Working Model

Distribution franchises show some success

The distribution franchise model has been adopted by utilities with the prime objective of improving the operational efficiency. Only 11 franchises are operating successfully today. These have been awarded in Maharashtra, Uttar Pradesh, Rajasthan and Odisha. Some have been terminated due to challenges like non-payment of dues and non-performance. A look at the recent developments in the distribution franchise space…

Awards and terminations

The most recent distribution franchises have been awarded in Rajasthan. Four franchises have been awarded by the state discoms since June 2016. Three of these – in Kota, Bharatpur and Bikaner –  have been secured by CESC Limited, while the Ajmer franchise has been secured by Tata Power Company Limited. The franchises have been awarded for a period of 20 years. CESC commenced power distribution in Kota, Bharatpur and Bikaner in September 2016, December 2016 and May 2017 respectively. The Ajmer franchise was awarded in April 2017 and Tata Power commenced operations in July 2017. Meanwhile, the franchise agreement between MSEDCL and TPL for power distribution in Bhiwandi expired in January 2017, and was renewed for a further period of 10 years, with effect from January 26, 2017. In 2017, FEDCO also selected three discoms in Madhya Pradesh as management operators. The Odisha franchises (see table), awarded in 2012-13 for a period of five years, expired in March-June 2018. The agreements are being considered for extension. A key development in this space has been the premature termination of the franchise by Bihar discoms. While the contract for Bhagalpur was cancelled in November last year, the Gaya franchise was terminated in July 2018 and the Muzaffarpur franchise in August 2018. The franchises were awarded in 2013 and 2014 for a period of 15 years. Reportedly, they have been ended due to the non-fulfilment of certain clauses in the contract.

New bids

On February 4, 2018, MSEDCL invited bids for input-based franchises in Shil, Mumbra and Kalwa subdivisions, Akola urban division, and Malegaon town in the urban Nashik zone. The last date for bid submission was August 1, 2018. Earlier, in May 2017, the Grid Corporation of Odisha invited bids for the appointment of distribution franchises in six circles – Bargarh, Bolangir, Aska, Bhanjannagar, Baripada and Jaipur.  These will be input-based franchises with a validity of 15 years. The last date for bid submission was February 1, 2018. The franchises are yet to be awarded.

Outlook

A number of challenges continue to constrain the adoption of distribution franchises, including the resistance of consumers and discom employees to the private sector, and the short-term nature of agreements. The recent bids have attempted to address some of these challenges and are expected to yield better results. The adoption of franchises is a key step proposed by the Ministry of Power to reduce discom losses. States like Rajasthan and Uttarakhand, and private players (CESC and India Power) have expressed interest in setting up more franchises. Going ahead, the innovation and experience of the existing franchises will be crucial in the success of the model.

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