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SUMMER TRAINING REPORT
on
DEPLOYMENT OF
INPUT BASED DISTRIBUTION FRANCHISE
A study on Participation Analysis in Ranchi Circle
at
IL&FS Energy Development Company Limited
JULY-2012
Under the guidance of
Mr. MANOJ KUMAR SABAT
Sr. Manager , TL
IL&FS Energy Development Company Ltd.
Mr. J. S. S. RAO
Principal Director
National Power Training Institute
Prepared by
GURUDUTT R. BHATT
Roll No. 1120812219
MBA - Power Management, Class: 2011-13
NATIONAL POWER TRAINING INSTITUTE, FARIDABAD
Submitted to
MAHARISHI DAYANAND UNIVERSITY, ROHTAK
[ii]
CERTIFICATE FROM INDUSTRY
Reserved for Certificate from the Industry/Project Guide on the official letterhead
[iii]
DECLARATION
I, GURUDUTT R. BHATT, Roll No. 1120812219, Class 2011-13, MBA (POWER
MANAGEMENT) of the NATIONAL POWER TRAINING INSTITUTE (NPTI), Faridabad
hereby declare that the Summer Training Report entitled
“DEPLOYMENT OF INPUT BASED DISTRIBUTION FRANCHISE
A study on Participation Analysis in Ranchi Circle”
is an original work and the same has not been submitted to any other institute for the award of
any other degree.
A Seminar presentation of the Training Report was made on 03-September-2012 and the
suggestions as approved by the faculty were duly incorporated.
Presentation In-charge Signature of the Candidate
Countersigned
Director/Principal of the Institute
[iv]
ACKNOWLEDGEMENT
I wholeheartedly thank Mr. Sunil Wadhwa (CEO, IEDCL) and Mr. Haziq Beg (COO, IEDCL) for
giving me the chance and appropriate resources for successful completion of this insightful project.
I express my sincerest thanks to Mr. V. L. Dua (AVP–TL, IEDCL), Mr. S. Baskaran (AVP–Thermal,
IEDCL) and Mr. N. D. Arora (AVP–Hydro, IEDCL) for personally sharing their most significant
learning with me from time to time.
No words can suffice the support and guidance I received from my guide Mr. Manoj Kumar Sabat
(Sr. Manager–TL, IEDCL) who facilitated me with every minute aspect from selection of this project to
relevant understanding of the topic. I my highly grateful to Mr. Ankesh Desai (Manager–Thermal,
IEDCL), Mr. Dinesh Kaundal (Manager–Thermal, IEDCL) and Mr. Samant Kumar Jha (Asst.
Manager, IEDCL) for sparing their valuable time in discussions and conceptualizing technical and
commercial issues related to the power sector.
My special thanks to Mr. Amit Dasgupta (Manager–HR, IEDCL) and Mr. Shreekant Mishra (Sr.
Officer, IEDCL) for their ambient support during the tenure of my internship.
It is impossible to reciprocate the assistance and guidance received from the management and team of
IL&FS Energy Development Company Limited, Gurgaon in giving me this invaluable opportunity to
pursue my Summer Internship with them. Their personalized attention all throughout the project work
would never have made this internship such an interesting, well-formatted and sequential process of
learning.
Nonetheless, my indebted thankfulness to my internal guide Mr. J. S. S. Rao (Principal Director,
NPTI) and Mr. S. K. Chaudhary (Principal Director, CAMPS) who inspired me by all means to
achieve all round excellence in pursuing my project, studies and career and supervising my internship in
the most obliging way.
I also take this opportunity to convey my profound gratefulness to Ms. Manju Mam (Dy. Director,
NPTI), Ms. Indu Maheshwari (Dy. Director, NPTI), Dr. Rohit Verma (Dy. Director, NPTI) and Mr.
K. P. S. Parmar (Asst. Director, NPTI) for their most desirable effort in facilitating summer project
and subsequent assistance.
I express my personal thanks to all the Faculty members of NPTI for their invaluable guidance during
the tenure as well as Alumni and Friends of NPTI for their endless cooperation and aspirations at
various stages of study.
