Saturday, May 31, 2014

Views on 'Future of Power Distribution Franchisee Model in India' by Dr. Murhari Kele, CE (Mumbai), MSEDCL

Dr. Murhari S. Kele,
Chief Engineer,
MSEDCL, Mumbai.
Power Distribution Franchisee (PDF) model in India saw mixed results across various operating areas so far. While the model saw good momentum after Bhiwandi success story with various states opting for the same, but there is no second success story to further boost the growth of the model.  

pManifold team recently spoke with Dr. Murhari Kele, an industry expert in Power Distribution Franchisee to understand his viewpoints on Future scenario of model. (The views here are personal views, and not to be associated with any company in any forms)

1. Power Distribution Franchisee (PDF), one of the reforms in power distribution utilities has seen ups and downs since its inception in 2007? What is your opinion on privatization of Indian Power Distribution Utilities, and opting Franchisee model as a possible precursor for same (compared with other private models like Delhi PPP model, PPP concessionaire, etc.)?

After inception of The Electricity Act-2003, SEB’s were unbundled in various activities. Power distribution reforms through National Tariff policy & National Electricity policy speaks about the private sector participation in public utilities through various models, like PPP model, franchisee model or full privatisation. These types of operating models are used for turnaround of loss making utilities. Each model is having its own characteristics with risks & challenges. But based on performance of various models for last five years, it shows that private ownership was superior both for PPP & to public ownership. With private ownership there were two models namely Privatisation & second Franchisee. In terms of reduction of system losses the performance of both PPP model in Delhi  & Franchisee model in Bhiwandi, the results were dramatic & comparable. These were obtained not only by better management practices, better surveillance etc but also by providing superior services to customers. 

2. After Bhiwandi success story, there has been limited success on the DF model across other operating areas? What are the primary reasons do you see for the same? Which could be the next success story and why, as per your opinion?

  • It is absolutely true that Bhiwandi has got overwhelming success as a franchisee model & created interest in business firms to have such business model. It was first experiment of franchisee in India. Bhiwandi was selected for PDF because, it was having T&D loss of more than 64%, transformer failure rate was above 42%, deteriorated infrastructure, inadequate EHV capacity & its network, huge theft & faulty meters, load shedding along with breakdowns & interruptions, unsatisfied consumers, etc. Both franchiser (MSEDCL) & franchisee (TPL) were not sure about success in Bhiwandi due to above reasons. 
  • As I have worked in Bhiwandi before & after franchisee experiment & research on same topic, I am of the opinion that, major reasons for success in Bhiwandi are as follows. First & foremost reason is huge electricity sale of power looms & other consumers in Bhiwandi i.e. about 2300 Mus per year in very small & concentrated area & was having huge potential for business. Second reason was TPL as winning bidder was having hard core experience in power distribution sector. Third main reason is its roll out plan & investment made by TPL in first two years, Fourth reason ABC analysis & well planned working like meter replacement, up gradation of infrastructure, strict vigilance, improvement in customer services, etc. Fifth reason is transformation in management from public to private, which has changed attitude of employees as well as of consumers. Last but not least reason is quantum of subsidy of power looms, which franchisee got from utility.
  • No franchisee will get such grand success like Bhiwandi, but considering existing franchisees in Maharashtra, we can make sequence on the basis of better performance as like TPL in Bhiwandi, then CGL in Jalgaon, Essel (PAN India) as subsidiary/replacement of Spanco in Nagpur & lastly GTL in Aurangabad. There are some potential pockets for franchisees like Malegaon, Mumbra, Ahemadnagar, Akola & some worst agriculture pockets in Marathawada & Khandesh, where utility may think for such experiments with some modifications in terms & conditions in model & can have tailor made model considering SWOT analysis of area.
3. How do you see the uptake of the PDF model for newer towns / cities? What challenges and best practices can be learned from operational PPP models, to avoid initial pit falls, and influence new design considerations? 

