Friday, July 19, 2013

Mr. Ajoy Mehta shared his vision on Power Distribution Franchisee models in India

Mr. Ajoy Mehta, MD,
Mr. Ajoy Mehta, MD, MSEDCL, in a recent Business Technology Conclave of IUKAN extended strong support to Power Distribution Franchisee model, for country to build sustainable power utilities. He shared his experience and vision for further strengthening of the Power DF model. A brief excerpt in form of Q&As from his Vision session at IUKAN is shared below. (The views here are personal views, and not to be associated with any company in any forms)

Q: What role of privatization you see in Indian Discoms?
A: Electricity Act, 2003 made Generation de-licensed, opening to private participation, but in T&D continued to require Licensing, opening it to part-privatization, but not allowing complete private ownership of assets.
  • A Discom performs following core functions 1) sourcing of power 2) tariff filing and reporting to Regulators 3) various customer services like MBC etc. 4) distribution and fault management 5) and HR management.
  • Out of above, sourcing of power & tariff filling and reporting are broadly considered as prerogative of Licensee only, and hence not kept in scope of Franchisee.
  • The strength of private company is to handle customer relationship and bring operational efficiency, and hence remaining above activities including like MBC, IT, and Customer services, O&M, HRM etc. were made in scope of DF.
As Discoms are reeling under the high distribution loss and revenue deficit, the one way of improving the Distribution of electricity is to rightly involve private companies in the sector.     
Q: What experiences and challenges you see with operating franchisees?
A: Some key challenges which need overcoming for the DF model to grow:
  • Secondary attention to Customer services: Franchisees by far start focusing more about revenue collection from day one, and quality customer services become secondary. This is primarily because still in Franchisee model, there is monopoly of the operator, and customers do not have any choice. Stronger checks and balances has to be put to increase timely answerability to the end-customers.
  • Lower Transparency: Most franchisee operators have opposed to transparently sharing their performance with their Licensee. More trust and governance need to be in place for improved performance monitoring.
  • Shallow pockets & experience: Tightening the tender document, with further stringent QR to involve only serious bidders with deep pockets and relevant experience. At this point of time, industry needs good performing DFs for model to stand and grow. Investors and promoters should have good intent and have patience for min. 5 years for useful returns.
  • Resistance from Unions: There is atleast no unfair labour practices involved with PSUs including Discoms. Sometimes the private operators cut thin on this dimension, inviting resistance and tension in their employees and unions.
  • Political buying: Both Discom and Franchisee needs to work closely to get this one important piece right, as otherwise it can thwart overall project success. One case study is of MSEDCL’s reduced AT&C losses, by convincing the stakeholders to allow proportionate load shedding in areas with more than 60% losses.
Q:  Currently there is monopoly in the distribution sector. Can competition be introduced in this sector in the near future?
A: It is a very valid and important question. The biggest problem that is faced is cross-subsidy. True competition cannot come unless cross subsidy is removed and everybody pays the same rate. But that is very difficult in India because we have a tendency to stick to the socialist philosophy. Unless this exists, and the regulatory framework does not change, true competition cannot be introduced in the electricity sector.

Q: Is the government thinking of introducing power retail?
A:  Although the government is thinking on it, I believe it would take nothing less than 10 years to make it a reality. The government should make tariffs equal for all and if subsidy is to be given it can be given directly to the consumer who needs it. We are still a little distance away from achieving that.

Q: During the qualification of a bid can we allow partners consortium to ensure all relevant experience and resource for running Power Distribution system is present – Network/EPC/O&M; Metering & Energy Auditing; Finance and CRM/IT? What is your view in allowing this kind of consortium bidding with the pre condition that it is functionally relevant in running the entire distribution business?
A: This is a classical debate between consortium bidding and one big bidder. It is a difficult question and cannot have one simple answer. One rhetorical would be whether a movie with Salman Khan will become hit, or with 3-4 new heroes – both has their chances with right ingredients.

Q: Where do you think is the distribution sector heading? Will competition come in this sector or not; do we need it or not?
A: Competition will come with privatization. According to me, privatization is when the consumer has a choice.  And the only thing that can subject itself to privatization is consumer services. We have to find out ways to get the consumer services out of the hand of the government and give it to the private sector. That is something on which we have to work as policy makers now.

Q: A lot of generation capacity is stranded. Why don’t we have a target for load increase? Why is that not being pushed?
A: I agree with you that a lot of generation capacity is stranded, and that we need to push it. How do you push consumption when people don’t want to pay for consumption? Unfortunately, since we got independence, we have made people believe that whatever government gives is for free, be it electricity, water, roads or government hospitals. Since 50-60 yrs, people have got used to the idea that ‘paisa na bharne se bhi kaam chalta hai’. That has to change and is gradually changing. Unless this change occurs, there is no sense in increasing consumption. People must learn to pay.

Q: There is no specific standard of performance given for customer satisfaction. There is no benchmark available. Do you see customer satisfaction being measured by a licensee, becoming a governance tool for the franchisees?
A: There is a great place in business for statistical tools for measuring satisfaction. But at the end of the day, customer satisfaction is the softer aspect of the business and you are trying to gain harder monetary aspect out of distribution business. It has a lot to do with the mindset of the person running the business. Measurement does have a lot of meaning, and this could be one paradigm change in attitude if the franchisee business is to go ahead.

Q: Do you feel that setting up a measurement would drive that mindset change?
A: Yes it would. Definitely.

Q: Is there any clarity in policy making forums on the way in which the franchisee affair can be included in Tariff and Fixation Regulation exercise?
A: Various models are being looked at. But every state should be allowed to find its own model. I feel that we should define the larger parameters and let the states innovate on other aspects. The only thing I am requesting the Government of India is that they finalize the QR by conducting a larger debate and let the states decide their own models.

Q: What sort of support do you envisage that Discom could provide or add upon to further facilitate the scale-up of the Franchisee model? From your experience, what kind of support would further augment their service delivery?
A: Many people come to us to ask about the Franchisee model and I tell them very clearly that Franchisee is not a fashion statement. I advise them to get into Franchisee business only if they have the following three things: (1) You are truly and fully convinced (2) You have managed to a get the political support from your state, and (3) You are sure that you will take on your unions.
Full commitment of the utility is essential. It needs the time and effort of the number one man in the organization.

Posted by: Kunjan Bagdia @ pManifold

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