Gurudutt R. Bhatt 01-Aug-2012
[v]
TABLE OF CONTENTS
CERTIFICATE FROM INDUSTRY ................................................................................................ ii
DECLARATION ............................................................................................................................... iii
ACKNOWLEDGEMENT ................................................................................................................. iv
TABLE OF CONTENTS ................................................................................................................... v
LIST OF FIGURES AND TABLES ................................................................................................ vii
ABBREVIATIONS ......................................................................................................................... viii
EXECUTIVE SUMMARY................................................................................................................ ix
Chapter-1: INTRODUCTION ....................................................................................................... 1
1.1. Past Scenario of Indian Power Sector ..................................................................................... 1
1.1.1. Decades of pre-Independence (1879-1947) .................................................................... 1
1.1.2. Decades of post-Independence (1948-1990) ................................................................... 1
1.2. Major Reforms and their outcomes ........................................................................................ 3
1.2.1. Reforms under Phase-I (1991-1995) .............................................................................. 3
1.2.2. Reforms under Phase-II (1996-2002) ............................................................................. 4
1.2.3. Reforms under Phase-III (2003 onwards) ....................................................................... 5
1.2.4. Changing Market Structure after Electricity Act 2003 .................................................... 7
1.3. Present Issues with Distribution Sector .................................................................................. 9
1.3.1. Present Status of Reforms .............................................................................................. 9
1.3.2. Financial Reality ......................................................................................................... 12
1.3.3. Rural Electrification .................................................................................................... 14
1.3.4. Credibility of Information - Metering and Feeder Segregation...................................... 15
1.3.5. Discom‘s independence from SEBs ............................................................................. 16
1.4. Objective of the Study ......................................................................................................... 17
1.5. Scope of Work ..................................................................................................................... 17
1.6. Limitations of the Study....................................................................................................... 18
1.7. Organisational Profile - IL&FS | Energy .............................................................................. 19
Chapter-2: LITERATURE SURVEY, RESEARCH METHODS AND POLICY ..................... 22
2.1. Literature Review ................................................................................................................ 22
2.2. Existing Policy Framework .................................................................................................. 26
2.2.1. Regulations and their Interpretation ............................................................................. 26
2.2.2. Larger role of Regulators and State Governments ........................................................ 29
Chapter-3: PRIVATE PARTICIPATION IN DISTRIBUTION SECTOR................................ 31
3.2. Review of Past Experiences ................................................................................................. 31
3.2.1. Odisha Model – Setback for PPP Model ...................................................................... 31
3.2.2. Delhi Model – Success story for PPP ........................................................................... 33
3.2.3. Bhiwandi Model – Torchbearer in Franchisee Model ................................................... 35
3.2.4. Agra Model – Learning Franchisee Model ................................................................... 37
3.2.5. Learning from past Experience .................................................................................... 37
3.3. Business Models under PPP Mode ....................................................................................... 38
3.4. Models under Franchisee Mode ........................................................................................... 40
3.4.1. Model A: Collection Based Revenue Franchisee .......................................................... 40
3.4.2. Model B: Input based Revenue Franchisee ................................................................... 41
3.4.3. Model C: Input based Franchisee ................................................................................. 42
3.4.4. Model D: Operation and Maintenance Franchisee ........................................................ 43
3.4.5. Model E: Rural Electric Co-operative Societies ........................................................... 43
3.4.6. Model F: Electric Co-operative Society-Operations Management by Contracting ......... 44
[vi]
3.5. PPP Model and Franchise Model – Relative Actualities ....................................................... 44
3.6. Input based Private Participation – Right model of DF ......................................................... 46
3.7. Risk Profiling in Distribution Franchisee ............................................................................. 47
Chapter-4: DEPLOYMENT PROCESS OF DISTRIBUTION FRANCHISE ........................... 50
4.4. Advisory Role of IL&FS ..................................................................................................... 50
4.4.1. Memorandum of Agreement ........................................................................................ 50
4.4.2. Summary of Role of JSEB ........................................................................................... 52
4.4.3. Summary of Role of JINFRA ...................................................................................... 52
4.4.4. Potential benefits to JSEB ............................................................................................ 53
4.5. Single stage bidding Process ................................................................................................ 54
4.6. Preparation of RFP .............................................................................................................. 55
4.6.1. Area Finalization ......................................................................................................... 55
4.6.2. Data Exploration ......................................................................................................... 55
4.6.3. Data Compilation and Finalization Issues .................................................................... 55
4.7. Request for Proposal (RFP) – Contents and Articles............................................................. 56
4.7.1. Definitions and Abbreviations ..................................................................................... 57
4.7.2. Introduction ................................................................................................................. 57
4.7.3. Project Description ...................................................................................................... 60
4.7.4. Roles and Responsibilities of DF and DL as mandated in RFP document ..................... 60
4.7.5. Instruction to Bidders .................................................................................................. 63
4.7.6. Opening and Evaluation of Bid .................................................................................... 68
4.7.7. Miscellaneous Articles................................................................................................. 69
4.7.8. Duties and Responsibilities of Distribution Franchisee ................................................. 72
4.7.9. Calculation of Invoice raised by JSEB ......................................................................... 72
4.7.10. Commercial Obligations .............................................................................................. 74
4.7.11. Legitimate Obligations ................................................................................................ 76
4.7.12. Legal Aspects .............................................................................................................. 77
4.7.13. Event of Defaults, Termination and Expiry of Agreement ............................................ 78
4.7.14. Supplementary details of Ranchi circle ........................................................................ 80
4.8. Sale of Bid-Document and Pre-Bid Meeting ........................................................................ 80
Chapter-5: BID EVALUATION AND AWARDING .................................................................. 81
5.1. Calculation of Reserve/ Benchmark Price ............................................................................ 81
5.2. Evaluation of Bid ................................................................................................................. 83
5.3. Evaluation of Technical Proposal ......................................................................................... 84
