FEDCO

Delivering results as a distribution franchisee

Feedback Energy Distribution Company Limited (FEDCO) was incorporated in 2013 as a wholly owned subsidiary of Feedback Infrastructure Private Limited. FEDCO came into being with Feedback Infrastructure securing the distribution franchise contract for four districts under the Central Electricity Supply Utility (CESU) in Odisha. The award of the distribution franchise contract came in the wake of the high aggregate technical and commercial (AT&C) losses, low billing and collection efficiency and poor financial health of utilities in the state. FEDCO has delivered a remarkable performance as a distribution franchisee, significantly improving operational efficiency and strengthening the distribution network. Its success serves as a case study for promoting private sector participation in the distribution segment.

Operations

FEDCO operates as a distribution franchisee in 24 blocks across four divisions of CESU’s Bhubaneswar II circle in Odisha. These districts – Puri, Balugaon, Khurda and Nayagarh – have a consumer base of around half a million, covering more than 9,000 sq. km of area. As a distribution franchisee, its scope of work includes supplying power to the existing and future consumers, undertaking commercial activities, performing operations and maintenance of the low tension distribution network, implementing smart grid solutions, and incurring capital expenditure for network strengthening.

With regard to sharing of responsibility and revenue between FEDCO and CESU, the input-based franchise (IBF) with incremental revenue sharing (IRS) model has been adopted. This has been put into practice where the service area includes both urban and rural populations. CESU shares a part of the incremental revenue generated (over the baseline realisation per unit) with FEDCO. FEDCO undertakes capital investment, but is not responsible for initiating tariff determination and deploying assets. The company has a service contract for five years, which is extendable for another term. During the contract period, the key objectives of FEDCO include lowering AT&C losses to 15 per cent from around 56 per cent; improving metering, billing and revenue collection efficiencies; enhancing the quality of service; minimising current assets on account of arrears and undertaking effective demand side management. In addition, FEDCO is implementing a smart grid solution for energy management and energy efficiency on the additional revenue sharing build-operate-transfer model.

Operational performance

In the past four years, FEDCO has managed to achieve a turnaround in its distribution areas in terms of operational performance. On the energy input front, in 2015-16, FEDCO’s input stood at 1,379 MUs, an increase of 14.53 per cent over that in 2013-14. Meanwhile, with regard to AT&C losses, between 2013-14 and 2016-17, FEDCO has managed to lower the loss level by around 21 per cent, despite increase in the energy input and consumer base. Notably, among the three distribution franchise contracts for 14 districts under CESU awarded in 2013, FEDCO has registered the maximum reduction in AT&C losses in the past four years. The other two franchisees, with a similar rural-urban population mix, recorded loss reduction of 11 per cent and 4 per cent respectively.  In 2015-16, FEDCO’s AT&C losses stood at around 37 per cent. Meanwhile, its collection efficiency stood at 95 per cent and accurate metering was recorded up to 86 per cent in 2015-16.

Financial performance

FEDCO has witnessed significant improvement in revenue collection in its distribution area. Between 2013-14 and 2016-17, the company’s revenue grew at a compound annual growth rate of 34.36 per cent to reach Rs 4,802.2 million. On a year-on-year basis, in 2016-17, its total revenue grew at 7.73 per cent. Meanwhile, its net profit grew at 10.20 per cent to reach Rs 91.8 million.

Conclusion

FEDCO has managed to deliver results in a four-year period, despite the short duration of the IBF-IRS distribution franchise model being considered a challenge for delivering an operational turnaround. The company’s mantra since it began operations in Odisha has been integrating people, processes and technology, through which it has managed to yield the desired outcome. Following its success in Odisha, FEDCO has now partnered with Madhya Pradesh’s discoms to improve the quality of services in five divisions – Shivpuri, Katni, Dewas, Indore rural and Jabalpur rural.

FEDCO’s success offers hope for reviving the power distribution segment with private participation through the distribution franchise model.

 

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