Power ministry for distribution franchisees

Reverses 1995 SEB privatisation model.

Over a decade after the idea of privatising state electricity boards (SEBs) was formally adopted, the power ministry has submitted a draft Cabinet note proposing to modify the 1995 mega power policy to allow a more flexible system of private participation in distribution through a franchisee model.

The proposal is to amend the clause that requires a state to privatise its distribution network as a precondition to granting mega power status to projects supplying power to the state.

The new proposal specifies that a state deploy a franchisee system in all of its rural areas, towns and cities with a population of 5 lakh and more. The current provision requires states to agree to privatise distribution in all cities with a population of 10 lakh and more.

In effect, the move is final acknowledgment of the fact that SEB privatisation has made no significant. So far only three SEBs have been privatised "� Andhra Pradesh, Orissa and Delhi. In fact, several states have repeatedly demanded that the privatisation clause be dropped.

The power ministry feels the proposed amendment will in no way dilute the original reform objective of reducing SEBs' transmission and commercial losses and offer state governments the option of a more acceptable mode of reforming their electricity distribution set-up.

Officials said the amendment would extend reforms beyond large cities and ensure that distribution reform spreads through the franchisee system to all rural areas.

The franchisee system is a flexible arrangement that allows any enterprise "� private or public sector "� to be responsible for power distribution in the "last mile" beyond a power transformer. Crucially, the franchisee is accountable for loss reduction and theft prevention.

The franchisee, who buys power in bulk, collects revenue directly from consumers. A power ministry official said the model brought about revenue sustainability in the rural power distribution system.

The move is also in line with the United Progressive Alliance government's Common Minimum Programme, which has asked for an increased role for the private sector in generation and distribution.