5.4. Evaluation of Financial Proposal .......................................................................................... 86
5.5. Significance of Reserve Price and Input Rate ....................................................................... 88
5.6. Awarding Distribution Franchise ......................................................................................... 89
5.7. Letter of Intent (LoI) ............................................................................................................ 90
5.8. Distribution Franchisee Agreement (DFA) ........................................................................... 91
Chapter-6: DISCUSSION AND SENSITIVITY ANALYSIS ..................................................... 92
6.1. AT&C Loss Percentage ....................................................................................................... 93
6.2. AT&C Loss Trajectory ........................................................................................................ 94
6.3. Period of Franchisee Operations .......................................................................................... 96
6.4. CAGR of Input Energy Requirement ................................................................................... 97
6.5. Closing Summary ................................................................................................................ 98
6.6. The Road Ahead .................................................................................................................. 99
Chapter-7: BIBLIOGRAPHY AND REFERENCES ................................................................ 101
ANNEXURES ................................................................................................................................. 102
7.1. Calculation of AT&C Losses by JSEB ............................................................................... 102
7.2. Present Picture of Distribution Franchisee in India ............................................................. 103
[vii]
LIST OF FIGURES AND TABLES
Figure 1: Major Laws and Policies in India ........................................................................................... 3
Figure 2: E. Act-2003, Impact on various segment of Electricity Sector ................................................ 6
Figure 3: Financial Short-circuit ......................................................................................................... 12
Figure 4: Per Unit Gap; Cost of supply & Revenue ............................................................................. 13
Figure 5: Roles of IL&FS Energy ....................................................................................................... 21
Figure 6: Bhiwandi DF; Initial Performance ....................................................................................... 36
Figure 7: Right Mix of DF .................................................................................................................. 39
Figure 8: Activities of DF ................................................................................................................... 39
Figure 9: Single stage bidding process ................................................................................................ 54
Figure 10: Evaluation process of a bid ................................................................................................ 83
Figure 11: Input, Reserve Price of H1 Bidder ...................................................................................... 88
Figure 12: Break-even of JSEB ........................................................................................................... 89
Figure 13: Awarding of DF................................................................................................................. 89
Table 1: Delhi PPP, Basic Issues ........................................................................................................ 33
Table 2: Delhi PPP, Facts ................................................................................................................... 34
Table 3: Bhiwandi DF; Facts .............................................................................................................. 36
Table 4: Agra DF; Facts ..................................................................................................................... 37
Table 5: Comparing various PPP Model in DF.................................................................................... 38
Table 6: Chaturvedi Committee and Shunglu Committee .................................................................... 46
Table 7: DF; Risk Allotment Framework ............................................................................................ 49
Table 8: Fees disbursement on milestone basis.................................................................................... 51
Table 9: Parameters mapped in RFP framework.................................................................................. 56
Table 10: Ranchi Circle; Distribution Divisions .................................................................................. 57
Table 11: Ranchi Circle; Distribution Infrastrucuture .......................................................................... 58
Table 12: Ranchi Circle; EHV Substations & Load ............................................................................. 58
Table 13: Ranchi Circle; Consumer Profile ......................................................................................... 58
Table 14: Ranchi Circle; Energy & Revenue ....................................................................................... 58
Table 15: Ranchi Circle; Work in Progress ......................................................................................... 59
Table 16: Ranchi; CAPEX under part-A of R-APDRP ........................................................................ 59
Table 17: Ranchi; CAPEX under part-B of R-APDRP ........................................................................ 59
Table 18: JSEB; IT implementation of R-APDRP ............................................................................... 60
Table 19: DF; Bidding Process Timetable ........................................................................................... 63
Table 20: Bidders; Equity holding ...................................................................................................... 64
Table 21: Bidders; Technical Proposal ................................................................................................ 66
Table 22: Bidders; Financial Proposal ................................................................................................. 66
Table 23: Year-wise AT&C Loss Targets ........................................................................................... 67
Table 24: Invoice calculation by JSEB ................................................................................................ 74
Table 25: Incentive on Arrears recovery ............................................................................................. 75
Table 26: Time interval of Reporting and Auditing ............................................................................. 76
Table 27: Checklist of Technical Evaluation ....................................................................................... 86
Table 28: DF; Key Issues.................................................................................................................... 99
Table 29: DF; Area of Concern ........................................................................................................... 99
Table 30: Sample AT&C Loss calculation ........................................................................................ 103
Table 31: DF; Present Scenario ......................................................................................................... 103
[viii]
ABBREVIATIONS
ABR Average Billing Rate kW kiloWatts
AC Alternating Current kWh kiloWatts Hours / Units
AIR Annualized Input Rate LDC Load Dispatch Centre
AMR Automated Meter Reading LIC Life Insurance Corporation of India
APTEL Appellate Tribunal of Electricity LoI Letter of Intent
ARR Annual Revenue Requirement MI Main Invoice
AT&C Aggregate Technical and Commercial MoA Memorandum of Agreement
BEE Bureau of Energy Efficiency MoP Ministry of Power
BSEB Bihar State Electricity Board MoU Memorandum of Understanding
BST Bulk Supply Tariff MSEDCL Maharashtra State Electricity Distribution
Co. Ltd.
CAPEX Capital Expenditure MU Million Units
CBI Central Bank of India MW MegaWatts
CEA Central Electricity Authority NEP Nation Electricity Policy
CERC Central Electricity Regulatory
Commission
NHPC National Hydro Power Corporation
CSC Consumer Service Centers NTPC National Thermal Power Corporation
CTU Central Transmission Utility O&M Operation and Maintenance
DC Direct Current OPEX Operating Expenditure
DD Demand Draft PBM Pre-Bid Meeting
DF Distribution Franchisee PD Permanently Disconnected (Consumer)
DFA Distribution Franchisee Agreement PFC Power Finance Corporation
DisComs Distribution Companies PLF Plant Load Factor
DL Distribution Licensee PPA Power Purchase Agreement
EA Electricity Act PPP Public Private Partnership
EHV Extra High Voltage PTC Power Trading Corporation
EMD Earnest Money Deposit R-APDRP Restructured Accelerated Power
Development and Reforms Program
FoR Forum of Regulators REC Rural Electrification Corporation
FPPCA Fuel Power Purchase Cost Adjustment RFP Request for Proposal
GoI Government of India RGGVY Rajiv Gandhi Grameen Vidyutikaran Yogna
GoJ Government of Jharkhand S/S Sub Station
GW GigaWatts SBI State Bank of India
H1 Highest Bidding entity/ies SCC Service Connection Charges
H2 Second Highest Bidding entity/ies SEB State Electricity Board
HDFC Housing Development and Finance
Corporation Ltd.
