Focus on UTs

Discom privatisation and distribution franchise trends

In May 2020, the central government announced the privatisation of power departments and utilities in union territories (UTs) under the Atmanirbhar Bharat Abhiyan. These privatised utilities in the UTs are expected to act as a model for the privatisation of power distribution at the pan-India level.

To this end, Power Finance Corporation Limited appointed Deloitte and SBI Capital Markets Limited (SBICAP) as consultants to help with the privatisation process. Deloitte was appointed to help privatise discoms in Puducherry, Chandigarh and the Andaman & Nicobar (A&N) Islands, while SBICAP received the mandate for Dadra & Nagar Haveli and Daman & Diu (DNH&DD), Jammu & Kashmir, and Ladakh. In the first phase, power departments and utilities of Chandigarh and Dadra & Nagar Haveli and Daman & Diu were privatised. The initiative is progressing at a slower pace than expected owing to resistance by employee unions and legal challenges, although the private sector’s interest remains strong.

A quick update on the privatisation of discoms in UTs as well as the developments in the distribution franchise (DF) space…

Awarded UTs – Dadra & Nagar Haveli and Daman & Diu, and Chandigarh

In April 2022, Torrent Power formally took over distribution operations in the UT of DNH&DD. The company will serve a customer base of 150,000 in the UT through the newly formed company Dadra and Nagar Haveli and Daman and Diu Power Distribution Corporation Limited (DNHDD Power Distribution Company). Torrent Power owns a 51 per cent stake and the administrator of the UT holds the remaining stake in the new entity. DNHDD Power Distribution Company will have annual sales of 9 billion units of power and annual revenue of about Rs 45 billion. The process of sale of the UT was initiated in December 2020. Torrent Power emerged as the highest bidder by quoting a winning price of Rs 5.55 billion. The winning bid was three times the reserve price of Rs 1.51 billion. The UT is regulated by the Joint Electricity Regulatory Commission (JERC), which allows post-tax return on equity of 15.5 per cent for the wires business and 16 per cent for the retail business as part of the regulated tariff.

In February 2022, the central government gave its nod to Eminent Electricity Distribution Limited to take over Chandigarh’s power supply department. Chandigarh was the first UT to issue a tender inviting bid for complete privatisation of its distribution operations, on November 9, 2020. Eminent Electricity Distribution Limited, a Kolkata-based company and a subsidiary of CESC Limited, emerged as the highest bidder by quoting the highest bid of Rs 8.71 billion for Chandigarh’s power privatisation project, against the reserve price of Rs 1.75 billion. Eminent will serve a customer base of 250,000 in the UT.

Developments in other UTs

Puducherry’s electricity department has strongly objected to the privatisation move. In February 2022, the Puducherry government stated that it will discuss the privatisation issue with the central government.

In January 2022, the electricity department of the UT of Lakshadweep invited bids to acquire its discom responsible for electricity distribution and retail supply. Meanwhile, the UT of Jammu & Kashmir has commissioned a study to assess suitable options regarding privatisation of power distribution as these areas are fraught with security issues and have a high level of losses. For the A&N islands, the power department is deliberating on rationalising the subsidy structure and once finalised, bids will be invited (given that the bulk of the power supply comes from diesel).

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 have been annulled, terminated or discontinued. The operational DFs comprise four in Rajasthan, three in Maharashtra, two each in Meghalaya and Tripura, and one in Uttar Pradesh.

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 electrical division (ED)), Feedback Energy Distribution Company Limited (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).

The latest DF contracts were awarded in 2020 by Tripura, whereby FEDCO secured contracts for four EDs and Sai Computers secured a DF for the Kailashahar ED in Tripura.

The way forward

Overall, while privatisation of discoms in UTs could lead to the standardisation of processes and help define the role of regulatory commissions, timely implementation remains crucial.

Nikita Gupta

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