIL-MUMBRA-KALWA_21-12-2010.pdf

Post by: Kunjan Bagdia @ pManifold

Orissa Government invites EOI for 'Smart Grid' Solutions - A new variant of Distribution Franchisee

CESU, Orissa has invited Expression Of Interest (EOI) on "Smart Grid Solutions for Energy Management & Energy Efficiency" (SGS-EMEE) on additional revenue sharing basis through Built-Own-Operate-Transfer (BOOT) model in its 12 divisions (in 4 circles), out of 20 divisions. The project is based on "Power Distribution Operations in Identified Divisions" model for a contract period of 5 years.

This CESU model differs from the prevalent 'Input Based Distribution Franchisee (IBDF)' model and also 'Collection Based Revenue Distribution Franchisee (CBDF)' in following key aspects:

1. Capex Investment: Operator is expected to bring investment only for Smart Metering (LT & HT customers, transformers and 11kV feeders), AB conductors and customer services. So this is a capex light model. Rest investment will be done by the Licensee. This model is mainly intending to curb commercial losses and improve customer services through a private player. The Licensee will take care of the Technical losses through network investments.
2. Scope of work: This model's scope of work (as described below) is a sub-set of IBDF model, while a super-set of CBDF model. 
3. Key Bidding Parameter: In this model, the bidder would have to bid on percentage revenue sharing with the licensee for all 5 years (as described below in details). The incremental revenue generated i.e. RPU multiplied by energy input over and above the baseline data in the project area shall be shared between the Project Developer and CESU in the ratio of 60:40 in the 1st year of operation and thereafter 50:50 in the 2nd, 3rd, 4th and 5th year. In IBDF model, bidding happens on 'Input Price' for all tenured years, usually ranging from 10-20 years.
4. Tariff Indexation: In this model, tariff changes are impacted through direct proportionate changing of base revenue per unit (RPU). In IBDF model, there is more involved calculation of tariff indexation ratio calculated monthly and accordingly changes in the quoted bid 'Input Price'.
5. Contract period: This is a short contract (5 years) light capex model with investment to be made in first 3 years. IBDF, on the contrary, being a high capex model, is a long contract (15-20 years) with most investments done in 10 years.

Jharkhand Distribution Franchisee first pre-bid meeting

The first pre-bid meeting for Jharkhand Power Distribution Franchisee was conducted on 21st May, 2012 at Ranchi. It was attended by 10+ companies senior representatives; JSEB team - Chairman, Member Finance, Member T&D, Chief Engineer Commercial & Revenue; and Transaction advisor JInfra (50:50 JV of IL&FS and Jharkhand Govt.) team. 

The companies that participated were Tata Power, Reliance, NDPL, CESC, JUSCO, IPCL, Essar Power, Spanco, Essel Power and PTC. With existing strict Technical Qualification, likely 4-5 companies only can qualify for bidding, and this was well debated in the meeting, and next RFP revision is looked upon anxiously.

Mr. S.N. Verma, Chairman JSEB made the opening remark welcoming good participation and expressing his confidence on Distribution Franchisee (DF) model to aid Distribution reforms and bring AT&C losses from current high approx. 46% to atleast 20% level. He justified selection of Ranchi, Jamshedpur and Dhanbad urban circles for DF model first pilot at Jharkhand, based upon their high industrialisation, significant domestic load, high AT&C losses, no rural areas and good recovery potential. He added that post successful roll out of these 3 DFs, JSEB would want to further scale-up the model with learnings in other cities. (See pManifold earlier blog with DF attractiveness matrix for 3 Jharkhand regions and comparing them with earlier DF areas - Jharkhand releases RFPs: Quick comparative analysis with different states RFPs)

Some key points that were discussed in the pre-bid meeting were as follows:

1. Baseline data consistency: Bidders brought various inconsistencies in the RFP baseline data, including anomalies, mistake in calculations and typos. These deals with bid sensitive parameters like AT&C losses, various efficiencies, average tariff (or ABR) etc. JSEB was humble to accept that they have issues with consolidating baseline data, specially in light of some mishaps with their billing agency at Ranchi and Jamshedpur. 