Sec. Section
HV High Voltage SERC State Electricity Regulatory Commission
IDFC Infrastructure Development Finance
Company Limited, IDFC Ltd.
SI Supplementary Invoice
IEDCL IL&FS Energy Development Co. Ltd. SLDC State Load Dispatch Centre
IL&FS Infrastructure Leasing and Financial Services
SoP Standards of Performance
IPP Independent Power Producers STU State Transmission Utility
JIIDCO Jharkhand Industrial Infrastructure
Development Corporation
T&D Transmission and Distribution
JINFRA Jharkhand Infrastructure Development
Corporation Limited
TIR Tariff Indexation Ratio
JSEB Jharkhand State Electricity Board UTI Unit Trust of India
JSERC Jharkhand State Electricity Regulatory
Commission
[ix]
EXECUTIVE SUMMARY
“India’s power sector is a leaking bucket; the holes deliberately crafted and the leaks
carefully collected as economic rents by various stakeholders that control the system. Most
initiatives in the power sector (capacity additions) are nothing but ways of pouring more
water into the bucket so that the consistency and quantity of leaks are assured. The logical
thing to do would be to fix the bucket rather than to persistently emphasize shortages of
power and forever make exaggerated estimates of future demands for power.”
- Jan-2011, as remarked in a committee1 report headed by Mr. Deepak Parekh,
erstwhile Chairman of IDFC.
The ‘holes in the bucket’ in the above remark is clearly the ‘distribution’ segment of India‘s
Power Sector, which consumes no matter how much is generated, without adequately
compensating the producers of electricity for the same. Twenty years after reforms were
introduced in the Indian electricity sector, the above remark still holds well with several
underlying distribution problems creating major bottlenecks in the entire power sector.
Distribution is the most important cog in the power sector that interfaces with the end
consumers and provides revenue for the entire value chain. With a connected load of 400 GW
placing India among the largest consumer base in the world, 200 million consumers are served
by 73 distribution utilities made up with 13 electricity departments, 17 private distribution
companies, 40 corporatized distribution companies and 3 State Electricity Boards.2 In absence
of proper metering infrastructure and absence of subsequent energy accounting and auditing
systems, improper estimation of agricultural energy consumption and subsidy estimations,
actual figures of AT&C loss could be higher than reported by the utilities. Arresting and
reducing AT&C losses in year to year basis at a sustained pace requires more disciplined and
strategic approach, comprising of behavioural change in the functioning and management of
distribution utilities. Over the past decade, a number of states have worked to improve the
commercial performance of their state utilities, unbundling state entities, creating independent
regulatory systems, and putting in place measures to control losses and theft. However,
progress has been difficult, and slower than envisaged. Bringing operational efficiency and
governance improvement across the state-owned utilities have lost momentum, primarily due
to lower government support, sustained improvement efforts and unenthusiastic service
delivery even after restructuring of the sector. Stagnant tariffs have been one of the major
reasons for the high financial losses. Between 2007-08 and 2011-12, the difference between
1 Committee constituted by the Govt. of India to study the electricity sector and suggest for improvements, Jan-
2011 2 ‗Emerging opportunities and challenges – Energy Distribution‘, PwC report, Jan-2012 [25]
[x]
costs and tariffs increased from ₹ 0.99 per unit to ₹ 1.07 per unit. Even where tariffs hikes are
approved which are primarily in range of 20-25% against required 65%; on annual basis these
hikes are still inadequate as compared to the increase in power generation cost. In Nov-2011,
the APTEL directed all SERCs to issue suo-moto tariff orders but questions still arise about
regulatory role in tariff revisions. By all means, the entire sector is expecting key interventions
(associated challenges and related opportunities) from private entities in moving forward. The
Planning Commission, which has set reduction of losses by state utilities as a core agenda for
the 12th Five-year Plan, will have to take a call on the two reports by expert groups (Shunglu
and Chaturvedi Committee Reports) set up by the Planning Commission to suggest ways to
reduce losses of power utilities. They have come up with contradictory recommendations,
reflecting the dilemma faced by the authorities in introducing power reforms. Planning
commission is yet to work on the model concession agreement and deliberate their
recommendation on PPP in distribution within the commission and also to the power ministry.
In short, the private participations in distribution sector is being viewed as an ardent necessity
of keep the entire power sector more promising in terms of investment and economy of the
nation. Even considering environmental aftermaths and carbon emission due to fossil fuel
based energy generation, it shall be increasingly emphasised that most effective energy
utilization and conservations means be adopted and the electricity distribution must be carried
out at the least possible loss levels in future. With the scenario described above, there is vast
possibility to convert the present structure of distribution network into revenue if the gradual
reform process initiated till now is given required impetus across Pan India. In this way,
boosting up privatization in sector is more feasible way of getting everything into right place.
Nevertheless, as a nascent fields of private participation in distribution this area of study
desperately will serve interesting understanding in this area. Jharkhand state, is thus chosen as
an ideal example where the distribution reforms are highly required and the process though
with some persistent hindrances is now almost in its first phase of implementation. One
important aspect is that the report is based on the distribution franchisee deployment for Ranchi
circle of JSEB under the guidance of IL&FS-Energy which is presently providing advisory
services in power sector to JSEB. As on the date of completion of this study project, the
evaluation results of the bidders have not been officiated by JSEB. Many details pertaining to
the participants and the documentary evidence including the quoted figures are required to
remain undisclosed until the Distribution Franchisee Agreement is signed. The study is
therefore steered on the actual evaluation process based on the replicated data for
understanding purpose. Also the timelines mentioned are those originally envisaged in the
process, actual dates have been revised and the entire process have been deferred at the time of
completion of this study.
