Power reforms in India is often defined as initial liberalization in 1990’s that opened generation sector to private investors followed by unbundling of vertically integrated state electricity boards into separate Generation, Transmission and Distribution Companies. The purpose of unbundling was to achieve operational and financial efficiency across the electricity value chain, which still remains unachieved and it can be safely said that the two decades of power sector reforms phase has little to outline as its achievement. Infact, stakeholders in the industry have now started questioning if the Electricity Act 2003 has already outlived its time and the same needs reforming amendment or complete new set of regulatory framework and policy to further transform the ailing power sector. The second bailout package in a little over decades time since adoption of EA 2003 is a good enough indicator pointing towards implementation challenges of some of the reforming initiatives like open access that was conceived to be panacea for the ailing fiscal viability of the power sector. What is worrisome is that we don’t seem to have learnt from mistakes and continue to tread the trial and error path till the reforms start giving results, never say never when there is nothing to be achieved ever! As a result the generation capacity augmentation is still going at a pace which has no sync with the evacuation capacity augmentation at the transmission and distribution end of power sector value chain. As a result any increase in generation capacity is getting offset by inefficiencies in the form of technical and commercial losses across the electricity value chain.
Despite been known that the real problem is the last mile and without fixing the same, adding generation capacity is like trying to fill a perforated pot. Privatization of discoms post unbundling which was part of the reform roadmap is yet to be initiated in a larger way, but the same seems to have taken back seat after some of the initial privatization story took years to showcase significant turnaround, there is no single discom in the country yet, that can convincingly say that privatization has completely helped it achieved a super-efficient distribution company. With a little over dozen electricity supply utilities privatized, the privatization story of the distribution leg of electricity is yet to be initiated. Over 30+ discoms are yet to be privatized, though some of them have tested the water with electricity distribution franchisee and some facing resistance to the same. Resistance to 100% privatization of discoms is understandable and the phenomenon is not just restricted to India, even in developed countries the privatization was opposed which however after years yielded the results in terms of stable / lower tariff which was result of achieving efficiency in the operating system. The stable / lower tariff was followed after initial period of high tariff which is result of investments in strengthening the distribution infrastructure for making the supply ecosystem financially and operationally sound. The input based franchisee model which is now been adopted by many states like Maharashtra, Madhya Pradesh and Uttar Pradesh is in its initial phase of implementation with some already matured like the Torrent in Maharashtra which is a case study in successful electricity distribution franchisee and then there are some where appointed distribution franchisee couldn’t handle the flux and were either shoveled out or they chose to opt out.
Electricity distribution franchisee could well turn out to be savior for the ailing power distribution sector which is struggling to achieve efficiency in last mile delivery of electricity to the customer. Input based franchisee model is not been deployed in many cities and the benefit of which is likely be bourne by discom, franchisee partner and customer. The business case around electricity franchisee is still not properly communicated to the stakeholder involved, if this can be communicated then there is in all likelihood chances of seeing higher roll out of electricity franchisee across the country. The recent resistance to electricity distribution franchisee that seen in CESU is result of not understanding the utility of franchisee model for each stakeholder. The business case in electricity franchisee is clear that the loss due to theft pilferage or technical losses that discom couldn’t curtail is been outsourced to electricity franchisee with improvement trajectory earmarked for the entire franchisee period of around 15 years. In order to fully leverage the benefit of electricity distribution franchisee, discoms needs to give franchisee some degree of autonomy when it comes to operation and if not act as a collaborator and not a company that has hired vendor to take care of outsourced work. What this collaboration could do is slice and dices the grey areas or the holes of the pot that could help achieve efficiency across the electricity value chain. Reducing AT&C losses, improving the system availability, reducing transformer failure instances, increasing vigilance, optimizing on cost of inventory, reducing meter to cash cycle time, reducing need for working capital, increasing billing & collection efficiency are all KRAs of franchisee and the same needs to be facilitated by discom. In order for electricity distribution franchisee as a model to succeed and effect significant improvement, a collaborative approach is required or a complete autonomy given to discom is required. The discom has to choose from the option to ensure win-win for itself, consumer and for the electricity franchisee.
Hence, if the stakeholders in power sector have serious intent to improve the operational and fiscal viability of the power sector than they have to accelerate the electricity distribution franchisee rolls out across the country. Also, PPP needs to come into effect in both letter and spirit.