2. Missing information in baseline: Different bidders brought different missing information; they seek in the baseline data. Some important ones were – base year R15 data; Revenue and cost breakup across all customer segments; Electricity duty breakup in collection figures, subsidy breakup etc. Few bidders requested that at the minimum JSEB should share audited base year data for Input energy and collection figures.

3. Base year fixation: The current RFP has 2010-11 as its base year; with clause that while signing DFA, if new data is available, then base year could be changed. This was completely unacceptable to most bidders. They demanded that Base year and associated ABR should be freezed now and cannot be changed. Few of them believed that even if base year ABR is wrong (low or high), they can accommodate in their corresponding bid value. (The ownership risk across life cycle for both Licensee and Franchisee from this one important parameter, base year ABR’s uncertainty, seems to be missing in the stakeholders) 

Importance of 'Measurements based' Technical Due Diligence

Source: Mr. Hemant Diddee, Heta DataIn

Operating Distribution Franchisee are of the opinion that there is need of strong technical due diligence of Distribution network and equipment to arrive at realistic estimation of investment needed in infrastructure & assets. Some recent discussion points in this regard are:

".....Due-Diligence is of utmost important, as in case of Agra, the AT&C losses were of the magnitude of 51-52%(On paper) before Torrent Power took over the charge in April'10. However these losses has risen to 58% after takeover. Now, it is realized that the PVVNL's baseline data were all wrong and holds no significance, the actual losses were of the order of 64-65%." (Power DF LinkedIn Group Member)

".....Spanco, Nagpur faced several infrastructure issues like Transformer Breakdown/Failure, Meters not working, etc. since the evaluation of assets and losses was done approximately and not accurately." (See our earlier blog from Mr. Rajinder Kachroo, Business Head, Spanco)

The above comments raised an important question:

Why is it necessary to do a technical due diligence of Distribution network and equipment?

• To form a realistic Base line data: The data available or provided in RFPs is not very accurate because of the fluid nature of the distribution network. Example: The distribution network connected to a transformer will / may vary with time, and end of month / year reports have lacks foundation.

• Input on Technical losses: The technical losses are due to energy dissipated in the conductors and equipment used for transmission, transformation, sub- transmission and distribution of power. These technical losses are inherent in a system and can be reduced to an optimum level. 
• Losses in Sub-transmission system & step-down to distribution voltage level vary from 2% to 4.5%
• Losses in Distribution lines and service connections vary from 3% to 7%.

• Input on Commercial losses: Theft and pilferage account forms a substantial part of the high commercial losses in India. Unmetered energy consumption, defective meters, errors in meter reading, etc also accounts for considerable portion of losses. Most of the methods employed by SEBs for estimating commercial losses are:
• Load Factor based estimation
• Estimation based on feeder wise theoretical calculation of losses
• Estimation based on readings of meters installed at all the Distribution Transformers located on a feeder

However, above methods do not provide correct estimation of unmetered consumption.

Thus, a clear understanding on the magnitude of technical and commercial losses is the first step in the direction of reducing T&D losses.

In an effort to address the above, pManifold, with its partner base, has started a new service offering to perform 'measurement base' technical due diligence at the site. We will integrate other primary and secondary information from key opinion leaders, utility grounds team, socio-economic indicators, and other sources to help bidders estimate the capex, opex, true AT&C losses, load growth and other key bid parameters, with higher confidence.

Key Observations: Jharkhand RFPs of Ranchi, Dhanbad and Jamshedpur

Jharkhand released RFPs for 3 towns Ranchi, Dhanbad and Jamshedpur. Our earlier blog covered 'Brief comparative analysis of Jharkhand RFPs with different state RFPs'.    