[1]
Chapter-1: INTRODUCTION
1.1. Past Scenario of Indian Power Sector
1.1.1. Decades of pre-Independence (1879-1947)
The first instance of commercial generation of electricity in India dates back to 1879 in Kolkata
(then Calcutta). In 1897, the government of Bengal granted an exclusive 21-year license to the
Calcutta Electricity Supply Corporation to supply electricity to Calcutta. Mumbai (then
Bombay) was the second city to get electricity and as time progressed, private companies set
up power supply systems in major urban areas under franchises, which allowed them a
reasonable rate of return. The demand for electricity during this phase was driven by demand
from industries, commercial enterprises (including tramways) and also domestic use. Most of
the earlier private companies in the power sector cease to exist today as they were
amalgamated into state-owned enterprises; however, a few of them continue to exist as private
players.
The Electricity Act 1910 was the first act (one of the earliest regulation) in the power industry,
which was introduced in 1910.
The Act provided the basic framework for supply of electricity in India.
The Act encouraged the growth of the industry by issuing licenses to private companies.
Licenses were allotted by state government for supply of electricity in a specified area with
legalised framework for laying down wires and transmission/distribution work.
The Act also stressed on fair licensee – consumer relationship.
The sector was at a nascent stage during this time and there was a huge investment requirement
for laying down basic infrastructure. Thus, during this phase, electricity generation was mainly
in the private sector and power generation was largely based on coal and hydropower. Tata
Power (formerly known as Tata Electric), commissioned its first hydroelectric station with a
capacity of 72 MW at Khopoli near Mumbai.
The power industry suffered from huge costs and wide variation in power voltage during this
period. As the technical knowledge in the domestic industry was not well-developed, most of
the projects were based on imported technology and thus entailed huge costs. Also, there was a
wide variation in electricity voltage that was supplied during this period, as both AC and DC
forms were used.
1.1.2. Decades of post-Independence (1948-1990)
Post-independence, the Government of India directed all the states for creation of State
Electricity Boards (SEBs) who would then hold a crucial responsibility of development of
electricity sector in their respective states by adding required generation capacity and
[2]
transmission network across the state. These SEBs were expected to maintain their operations
with optimum commercial viability as a business undertaking. The legality of the process was
formatted under the Electricity (Supply) Act, 1948.
SEBs creation for arranging electricity supply within the states.
Electrification grossly limited within cities to be extended across all parts of cities and rural
areas through SEBs.
It was in the 1970s that the Government realized that the SEBs has entered into an irrevocable
financial burden neither bridging the gap between the demand and generation capacities nor
contributing significantly to the nation‘s electricity infrastructure and consequent economic
progress. The poor performance of the SEBs was ungratefully acknowledged to the direct
political interference by the respective state government, mismanagement at all operational
levels and floor practices, poor relationship particularly with bulk consumers and industries.
State Governance persistently maintained flat tariff as close to nil to agricultural consumers,
low tariff to domestic consumers and recovering the same through industrial and commercial
consumers in form of higher tariff. The distorted cross-subsidy approach without accountability
paved the route to unchecked technical losses and increased theft of power, thereby
misreporting of revenue and commercial data. Electricity tariff structure went on becoming a
more political and lesser development oriented methodology. By 1980s, revenue earning as
modest as 3% of SEBs own equity capital was far beyond the reach. Decades of mounted
losses on SEBs forced poor capacity utilization of majority of generation plants and these were
being operated at far below their optimal capacity or even their ability to carry out periodic
maintenance of generation and distribution assets. The question of adding generation capacity
and the concept of development in the sector as envisaged in the Electricity Supply Act, 1948
by and large remained unanswered. The budgetary allocations by the state governments to
make these SEBs breathe were being drained off through series of unknown trajectories. Even
the SEBs found itself incapable of locating the direction to initiate corrective actions.
Nevertheless the responsibility of adding generation capacity to keep pace with the on-going
industrialization was now on the shoulders of Central Government who intervened by setting
up central sector utilities like National Thermal Power Corporation (NTPC), National Hydro
Power Corporation (NHPC, set up in 1975), National Power Transmission Corporation (set up
in 1981, renamed to Power Grid Corporation of India Ltd. in 1992) and Power Finance
Corporation (PFC, set up in 1986) to handle the situation at national level in 1970s and 1980s.
Serious economic crisis in late 1980s finally led to initiation of reforms in early 1990 with
opening of electricity sector for private Independent Power Producers (IPPs). Amidst the 1991
Economic crisis, and following liberal economic policies, power sector too was fortunate
enough to undergo structural change including easing of trade barriers, de-licensing in
[3]
generation, allowing direct as well as portfolio based foreign investment in the sector. The IPP
policy was announced in 1991 to allow private as well as foreign investment in the power
generation followed by pursuance of vertical unbundling of SEBs into separate generation,
transmission and distribution entities.
Figure 1: Major Laws and Policies in India
1.2. Major Reforms and their outcomes
1.2.1. Reforms under Phase-I (1991-1995)
Independent Power Producers (IPP)
Investments were a must in the power sector to enable it to produce electricity in line with the
expected economic growth. The government liberalised the sector and opened it for foreign and
private investments to increase the availability of funds for the power sector. For allowing
independent power producers to operate in the sector, the government made an amendment to
the Electricity Act 1910 and the Electricity (Supply) Act 1948 through the Electricity Laws
(Amendment) Act of 1991. The amendment allowed private participation in thermal, hydro,
wind, and solar power projects, and also allowed them to operate as IPPs. Foreign ownership
up to 100% was allowed. IPPs were to operate on a costs-plus model wherein the tariff was
determined by the Central government and the IPPs were guaranteed a 16% post-tax return on
equity, full repatriation of profits, among others. The operators and the SEBs entered into
power purchase agreements (PPAs) as the SEBs were responsible for transmission and
distribution of power generated by private players.
