The Franchisee Model in Electricity Distribution – A case study of Torrent Power Ltd. in Bhiwandi Maharashtra

Abstract

In India,the electricity industry is dominated by the public sector. Public sector utilities have been facing financial losses. The reforms introduced to make the industry more efficient include unbundling of the vertically integrated utilities and privatization. Focusing on the distribution sector of the electricity industry, the paper outlines the various models which have evolved in the distribution sector since the introduction of reforms in the industry in India. The Distribution Franchisee model is one of them. Using the case of the Distribution Franchisee, Torrent Power Limited in Bhiwandi, Maharashtra, the paper highlights how a private sector company transformed a downward vicious cycle to a virtuous cycle by reducing the distribution transformer failure rate which led to reduced Aggregate Technical and Commercial Losses (AT&C). The management strategy of combining long term capital investment in network infrastructure and customer centric practices led to improved billing and metering of electricity usage. The performance of the Distribution Franchisee with other private sector players in the distribution sector of the electricity industry on select indicators is commendable. What remains to be seen is the sustainability of the model. Will the distribution franchisee continue to deliver its performance? Or is complete privatization the answer to the problem faced by the loss making public utility? The research study raises these issues and concludes that the Distribution Franchisee model is a half-hearted attempt at privatization and is not sustainable in the long run

Introduction

Electricity generation and distribution have traditionally been with the public sector in India. Legal provisions to support and regulate electricity were put in place through the Indian Electricity Act (1910). Electricity Boards in the States of India were established under the Electricity (Supply) Act, 1948 creating public sector monopolies. The performance of the public sector dominated electricity industry has been far from satisfactory. The peak hour consumer demand exceeds the available generating capacity leading to load shedding in most parts of the country except metropolitan cities and state capitals. Rural supplies are rostered and restricted to 8-12 hours a day in most States. State utilities tend to overdraw power from the larger grid making it prone to risk of collapse. Industries and commercial establishments need back up diesel generators and domestic consumers need battery-backed inverters for uninterrupted power supply when the grid is cut off (Bhushan, 2011). On the financial side, the gap between user charges and the rising costs of supply of electricity has led to financial losses for the State Electricity Boards resulting in inadequate investments in the distribution system. The financial health of the State Electricity Boards and reliable access to electricity by the people are matters of concern.

The exclusive jurisdiction of the state monopolies was sought to be diluted through the Electricity Act, 2003 which replaced the earlier three laws relating to electricity¹. The Electricity Act 2003 seeks to bring efficiency through competition. Under this Act, generation of electricity has been totally delicensed and opened up for private sector investments. In transmission, open access is to be introduced in a phased manner, and in distribution, the private sector has been allowed entry through multiple licenses in areas which are to be provided by the Regulators. However, after more than ten years of the Electricity Act, very few multiple licenses for distribution areas have been awarded because of administrative, regulatory and political considerations. Partial open access regulations have been introduced. Generators, whether standalone or captive, have not entered the distribution market in a significant way. The quantum of electricity traded is only 3 percent of total power sold (Patel and Bhattacharya, 2009, p. 19). There is thus a need to understand efforts made in privatization of distribution of electricity and to assess whether they have brought in competition and offer choices to consumers, which is the central theme of the Electricity Act 2003. The present paper is an attempt to critically analyse the effort at privatization of electricity distribution through the Distribution Franchisee model as introduced in the Bhiwandi circle in Maharashtra, a state of India.

The paper has been organized in the following manner: Drawing upon the experience of restructuring the electricity sector undertaken elsewhere, the literature review (section II) points to the need for undertaking a study to understand the implications of the reforms undertaken in India in the distribution sector. Objectives and methodology follow in section III.The distribution models in the electricity sector with special reference to India are studied in section IV and the case study of the Franchisee Model in electricity distribution of Torrent Power Limited (TPL) follows in Section V. Concluding remarks follow.

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