Few key parameters of the Jharkhand RFPs are mentioned below:

• Tenure for Input based Distribution Franchisee is 15 years for all the 3 towns.
• Around 80% or more of the customers are 'Registered Customers' across all the 3 towns. 'Dhanbad' has highest 'Ineffective Customers', which is close to 20%. 
• Operating areas ranging from 150 to 450 Sq.Km, with Jamshedpur as the smallest area.    
• High AT&C losses for all 3 towns, with Jamshedpur having highest at 54%.
• Distribution Franchisee shall make a minimum capital expenditure equivalent to 50% of Total Revenue Billed for a Base Year (for all 3 cities), in such a way that at-least 10% of the investment plan is spent every year for first 5 years of contract period.
• Average Tariff/Billing Rate is lowest for Ranchi (Rs./kWh 3.18), followed by Jamshedpur (Rs./kWh 3.26) and Dhanbad (Rs./kWh 3.33).
• The bidder has to achieve a level of 12% AT&C losses at the end of 7 years from the effective date, with year on year target loss reduction for each city.
• Base or Benchmark Input Rate will be provided by the JSEB for each year during the pre-bid conference.
• Collection Efficiency is highest in Dhanbad (95%), followed by Jamshedpur (94%) and Ranchi (89%). 
• In case of shortage of 'Supply of Energy' by Jharkhand State Electricity Board (JSEB), the Distribution Franchisee may procure the power from other sources for expected shortfall, subject to concurrence of JSEB and its regulatory body.
• For arrears realized by the DF from Permanently Disconnected (PD) customers in the first 3 years, an incentive of 20% shall be payable to DF net of taxes and duties. From 3rd to 6th years, an incentive of 15% and from 6th year onwards, an incentive of 10% shall be payable to DF. Arrears realized for the same period from Live customers will include an incentive of 15%, 10% and 5% respectively.

Indicative planned investment under R-APDRP Programme (Part A and Part B) undertaken by JSEB will be provided during pre-bid conference.

Please use below comment box to add more observations and information. 

Posted by: Kunjan Bagdia @ pManifold

Spanco, Nagpur Business Head shares his Franchisee experience

Mr.Rajinder Kachroo, Business Head, Spanco Nagpur, shares his experience about the operations of Distribution Franchisee model @ Nagpur, at one of the conference in Sep. 2011 in Mumbai. This discussion holds relevance even today, with Spanco completing its one year of operation @ Nagpur in this May 2012.  (See our earlier blog Review: Spanco, GTL distribution franchisees complete one year in operation)

Mr. Kachroo has experience of working on both the models - Full Privatization when he was at BSES, Delhi and now in Distribution Franchisee, Nagpur.

Key excerpts from his speech:

• In the complete process of privatization, there is need of fair play by realistic evaluation of losses, so that phased wise investments can be planned and estimated.
• After takeover in Nagpur, the company faced several infrastructure issues like Transformer Breakdown/Failure, Meters not working, etc. since the evaluation of assets and losses was done approximately and not accurately.
• To ensure that Spanco gives continuous and uninterrupted power supply to its customers, they had done a customer satisfaction (CSAT) study to understand their opinions and satisfaction.

For more details, please see below video at the conference:

                 

 

He concluded, that there is need of further reforms in power sector to improve the economic viability of the Distribution Franchisee model.

Posted by: Kunjan Bagdia @ pManifold

Can Customer Engagement at Utility help expedite AT&C loss reduction?

Some recent discussion on best practices at Linkedin Power Distribution Franchisee group have started discussing the role of Customers in helping reduce AT&C losses. Some key excerpts:

" .... I strongly feel that key factor for reduction of AT&C loss is very much linked with consumer care initiatives and winning consumer confidence. With the support of consumer group one can control the theft by providing new connections thr' camps etc, one can initiate and execute loss reduction schemes in fast mode, one can get information about theft at particular location etc." (Sr. utility professional with experience at one of biggest private utility) 

" .... The whole problem with Utilities & Consumers relationship whether the utility be govt controlled, pvt utilities, Joint venture or DF, is the major trust deficit. Any utility ownership change when it come to DF or complete Pvt, utilities starts its business with an approach that all consumers are stealing so should start with dent on it whereas consumers always thinks of Utilities as somebody there like a Police which is there to unnecessary harass consumers..." (Mgmt. Consultant in Utility domain) 