  • Power Distribution Franchisee is promising business if we run with changes with time. There should not be rigid framework of same model in all areas. It should differ with consumer mix, local political environment & There should be win-win situation for all stakeholders. While awarding franchisee in new towns, there should be very practical & realistic approach with transparency in business from both sides while designing the model.
  • Transparency in sharing base line data, accuracy of data, rollout plan of capital investment by franchisee, core sector experience of franchisee , regulatory monitoring on franchisee etc are required for new upcoming franchisees. Best practices in franchisees like mass meter replacement of same brand, use of advance technology like SCADA, CFC, 24x7 call centers, bill payment facilities, social adaptality, quick response to resolve consumers complaints,etc.has given good signals to other utilities.
4. What’s your view point on Shunglu’s committee recommended 255 cities / towns to be privatized in coming 5 years (i.e. by end of 2017)? It is estimated that we have barely touched even 1% of the potential market size? What will it take to timely realize the remaining 99% potential market size and establish sustainable Indian utilities?

  • Shunglu committee report was published in 2011 which was subjected to the analysis of ‘Financial Position of Distribution Utilities’. Part of that report was based on analysis of franchisee model in Maharashtra & forecasting for next five years about this model in India. Today every utility in India are implementing various Infrastructure development plans for strengthening infrastructure, use of advance technology & IT initiatives through Central Govt.schemes like APDRP, R-APDRP, RGGVY etc. It has reduced losses in totality & well performing distribution utilities. Also challenges like parallel distribution licenses, open access; privatisation of sector has changed mentality of employees of utilities.  Maharashtra has reduced their T&D loss up to 15% as on date, so there may be less potential for franchisees at least in Maharashtra.
5. In one of the recent news, Ministry of Power is considering plans to separate the wire-network business from electricity retail for better services, more competition, reduce distribution losses, etc.? Will competition come in this sector or not; do we need it or not? What’s your viewpoint on this and why?  

  • It is true that, there are some amendments suggested in the Electricity Act-2003. Draft is also published for discussion in public. There should be competition in Power sector, to have better efficiencies, to improve services to consumers with reliable power supply with reasonable rate. Draft amendments suggests that, distribution utilities should be separated with wire & supply business.  Private generators can supply power to any license area, which is specified by regulator. Distribution network will be provided by utilities by accepting wheeling charges & consumer can get supply from any generator with competitive/cheap rate. It will restructure the existing arrangement of utilities. There will be again licensee raj, as like it was during 1910 to 1948.  This will complete 100 yrs voyage of electricity which was begin with licensees in different areas in 1910 & travelled through various models like SEB model, DISCOMs, PPP model, franchisee model & lastly  privatisation through various area wise licensees.
6. Maharashtra has been at forefront in running and implementing a DF model, what future plans do you see with regards to DF model growth in other towns / cities of Maharashtra? If yes, tentatively by what time and how many DFs?

  • Maharashtra is pioneer in first ever experiment of Power Distribution Franchisee in India. After getting success in Bhiwandi, state has implemented input based franchisee model in Nagpur, Aurangabad & Jalgaon. They are performing with their own speed. Now a day, considering reduced demand supply gap in power, there is no load shedding in villages also, there is huge reduction in loss of every area, loss making pockets are captured by R-APDRP schemes & more than 100 towns are on GO-LIVE status, which are monitored & targeted to achieve 15% loss. So, it is predicted there is no huge potential barring few areas which are discussed initially. However, being policy decision, management of MSEDCL may take appropriate decision at proper time.

About the expert: Dr. Murhari S.Kele, Chief Engineer working in Maharashtra State Electricity Distribution Company Ltd. Mumbai. He is having 25 yrs experience in power sector with private sector & public utility. He is having basic graduation of BE (Electrical) & possesses degree of MBA (Marketing) along with Law & Journalism. He also possesses various expertises like Energy Auditor, Chartered Engineer & passed Advance Course in Power Distribution Management & he is having fellowship of Institute of Engineers (Kolkata). He had presented & published more than ten papers in various journals within & outside state. He is having PhD in Power Franchisee & published various books along with book on Power Distribution Franchisee Book on success story of Bhiwandi. He can be reached at or +91 72080-66000.

Posted by: Kunjan Bagdia @ pManifold                                   

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