Around 189 projects, with an expected capacity of 75 GW, were proposed; however, only a
few of these projects cleared the approval process, and had Memoranda of Understanding
[4]
(MoU) and Letters of Intent. The rest were either stalled in the approval process or did not
reach financial closure. The government also put on fast track 8 projects with offers of counter
guarantees.
Introduction of Mega Power Policy 1995
In 1995, the government introduced the Mega Power Policy to increase private investments in
over 1,000-MW generation projects that would supply electricity to more than one state; hence,
the name mega power projects. The projects were to be awarded on the basis of competitive
bidding and the CEA, Power Grid, and NTPC were to provide support to these projects. CEA
was to provide assistance in identifying potential sites for setting up the plants, while Power
Grid and NTPC were to provide assistance for transmission of power and preparation of
feasibility report, respectively.
The experiences of the first phase were not great and the Enron debacle is a reflection of this
statement. In the Enron Dabhol Power Project priority was given to FDI (Foreign Direct
Investment) rather than the cost of generating electricity.
The main objective of reforms was to ensure reliable and quality power supply at an economic
cost. It was essential to ensure that the sector was financially viable and attractive enough for
private investors to put in their money. These SEBs were integrated utilities with presence in
generation, transmission, and distribution in their respective states. The SEBs were under huge
losses and it was perceived that unbundling the SEBs and segregating generation, transmission
and distribution into different corporations could make it possible to monitor efficiency levels
in each of the areas. Many states initiated the restructuring process. Orissa was the first state to
undertake restructuring of the power sector in 1996; the results were, however, not significant
as the losses (theft, technological and financial) did not come down.
The first phase of the reform failed as the objective of attracting private players did not achieve
the desired results. Private players did not enter the sector, as the SEBs, who was to transmit
and distribute the power generated by the private players, was still running in losses. Private
players were uncertain about their returns due to poor financial health of the SEBs. The annual
commercial losses of the SEBs increased consistently from ₹ 45.60 billion in 1992-93 to ₹
106.84 billion in 1997-98. The power plants continued to work at low PLF.
1.2.2. Reforms under Phase-II (1996-2002)
The 1995 Mega Power Policy did not propose any fiscal concession, hence in 1998, the revised
Mega Power Policy 1998 included these concessions. The Power Trading Corporation (PTC)
was also set up after this revision to purchase power from identified projects and to sell to
identified-SEBs. Establishing regulatory commissions and privatising electricity distribution in
[5]
cities (with population of more than 1 million) were the pre-conditions included in the revised
policy.
In December 1996 the Common Minimum National Action Programme (CMNAP) was
structured in consultation with the state governments, and guidelines were established to hasten
the sector‘s progress.
Establishment of regulatory commission for Power Sector.
Promote private partnership.
Planning of 100% metering and energy.
Need for rationalisation of tariff, no sector to pay less than 50% of the average cost of
supply.
Tariff for agriculture sector was to be not less than 50 paise per unit and the tariff was
brought to 50% of the average cost of supply within 3 years.
Formulation of Electricity Bill.
During this phase the sector‘s performance improved as compared with the first phase as the
PLF reached around 70%; however, commercial losses continued to pose a major hurdle in the
sector‘s development. During this period private sector investments were already being made
for capacity addition in generation but the need was felt for private participation in
transmission as well; consequently, the Electricity Laws (Amendment) Act was passed in 1998
to enable private participation in the power transmission sector. The central transmission utility
(CTU) and the state transmission utility (STU) were set up under this Act. The maintenance
and construction activity of transmission network was supervised by CTU at the inter-state
level and by the state transmission utility (STU) at the intra-state level. These utilities also
recommended regulatory commissions on allotment of licences to different players.
The CERC issued the first Indian Electricity Grid Code (IEGC) in January 2000 to ensure grid
discipline and to set operation and governance parameters for players in the transmission and
distribution (T&D) sectors.
1.2.3. Reforms under Phase-III (2003 onwards)
The Electricity Act 2003, which came into effect from June 10, 2003, replaced the earlier laws,
acts governing the Indian power sector, namely, the Indian Electricity Act 1910, the Electricity
(Supply) Act 1948 and the Electricity Regulatory Commissions Act 1998. The bill sought to
provide a legal framework for enabling reforms and restructuring the power sector.
The Electricity Bill was passed by the Parliament in 2003; this Bill sought to provide a legal
framework for enabling reforms and restructuring of the power sector. The Bill became an Act
with effect from June 10, 2003 and replaced the earlier laws governing the power sector,
[6]
namely, the Indian Electricity Act 1910, the Electricity (Supply) Act 1948, and the Electricity
Regulatory Commission Act 1998.
Figure 2: E. Act-2003, Impact on various segment of Electricity Sector
Generation
The generation segment was opened for private players in 1991. However, even over the years,
the generation capacity from private players did not reach the desired level. In 2002 only 11%
of generation capacity was from private players and the public sector generators capacity was
not enough (as running at low PLF) to meet the growing demand of electricity. The
government introduced certain policy measures in generation in the Electricity Act 2003 to
ensure more private participation and to reduce the demand-supply gap. Generation of power
was de-licensed and the requirement of techno-economic clearance for thermal power
generating plants by CEA was dispensed with, which paved way for entry of more players in
thermal generation.
