Redefining Distribution

Updates on DFs and UT discom privatisation

Over the years, the power distribution segment has been plagued by issues such as weak financial performance, high operational losses and poor customer service. Private participation has often been suggested as the solution, given that private discoms have been faring well on these parameters. In May 2020, Finance Minister Nirmala Sitharaman had announced plans to privatise electricity distribution departments/companies in the union territories (UTs) under the Aatmanirbhar Bharat Abhiyaan. The decision was fuelled by the sub-optimal performance of state power distribution utilities. Privatised utilities in the UTs are expected to act as a model for the privatisation of power distribution at the pan-Indian level. To this end, an important development was the release in September 2020 of the draft standard bidding documents (SBDs) for privatising discoms. These SBDs provide guidelines for states that want to offer their electricity distribution utilities to private players while ensuring standardisation across transaction structures and processes.

Deloitte is running the sale process for Puducherry, Chandigarh, and the Andaman & Nicobar Islands, while SBI Capital Markets Limited has received the mandate for Dadra & Nagar Haveli and Daman & Diu (DNH&DD), Jammu & Kashmir, and Ladakh. In the first lot, the UTs of Chandigarh and DNH&DD have been put up for bidding. However, the initiative is progressing at a slower pace than expected owing to legal challenges, although the private sector’s interest remains strong.

Power Line presents an update on the privatisation process of the UT discoms, as well as the developments in the distribution franchise (DF) space….

Chandigarh

On November 9, 2020, Chandigarh became the first UT to issue a tender inviting bids for complete privatisation of its distribution operations. As per the request for proposal (RfP), interested entities were invited to participate in the competitive process for the selection of a bidder for purchase of 100 per cent shares in the discom. However, on December 1, 2020, the High Court of Punjab and Haryana stayed the privatisation bid of Chandigarh’s electricity discom, calling it unjust and illegal. It was argued that the Chandigarh discom had been operating at a profit with a revenue surplus for the past three years, with its transmission and distribution losses at less than 15 per cent.

On January 12, 2021, the Supreme Court issued interim orders placing a hold on the stay order given by the high court and, on January 14, 2021, the administration resumed the sale of the tender. As many as 20 intended bidders purchased the RfP. By the deadline, February 8, 2021, six companies had submitted their bids – Sterlite Power, ReNew Wind Energy, NTPC Electric Supply Company Limited (NESCL), Adani Transmission Limited, Tata Power and Torrent Power. Kolkata-based Eminent Electricity Power Company Limited, a subsidiary of CESC Limited, submitted its bid after the bidding date was extended to March 18, 2021, following an amendment by the department allowing new bidders to submit bids and existing bidders to modify theirs. With this, seven firms were in the fray to take over the Electricity Department of Chandigarh.

The high court, on May 28, 2021, stayed the administration’s move to privatise the power department, but the order was, in turn, stayed by the Supreme Court on June 28, 2021, clearing the process once again. Recently, in August 2021, Eminent Electricity Power emerged as the highest bidder to take over Chandigarh Electricity Department’s power distribution business for Rs 8.71 billion. The other bids stood at Rs 6.06 billion by Torrent Power, Rs 5.63 billion by NSECL, Rs 5.51 billion by ReNew Power, Rs 4.26 billion by Tata Power, Rs 4.71 billion by Adani Power, with the lowest at Rs 2.01 billion by Sterlite Power.

Dadra & Nagar Haveli and Daman & Diu

As per the privatisation proposal for UTs, DNH&DD’s discoms were clubbed together to be bid out. In December 2020, bids were invited for a 51 per cent stake in the discom, with a deadline of January 15, 2021.

In March 2021, Torrent Power emerged as the highest bidder by quoting a winning price of Rs 5.55 billion, which was three times the reserve price of Rs 1.51 billion. The company reportedly outbid firms such as Adani Transmission, CESC and ReNew Power. With the addition of DNH&DD, Torrent Power was set to distribute nearly 25 BUs to over 3.8 million customers and cater to a peak demand of over 5,000 MW.

