Part 1 of 2: Interview at Reuters on future of Power Distribution Franchisee model in India

Rahul Bagdia is Co-Founder and Director
of pManifold. The co. specialize in Utilities and
Emerging Markets Research and Advisory,
and is focusing upon operationalisation and improvement in
Service Delivery of Power Distribution models.

Reuters recently published an article on Power Distribution Franchisee model in India. The background was taken from bench-marking observations of DF model at Agra and Bhiwandi. See Punchups, kidnappings mar efforts to privatize power for detailed article. pManifold's help was used to understand broader DF market dynamics, through its report 'Input based Power Distribution Franchisee Market in India 2012Q1', and also few rounds of telephonic discussions and email exchanges. Since views from pManifold were not fully captured in this article, we thought of sharing the excerpt here for broader industry benefit. These are personal views of pManifold Director, Mr. Rahul Bagdia. It is divided into two blogs.

Question: DESPITE BHIWANDI’S SUCCESS, WHY MOST STATES HAVEN’T ADOPTED THE FRANCHISE MODEL?

pManifold:

Input Based DF model is still an emerging model, with last 2 years (2010 - 2012) seeing 4 realizations - 3 in Maharashtra (Nagpur, Aurangabad and Jalgaon), and one in UP (Agra). The year 2012-13 will see another 3 realizations in MP (Gwalior, Ujjain and Sagar), another 2 in Jharkhand (Ranchi and Jamshedpur) and 13+ regions in Orissa under different variant of DF model.
There are other ongoing DF efforts, which have been suspended and/or still awaiting final decisions (Mumbra-Shil-Kalwa in Maharashtra; Dhanbad in Jharkhand; Patna and 2 others in Bihar and 3 SAIL projects). All stakeholders are still in wait and watch mode, to see next demonstrated success in DF model. Its matter of another 1-2 years to see model’s fast emergence, with proven performance.
Torrent operated Bhiwandi and Agra models, with different success rates itself demonstrates that DF model has much more operational dynamics and is very regional and customer oriented model, and cannot be solved just by Technical competence in distribution. There are many more factors that influence success of the model, and all Stakeholders Engagement is must.
We also see missing strategic planning with most of the operating and new starting DFs. Everyone is trying to re-invent the wheel, and starting from scratch. What is needed, is companies to collaborate with right domain partners from day one, and this is more important with newer players entering into this sector. In specific, at pManifold we see following 3 separate functional/domain roles, that a new starting DF operator should empower with right partners:

Network and Line Management (reduce Technical losses)
Metering, Billing, Collection and integrated Energy Auditing (reduce Commercial losses)
IT, Data Analytics and Customer Satisfaction Monitoring Cell (increase Customer co-operation & overall performance monitoring)

In my various interactions, I have found that Discoms seniors and top management still does not have all clarity on the DF model, and there is an urgent need of strong education on DF model. (pManifold with this aim is planning a workshop and present an integrated model of Utility and DF financials, to help utilities better understand various trade-offs)

Question: WHY THE FRANCHISE MODEL HASN'T REALLY ATTRACTED BIGGER OR FOREIGN PLAYERS?

pManifold:

Inadequate and mis-represented Baseline data, and week Governance of the overall Bidding process has led to poor participation and lower confidence in established Developers and Investors.
Big players have been strongly advocating full privatization model instead of Franchise in order to have more control levers including Tariff setting to turn around the power distribution scenario. Despite this, they have shown interest in the Distribution Franchise model, and that is the reason they have actively participated in almost every pre-bids, but then, have either refrained from final bidding or have given very low price bids. Their risk averseness to DF’s evolving Contractual & Regulatory terms and conditions in this ‘Emergent’ phase is keeping them on back seat. They are closely watching the DF model to get into the ‘Growth’ and ‘Maturity’ phases, and claim their share. Until then, DF model is really for new players to bring innovation and market inflection with right domain partnerships, and not reinventing wheel.
While they are right on few counts, but looking at the diversity of the country (both rural and urban), and being realistic on the continuing political influence on power in the emerging energy/climate economy, we tend to believe that DF model has better chance to scale-up than full privatization model.
There is good foreign companies' interest in Water privatization than Power distribution. Some key distinct features of Water compared to Power are:

Urban city Water project has larger budget
There is stronger component of Technology in Water Treatment, which Indian players are still not fully equipped
Also water is more decentralized than power, with local Municipality (ULB) regulating tariff
In Water RFPs, there is likely more weight on Technology, which is forcing Indian companies to actively look for right Foreign partner, which is not the case in Power

There is strong advocacy of full privatization by Biggies in this space. Unfortunately, there does not exist an association of DF companies. I see a growing need of an association, to support and advocate DF model, and help it evolve and scale-up. This role is currently played by pManifold, but we need to become more official with this, with support from all small and big DF players in the country.