The Act also removed restrictions on captive power generation and simplified the procedures.
Open access was allowed immediately in transmission, which gave the right to private power
producers or any other generating utility to sell its power to any entity using transmission
network (without any discrimination). Due to these changes, industries could set up captive
power generation units and the right to open access allowed them to sell electricity to any
consumer using the transmission network. Captive units could thus sell their surplus power to
the customers of their choice.
Transmission
The Electricity Act 2003 introduced a non-discriminatory open access in the transmission
segment, which enabled the generators to sell power to any customer and gave the buyer the
option to choose the generator using the transmission network. The transmission utility was not
allowed to refuse use of its transmission network except in instances of capacity limitation. At
[7]
the national level, Power Grid, which was the central transmission utility, could provide open
access, and at the state level, the state transmission utilities could provide open access. The
open access customers are categorised as short-term customers (up to one year) and long-term
customers (for 5 years). The opening up of the transmission network is likely to induce
competition among generators as well as buyers.
Distribution
The distribution segment was not given more consideration in the earlier regulations, which lay
more emphasis on the power generation segment instead. It was considered that by increasing
power generation, the demand for power could be met to some extent, but the industry suffered
huge losses (T&D and financial) on the distribution side. SEBs, the main bodies involved in
power distribution segment, was in bad financial shape, which made it difficult for them to pay
the generator for the electricity supply. The risk of defaults from the SEBs worried generators
and hindered new players from entering the industry. The Electricity Act 2003 came up with
measures that could improve the performance of the distribution sector on almost all fronts.
The measures meted out included more than one distribution licenses permitted in the same
area, which increased competition among the distribution licensees, and ensured better services
for the end consumer. The best case of multiple licenses was noticed in Delhi after privatisation
in 2002, which resulted in improved operational performance, reduction in AT&C losses, and
reduction in incidences of load shedding. NDPL, BYPL, and BRPL3, the three distribution
companies, came into existence and took charge of power distribution in different areas of
Delhi.
The concept of distribution franchisees was introduced under the Electricity Act 2003, under
which a distribution licensee could distribute electricity through another player within the
distribution area. The Bhiwandi circle (near Mumbai) reported the first instance of distribution
franchise that was granted to Torrent Power by Mahavitaran4. The anti-theft provisions under
the Act lowered the commercial losses of utilities as electricity losses arising from theft
decreased continuously and investors started to show renewed interest. In the distribution
segment, open access was introduced, which opened up a new era of choice for consumers to
choose their supplier. Many SERCs like Jharkhand, Madhya Pradesh, and Punjab have issued
guidelines for open access and allowed it up to 1 MW capacity and above.
1.2.4. Changing Market Structure after Electricity Act 2003
With the enactment of the Electricity Act 2003 and implementation of open access, the market
structure in the power sector changed from the old single buyer structure to a multi-buyer
model. The generator could sell power to any buyer using the open access provision in
3 New Delhi Power Limited, BSES Yamuna Power Ltd., BSES Rajdhani Power Ltd. 4 Distribution Licensee, Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL)
[8]
transmission and users had the choice to choose their supplier. Ever since the Electricity Act
2003 was introduced, there was increased competition among generators and suppliers, which
improved the sector‘s performance. Currently many states, which have unbundled the SEBs,
have reported improvements in their operational efficiency and are able to ensure reliable
power supply to consumers.
Even though SEBs are handling the regulatory operations, the Act has mandated the creation of
regulatory commissions in each state; these commissions have played a significant role in
passing different regulations and monitoring performances of the state utilities. Few of the state
regulatory bodies have set targets for their utilities, and achievement of these targets before the
scheduled time which fetches them incentives and any delay gets them penalised. Thus, the
structure is more regulated.
The market structure, which has taken shape after the Electricity Act 2003, looks promising as
it gives the right of choice to the supplier as well as buyer while attempting to ensure quality
and regular supply of power. Under the Indian Constitution, power is a concurrent subject and
hence its development is the joint responsibility of the central and provincial state
governments. The Parliament and state legislature are both empowered to make laws.
Ministry of Power (MoP): The MoP is responsible for development of the electrical energy
sector in India. It started functioning as an independent entity from July 1992. Earlier, the
power sector was governed by the Ministry of Energy, which had departments for power, coal
and non-conventional energy resources. The main functions of the MOP is planning,
formulating policies, administration and enactment of legislation for thermal and hydropower
generation, transmission and distribution. The Ministry also looks after processing of projects
for investment decision as also monitoring the implementation of power projects. It also takes
care of training and manpower development of the power sector and is responsible for
administration of the Electricity Act 2003 and the Energy Conservation Act 2001 and to make
amendments to these Acts, to maintain accordance with the government‘s policy objectives.
Central Electricity Authority (CEA): The CEA was constituted under the Electricity
(Supply) Act 1948, the Act amended by the Electricity Act 2003. The functions of CEA are
described under Sec 73 of the Electricity Act 2003.
Regulatory Bodies (CERC/SERCs) and their Contribution: The CERC and the SERC are
the two main regulatory bodies that govern the power sector. These regulatory bodies were
formed in 1998 when the Electricity Regulatory Commission Act 1998 came into force; so far
these bodies have an established arrangement for protection and promotion of consumer
interest, fair competition, transparency, and for providing a level-playing-field for all players in
the sector.