However, on March 4, 2021, the Bombay High Court suspended the tender process in a public interest litigation case. In July 2021, the Supreme Court of India granted a stay on the impugned interim order of the Bombay High Court.

Developments in other UTs

Despite opposition to the privatisation of Puducherry’s Electricity Department, the decks have been cleared. A meeting of the empowered committee is expected to be called shortly, with a central government representative, where a decision will be made on floating the RfP for divesting 100 per cent stake in the discom. The discom will be carved out before the handover. As of July 2021, around nine firms are reportedly interested in taking over the power distribution functions of Puducherry’s Electricity Department – Italy’s Enel Group, the Adani Group, Torrent Power Limited, Greenko, ReNew Power Ventures, Sterlite Power, NTPC Limited, CESC Limited and Tata Power Corporation Limited.

The UTs of Andaman & Nicobar Islands and Lakshadweep are also at the RfP finalisation stage. Meanwhile, the UT of Jammu & Kashmir has commissioned a study to assess suitable options in this direction, as these areas are fraught with security issues and have a high level of losses.

Update on DFs

So far, 28 distribution franchises (DFs) have been awarded by various state distribution utilities. However, only 12 DFs are operational at present, while the remaining 16 have expired or been annulled, terminated or discontinued. The operational DFs comprise four in Rajasthan, three in Maharashtra, two in Meghalaya, one in Uttar Pradesh, and two in Tripura that were awarded in 2020. Feedback Energy Distribution Company Limited (FEDCO) was successful in securing contracts for four electrical divisions (EDs) – Ambassa, Manu, Mohanpur and Sabroom – while Sai Computers secured a DF for the Kailashahar ED in Tripura.

Company-wise, CESC Limited runs three DFs in Rajasthan (at Kota, Bharatpur and Bikaner) and one in Maharashtra (Malegaon); Torrent Power operates two in Maharashtra (Bhiwandi and the Shil, Mumbra and Kalwa subdivisions) and one in Uttar Pradesh (Agra), Sai Computers has one DF in Meghalaya (Dalu subdivision) and one in Tripura (Kailashahar ED), FEDCO has one DF in Meghalaya (Mawkyrawat, Mawsynram, Nangalbibra and Phulbari subdivisions) and one in Tripura (Ambassa, Manu, Mohanpur and Sabroom EDs), and Tata Power has one in Rajasthan (Ajmer).

Other recent developments

There have been a few developments related to the privatisation of some state-owned discoms. Tata Power has won the bids for all four discoms in Odisha, with an equity stake of 51 per cent. In December 2019, it acquired Central Electricity Supply Utility of Odisha Limited, followed by Western Electricity Supply Company of Odisha Limited and Southern Electricity Supply Company of Odisha Limited in December 2020. Thereafter, in February 2021, it acquired North Eastern Electricity Supply Company of Odisha Limited.

Meanwhile, in October 2020, the Uttar Pradesh government, which had earlier granted in-principle approval for the privatisation of distribution operations in six districts under Purvanchal Vidyut Vitaran Nigam Limited, decided to withdraw the plans. Similarly, in May 2020, Reliance Infrastructure Limited planned to sell 51 per cent stake in the Delhi discoms – BSES Rajdhani Power Limited and BSES Yamuna Power Limited – but was stopped by the Delhi High Court in January 2021. In October 2020, worker union protests erupted in parts of Assam over concerns of privatisation of Assam Power Distribution Company Limited.

The way forward

The privatisation of UT discoms could lead to a standardisation of processes, which could then be adopted by state utilities in the future. The process would also help define the role of regulatory commissions and the transition support that the government would provide, the liabilities it would take, and the kind of tariff subsidy support it would provide. However, the resistance to privatisation by employee unions and legal issues need to be resolved to accelerate the process. The DF model serves as a good alternative for discoms that do not want to go for complete privatisation. A few circles/areas can be awarded to DFs, and the future road map can be decided based on operational and financial improvements in these areas.

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