Thursday, June 28, 2012

Price bid curves and analytics from Jharkhand Distribution Franchisee projects

Our recent blog 'Key comparison of revised RFPs for Jharkhand Distribution Franchisees' covered the baseline comparison between old and revised RFPs for 3 forthcoming Power Distribution Franchisees in Jharkhand - Ranchi, Dhanbad and Jamshedpur.

JSEB has given minimum benchmark input price curve for all the regions, mandating bidders to bid higher than given price curve for all 15 years. The bidders in pre-bid meeting has earlier requested to have no benchmarks, to allow them innovating on financial structuring. (See our blog Jharkhand Distribution Franchisee first pre-bid meeting

See below table with useful bid analytics
Jharkhand Min. Benchmark Input prices for Power procurement by DF (Source: pManifold)
Some top level observations:

  1. Steep growth rate of around 10% in initial first 2 years, with max. in first year; followed by receding growth rate to 2% by 5 years; almost stable and slow receding of around 1% until 10 years, and then another stagnant increase of less than 0.5% and below until 15 years. 
  2. Ranchi has lowest start point around Rs. 2/kWh, with Jamshedpur highest at Rs. 2.5/kWh
  3. Ranchi again has lowest end point around Rs. 2.75/kWh, with Dhanbad highest at around Rs. 3.2/kWh. Amongst 3 DF regions, Dhanbad ranks lowest in geographical area, highest in consumer density and highest in AT&C losses. This probably be the reason for its highest end point pricing, because otherwise it ranks lowest in most other metrics of pManifold's DF attractiveness matrix.
  4. The ratio of max. to min. rates for each curve is higher than 0.7. 
    • The highest ratio is for Jamshedpur, resulting into lowest delta of Rs. 0.540 between the max and min rates of price curve. 
    • The lowest ratio is for Dhanbad, resulting into highest delta of Rs. 0.938 between the max and min rates of price 
  5. The Levelised Input Price (LIP) calculated at discount rate of 11% is highest for Dhanbad at Rs. 2.876/kWh, followed by Jamshedpur, with lowest for Ranchi at Rs. 2.487/kWh. (Difference of around 40 paise).
  6. Average Billing Rate (ABR) of Ranchi is lowest at Rs. 3.050/kWh, revealing greater improvement opportunity for that DF. Dhanbad has highest ABR of Rs. 3.540/kWh, which is sort of contrasting with its highest AT&C losses, lowest revenue billing & collections, and also lower collection efficiencies (see Jhanrkhand's DF attractiveness Matrix for details)
  7. Ratio of ABR to LIP is highest 1.231 for Dhanbad, 1.226 for Ranchi and lowest 1.176 for Jamshedpur. (This ratio is static indication of profit margin for bidders, with close to 1.00 value is indication of lower margins and higher risks for DF operator)

pManifold's DF bid advisory services further augment our client's bidding strategy through consolidation of on-site (network and customer) intelligence and other secondary research on electricity value chain for the region and its customer's demographics (socio, economic, political, cultural). Also our Discom Advisory services provides support in preparation of baseline data for new coming DF regions, and integrated financial modeling of Distribution Licensee and Distribution Franchisee to study various trade-offs to design robust DF model and contract for true win-win of Discom and DF. 

Post by: Rahul Bagdia @ pManifold

Key comparison of revised RFPs for Jharkhand Distribution Franchisees

Recently (20th June 2012), Jharkhand has revised its Distribution Franchisee (DF) RFPs for 3 locations namely Ranchi, Dhanbad and Jamshedpur. See our previous blogs on Jharkhand:
DF Attractiveness Matrix, benchmarking old and revised RFPs is shown in the diagram below. Some major changes in revised RFPs (dated 20th June) compared to old are as follows:
Jharkhand DF Attractiveness Matrix - Revised vs. Old RFPs (Source: pManifold)
  1. The base year for the RFP baseline continues to be 2010-11. This is most surprising part of this bidding, with bidders to take a call on future with lagging past baseline information.
  2. The current DF scope has been extended to entire District level for all 3 areas. Geographical area of all 3 regions - Ranchi, Dhanbad and Jamshedpur, has increased multiple times by approx. 17, 5 and 27 times respectively. This is huge increase, with not much corresponding change in no. of customers and assets variations  (see 2nd and 3rd figure here), creating questions on authenticity of the RFP baseline. 
  3. Number of Divisions has increased in Dhanbad from 3 to 4, while remaining the same for other 2 regions. Again increase in Dhanbad divisions, is not correspondingly matching with increase in assets in revised RFP (see 2nd figure here), suggesting inconsistency. 

