The power ministry is looking to include a distribution franchise model under the new tariff policy, sources told CNBC-TV18 on Friday.
With financial losses amounting to about Rs 23,000 crore on state distribution companies as per ICRA report, the government believes that implementation of franchise model will help these firms become efficient at least in terms of billing and collection of electricity dues, said the sources, who did not want to be named.
In the franchise model, an area is tendered out to the highest bidder by the particular state distribution company to any private company which manages billing and collection on behalf of the discom. The franchise has to ensure a targeted collection on electricity dues for the period of the contract it signs with the state electricity distribution for the particular area.
“The franchise model will be a short term plan which will help distribution companies. The need of the hour is to separate ‘carriage and content’ in the electricity business, but that is still years away from now. The state governments should think of the Public-Private Partnership (PPP) model like it’s currently in Delhi where the private company has 51 percent holding and Delhi government enjoys 49 percent share and earn returns as well. The PPP model allows a private company to not only invest in technology upgradation but also manage businesses the way it should be handled,” said a representative of a private sector company operating in franchise model in India.
The idea of tariff policy is to enforce 24/7 power supply, penalty on discoms on performance issues, provide subsidy on electricity via Direct Benefit Transfer (DBT) and also to not let inefficiencies of the discoms be passed on to the consumers through a hike in tariff.
“The government wants to bring franchise model under Tariff Policy so that states adhere to this mechanism like other suggestions under the Tariff Policy. A timeline to implement the franchisee model under tariff policy will bring discipline in billing and collection for states discoms and help achieve the targets under UDAY," a source privy to the development said.
The sources also added that amendment to the Electricity Act of 2003 for separation of ‘carriage and content’ is still on the table but the government fears that states may not immediately agree. Separation of content and carriage will mean separation of the wire and electricity supply business by the state governments and allow consumers to choose its electricity supplier on the basis of service and tariff provided by various players. Both the central government and private players believe that states are unwilling to let go of the ownership of the distribution companies despite the fact the most discoms remain loss-making companies.
Issues of prevailing AT&C losses, unsustainable borrowings by discoms, a huge increase in regulatory assets, high cost of power purchase, government over dues, very high cross-subsidisation making the industrial sector unviable were some of the concerns raised by Ministry of Power in a meeting held with the states in February this year.
As on date, provisional numbers for FY19 for supply or AT&C (Aggregate Technical & Commercial) losses for 26 states stand at 18.24 percent and state discoms’ payment dues to the power generating companies at the end of May 2019 stands at Rs 22,392 crore.
