Govt's franchise model in power supply will interest private firms: Experts

However, some say the benefits have not been encouraging and full privatisation might be better

The central government plan for a new franchise model to attract private companies into the power supply in various states will interest them, say sector officials and experts.

However, they add, more needs to be done for making this viable. The Union ministry of power has drafted a model plan, for multiple private franchisees as power suppliers in states. Business Standard reported on this earlier in the month. 

It proposes a “light-handed approach” towards franchisees to incentivise, discount and set rates (within a stipulated range) for supply in an area. Industry officials say there is interest in the model but full privatisation in the supply segment would be a better step.

“Adani Transmission would be open to pursuing any model of reforms in retail electricity distribution,” said a spokesperson. Adding: “s long as it is supportive of the change management process in prudent and viable ways, whether it’s through a franchise model or through PPP (public-private partnership).” A spokesperson for Tata Power said they’d like to pursue all opportunities in the power distribution business. These two entities are both distributing power in Mumbai. 

An e-mail query to TorrentPower, power franchisee for Bhiwandi, close to Mumbai, was not answered. “It is a good move to open more distribution opportunities to private companies. However, the choice should be left to the discoms (state distributioin entities) and the companies that wish to participate. Both models should be explored,” said an official from a private company, who did not wish to be identified.

The spokesperson for Adani Transmission says a privatisation model is better. “Full privatisation is more akin to supporting the transformation in management processes, due to a developer directly working under an independent regulator and there being flexibility of arranging capital expenditure and power supply in a competitive manner,” the spokesperson said.

Under the existing franchise model, the private company steps in to collect electricity charges and help cut aggregate technical and commercial (AT&C) loss. But, does no investment in core infrastructure. In the full privatisation model, a private company collects charges, is free to source power from buyers of its choice, invests in infrastructure and files petitions to the regulator on what the supply rates should be.

Some officials from state discoms agree full privatisation is more viable. “In a franchise mode, my strength and my weakness become that of the franchise operators — there is less room for vast improvement,” one said.

Sector experts say the franchisee model has not yielded results. “Wrong baseline for AT&C loss, unreasonable loss reduction bids and inexperienced operators are some of the reasons why the success of the Bhiwandi distribution franchisee model could not be replicated in most of the later awards," feels Debasish Mishra, partner at Deloitte Touche Tohmatsu India.