Friday, June 22, 2012

Shil-Mumbra-Kalwa revised Distribution Franchisee pre-bid meeting takeaways

MSEDCL's organised pre-bid meeting on revised Mumbra DF (on 21st June) saw good participation from 11 bidding companies. See our last revised This participation number is however lower than earlier attended 25+ companies in first pre-bid meeting in 2011 for old Mumbra RFP, which finally received 5 bids, but then got scrapped.

The 11 companies that participated in this pre-bid meeting were DPSCL (IPCL), Torrent Power, Tata Power, Reliance, A2Z, Konark, Sai Infosystems (SIS), Sahakar Global, Rudranee Infrastructures, Supreme Infrastructures, and BVG group. The relaxed non-core QR, with requirement of managing B2C market with min. customer base of 40K, draw some new entrants. There were few other companies that failed to download RFP on 19th, because of some IT issue at MSEDCL side, and were denied entry into the pre-bid meeting. (It will be good for the overall industry, if MSEDCL could re-consider its approach, and allow RFP download till last day of bid submission, and not creating artificial barriers. It is hoped that existing allowed bidders would also support this case, and help set strong and standard bid practice, across utilities.)

MSEDCL shared below presentation during the pre-bid meeting, highlighting the major changes in Shil-Mumbra-Kalwa DF.

Tuesday, June 19, 2012

Relative DF Attractiveness Matrix for Jharkhand and Mumbra RFPs

Recently, new opportunities have emerged in Jharkhand and Maharashtra in Power Distribution Franchisee. See our earlier blogs on Mumbra (Maharashtra) and Jharkhand:
pManifold's DF Attractiveness Matrix on RFP data provides a quick study on new areas in Jharkhand & Maharashtra and its comparison with old one's like Nagpur, Jalgaon, Aurangabad, MP's 3 regions, etc. A coloring scheme is used for better visualization for favorable Distribution Franchisee parameters across each attributes.

A Consumer-Oriented Approach to Water Sector Reform (WSR)

With complex institutional arrangements, aging infrastructure, and poor cost recovery practices, India’s urban Water and Sanitation Services (WSS) sector faces tremendous challenges to providing safe, affordable water in a reliable manner. Ill-suited to tackle these issues on its own, the government began turning to the private sector for solutions in the mid-1990s. While such Public Private Partnerships (PPPs) were introduced with great fanfare, they failed miserably – only 1 in 5 projects initiated during the period remain in operation. One of the most important reasons behind these failures was the unilateral focus on physical infrastructure, completely neglecting the consumer-facing component of water utilities.

India has learned much from its Water Sector Reform (WSR) experiences since then, with three quarters of PPPs henceforth involving Operations and Management (O&M) of the distribution value chain. Correspondingly, PPP failure rates have decreased substantially: 80% (1990s) à 62.5% (2000-2004) à nearly zero (2005 onwards). In this blog, we will outline India’s most critical urban WSS issues from a consumer-oriented approach – the approach that has proven successful in providing lifelines to a sector in dire need of revitalization. (Source: Trends in Private Sector Participation in the India Water SectorWorld Sanitation Program 2011) 

To summarize this sector’s main challenges in one sentence (or diagram, rather), it is stuck in the following low-level equilibrium trap:

Wednesday, June 13, 2012

Escrow payment introduced by MSEDCL for Shil-Mumbra-Kalwa

Our earlier blog covered the 'Technical' and 'Financial' criteria of Shil-Mumbra-Kalwa, followed by listing of key performance parameters.

MSEDCL, from its past bid experience, is facing payment recovery issues from few operating distribution franchisee companies. In a recent development, MSEDCL has enforced strict performance requirements from existing franchisee to participate in its latest bid at Shil-Mumbra-Kalwa. This is by way of the following two clauses which have been added freshly:
  • A certificate of 'No Outstanding Dues' of utility (licensee) has been made mandatory for operating distribution franchisees.
  • Recovery of six months average billing amount in advance from future franchisee.
The above first condition will further increase pressure on existing franchisees to clear dues in case they wish to participate in new bids. The latter condition will ensure that only serious bidders with strong appetite to bear initial costs will participate in the future DF bids.

A slight change in QR is made, allowing any Distribution Licensee to participate irrespective of the customer base and no limitation of 40K customers.

Another interesting piece to further strengthen DF model is being experimented in this bid, with start of Escrow account, to derisk the Licensee from non-payment by DF operator.

The Shil-Mumbra-Kalwa bid process is through e-tendering and the revised RFP can be downloaded from the following website of Mahadiscom: A non-refundable fee of Rs. 2 lacs as tender purchase fee is to be paid online. This practice of MSEDCL of charging fees on RFP downloading is getting rightly challenged by bidders, resulting into risk of lower bid participation, fearing which RFP sale date has been extended to 20th June. (Please take a quick poll to register your vote to agree/disagree on this issue, and help set right practices to improve bidding procedures)

See revised Corrigendum.

Posted by: Kunjan Bagdia @ pManifold