" ... Real work can be started somewhere after Oct and with this they will get around 5 months to get ready for next summer peak. In this 5 months, they can focus on low hanging fruits for reducing losses and enhancing recovery along with work of increasing confidence in consumers by starting customer centres, call centres etc. With this they will get almost 7 months to positive brand image before next summer peak or storm winds ( which are generally in last Feb early March) in Chambal River areas...." (Sr. utility professional with experience at one of biggest private utility) 

"In common nature, the employees of MPSEB will do the maintenance work half heartedly. It results, the failure of Distribution Transformers, Power Transformers and Breskdowns of 33, 11KV & LT lines. So the DF's Material department have to plan for procurement of materials and appointing Contractors for the above activities. Otherwise, the harassment from consumers will be faced by field officers on large scale"  (Sr. utility professional with experience at one of operating Distribution Franchisee) 

Key Highlights: Chhattisgarh's RFP of District Janjgir-Champa

Chhattisgarh released a tender for appointment of Input based Distribution Franchisee for district 'Janjgir-Champa'. Below image shows the comparison between different key parameters of different RFPs. A coloring scheme is used for better visualization for favorable Distribution Franchisee parameters across each attributes.
       

Some key characteristics of the Champa tender are mentioned below:

• Tenure for Input based Distribution Franchisee is 15 years.
• Scattered Area - 4361 sq. km.
• High Distribution losses i.e. 67.39% 
• Annual Input energy of the order of 880MUs with Revenue Billed approx Rs. 80 cr.
• High claimed Collection Efficiency of the order of 107.26%
• No minimum benchmark criteria for Price Bid (This will allow bidders to be innovative in their price bid structuring)
• Average Tariff is Rs. 2.269 per unit
• Approx 40,186 LT poles and 4351 Distribution Transformers. (Transformer failure rate is around 15%)

Comparing to earlier Power Distribution Franchisee RFPs, Janjgir-Champa RFP seems to have better baseline information with detailed customer segmentation across different parameters like Revenue Billed, Revenue Collection, Arrears of Connected / Disconnected customers, etc.        

Last date of submission of bid is extended to 23rd May 2012. 

For Reference:

• Janjgir-Champa RFP
• Janjgir-Champa DFA      

Posted by: Kunjan Bagdia @ pManifold


pManifold's latest report on 'Input based Power Distribution Franchisee Market in India 2012Q1' is available. The report provides past bid analytics of operating DFs at Nagpur, Aurangabad, Jalgaon, including the most recent Madhya Pradesh's area (Gwalior, Sagar and Ujjain), includes detailed financial numbers and its sensitivity to different parameters like CAPEX, OPEX, Tariff Rate, Load Growth Rate, etc. To download Executive Summary of the report, please see here. You can write to us at kunjan.bagdia@pmanifold.com for any other information or queries. We would be glad to support you.    

Jharkhand releases RFPs: Quick comparative analysis with different states RFPs

Madhya Pradesh bidding saw Smart Wireless Ltd taking over as Distribution Franchisee operator for all the three locations i.e. Gwalior, Sagar & Ujjain. They have been awarded LOI and have also accepted the same for all 3 regions. They intend to start the 3 months joint operations with DISCOM by second week of May, and takeover completely before 15th August.         

Recently, Jharkhand released RFPs for 3 cities namely Ranchi, Dhanbad and Jamshedpur. The below image provides a quick study on new Jharkhand RFPs and its comparison with old one's (Nagpur, Gwalior). It depicts the brief comparison of some critical Attributes, which includes Factors like Electrical Network and Health, Consumption Patterns, Geography, etc. A coloring scheme is used for better visualization for favorable Distribution Franchisee parameters across each attributes.

MP bids took approximately 9 months from initial release of RFP in June,2011 till awarding of LOI of all the three locations in April,2012, with total 3 revisions in RFP in between. 

We hope that Jharkhand Government decision makers draws inputs from MP bids and expedites the awarding of locations by engaging all stakeholders.             

pManifold continues support Knowledge building in Power Distribution Franchisee model in India and help realise its potential. 

In continuous effort to scale Power Distribution Franchisee business model, pManifold has launched a 'Input Based Power Distribution Franchisee Market in India 2012Q1'. The report will provide detailed market, operational and financial insights into running a Power Distribution Franchisee. It will also include detailed previous bid analytics, including most recent from MP, future DF opportunities and trends. For more details and to download Executive Summary of our report, please see here. You can place your order with us at kunjan.bagdia@pmanifold.com.      

Posted by Kunjan Bagdia @ pManifold      

Review: Spanco, GTL distribution franchisees complete one year in operation

It was the summer of 2011 when both GTL (April 2011) and Spanco (May 2011) took up the distribution franchisee operations in Aurangabad and Nagpur respectively. Now in the summer of 2012, they have completed 1 year in operations.

Spanco's first year of operations in Nagpur can be termed as good as they have been able to acquire good leadership talent, arrange private equity investment (Rs. 80 Cr. from Bessemer), perform roll-out of network up-gradations (which were a little bit forced due to the storm of May 17, 2011) and establish better ways of understanding and communicating with customers and local stakeholders (including a new website, 24x7 call center, online payment facility, DF and non DF area wide independent customer surveys (twice), monsoon campaigns, door-step new connection campaign and more e.g. instituting a whitepaper promoting their newly adopted city of Nagpur as an IT/BPO destination). Although teething troubles are galore and would take a while to reach smooth operations, things seem under control on major fronts including PR, Opinion leaders and customer. The major concern still is the non-payment of over Rs. 200 Cr. to the licensee which is scheduled for hearing by MERC i.e. May 3, 2012. Spanco has customer base of approx. 4 lacs and is divided into operations into 3 Divisions, 6 Zones, 46+ payment centers and 6 customer facilitation centers. 

This is how Spanco, preferred to communicate its one year of operations at Nagpur - through advertisement in a local daily.

GTL @ Aurangabad, has similar ups and downs. The company has customer base of approx 2.5 lacs and operationally divided into 2 Divisions, 8 zones, 33+ payment centers and 2 Customer Facilitation Centers. The company has taken several initiatives - network upgradation, Electronic meter replacement with current approx. 85% connections (from last 65%), has website, launched a 24x7 call center, established online payment facility and monitored customer feedback ad-hocly. GTL also had been unable to make complete payment to MSEDCL and has due amount around Rs. 200 crore. Their parent company's struggle with downturn in the Telecom Tower business, and ongoing corporate debt restructuring could potentially shadow its DF operations.

• Both the companies have undertaken process improvement across all key business areas and are using external consultants for detailed BPR. 
• Both continue to use MSEDCL billing legacy system, inspite of some of its constraints, that impact their bill scheduling and arrears. 
• Both still continue to struggle on improving their arrears, as it continue remaining almost the same with slight different dynamics from their take over. 
• However, in terms of their core success driver i.e. AT&C loss reduction, the two companies are lower than their estimated first year projections.

As any emerging business model, there is continuing learning for Power Distribution Franchisee players. One major challenge that still remains unresolved is about funding (both debt and equity) of the Distribution Franchisees. There are rising PE players who are getting interested in this segment, but banks still needs to be convinced on the DF model's viability. There is need to educate investors on DF model and its distinction from DISCOMs, that are struggling with debt trap. Hopefully this year will see more clarity on Distribution Franchisee model with emerging new RFPs.

At pManifold, we look forward to raise an association of all operating DFs, to be able to share best practices and also rightly advocate real issues with stakeholders to support scale-up of DF model and reforms. One of best practices for DF to follow in 'Customer Engagement' is already live, with pManifold aspiring to create an unique customer rating for Utilities pan India.

Post by: Faiz and Rahul @ pManifold