[9]
The regulatory system was not effective in the power sector in India before 1997. The SEBs
performance was not satisfactory; they were suffering from huge financial and commercial
losses; there was no regulatory body to regulate the functioning of SEBs and regulations were
not addressing core issues like consumer interest, supply of reasonable power, and quality of
power. The sector was facing an urgent need of regulatory bodies, which would regulate the
sector efficiently. Therefore, in order to make competitive, transparent, and consumer-friendly
environment, an independent CERC at the Centre and independent SERC at the state level
were considered as the need of the hour for regulating the power sector. The respective
commissions took over the role of a regulatory body for the sector. The regulatory bodies set
up transparent procedures for tariff fixation keeping in view the interest of both the supplier
and the beneficiary and carried out the tariff plans in a successful manner. Regulatory
commissions passed numerous regulations and provided a legal framework for players to
conduct their business in the industry.
System Operators (LDCs): There are five different regional load dispatch centres (RLDC);
NRLDC (Northern RLDC) situated at Delhi, WRLDC (Western RLDC) situated at Mumbai,
SRLDC (Southern RLDC) situated at Bangalore, ERLDC (Eastern RLDC) situated at Kolkata,
NERLDC (North-Eastern RLDC) situated at Shillong (Meghalaya). The main function of these
load dispatch centres is to look after the operation of power system in their respective regions
and report to the National Load Dispatch Centre (NLDC). Power Grid is the central
transmission utility, which acts as the NLDC. NLDC monitors the different load dispatch
centres.
1.3. Present Issues with Distribution Sector
1.3.1. Present Status of Reforms
Reforms have played a crucial role in each segment of the power sector. In the generation
segment, de-licensing of thermal and captive power generation and generation in rural areas
has allowed private players to invest in power generation. The government made distribution a
separate segment to improve the segment‘s performance. Further, reforms were initiated in the
power sector in Orissa, on the basis of other countries‘ experiences in restructuring.
Orissa was the first state to unbundle its SEB into five corporatized entities: generation,
transmission and the three distribution zones in the state. An independent regulatory
commission, Orissa Electricity Regulatory Commission, was also set up in the state. Later on
Orissa privatised into different entities. Haryana, Andhra Pradesh, Karnataka, and many other
states also followed the process of unbundling and regulatory reforms. The Regulatory
Commission Act 1998 made a provision for setting up regulatory commissions. Around 25
states have state regulatory commissions; some small states of the North-Eastern region have
[10]
joint regulatory commissions; 14 states have unbundled their SEBs, and Orissa and Delhi have
privatised their respective distribution segments.
After the establishment of regulatory commissions, several regulations have been passed; the
most important ones being Availability–Based Tariff Order (2002), Terms and Conditions of
Tariff (2004), Multi-Year Tariff (MYT) Norms (2004), Electricity Grid Code (2006), and Open
Access in Inter-State Transmission (2008). Under the ABT regime, the generator and the
beneficiary (buyer) set up PPAs on the basis of which generators feed power to the grid and the
beneficiary draws the power. If beneficiary overdraws power it has to pay unscheduled
interchange (UI) charges and if generator overfeeds to the grid it will have to pay the UI
charges. The mechanism helps in maintaining grid discipline and aids the grid operate at
optimal efficiency. Many states like Gujarat, Karnataka, Delhi, Maharashtra, etc. have
implemented intra-state ABT and have optimised their power purchase cost.
The terms and conditions of tariff were introduced in 2004, as per which many norms were laid
down to determine the tariff for generation, transmission, and distribution. The MYT was set to
reduce the regulatory risk and incentivise efficient performance of utility. It was set up for a fix
number of years called the control period (Delhi‘s MYT period is 3 years) during which, fixed
charges remain unchanged while energy charges change. The MYT framework was designed in
such a way that if the utility achieved the target set-up under MYT framework it would get an
incentive. In Delhi the AT&C losses reduction target for BRPL and NDPL is 17% whereas for
BYPL it is 22%. In 2006 the Electricity Grid Codes laid down technical rules covering all the
utilities connected through grid or using inter-state transmission system. These codes ensured
the efficient functioning of power system and penalised the user for avoiding the rules. CERC
is the regulatory body that monitors these codes at the central level while SERC monitors it at
the state level.
The reforms in the sector have progressed well so far; however, the concern that is still
prevailing in the sector is government dominance over the regulatory commission. The
government has regulated the sector for more than 50 years and many a times, it has been
unwilling to transfer the power to regulatory commissions. Tariff setting still has a component
of subsidies that is given by the government; hence, in spite of clear norms and regulations,
commercial viability of tariff remains a question mark. Accordingly, reforms have to be more
intensive and come out with more measures in removing odds of the sector.
Utilities under Government ownership are either categorized as State Electricity Boards (SEBs)
or as Unbundled Distribution Companies (DisComs). Though most of the state utilities have
been unbundled from their respective boards, their earlier predecessor as SEBs are owned by
the State Government and make the value chain of electrical generation, transmission and
distribution as single bundled entity. SEBs and their role were constituted under The Electricity
[11]
(Supply) Act5, 1948 as a significant measure conducive for electrical development in the
country.
Once a laudable initiative of SEBs in providing obligatory social service in form of electricity
to the rural parts of the country have gradually turned them into loss making entities mainly
due to subsidy issues and mismanaged operational as well as administrative factors. This
forced all the state SEBs to opt for unbundling strategies to benefit the state generating and
transmission companies at least in terms of their accountability and annual net profits. For
better control over targets and performance, SEBs were segregated into generation,
transmission and distribution companies or in many cases from single distribution utility into
four to five corporatized successor distribution companies. Barring few states6, most of the
states have now unbundled their erstwhile State Electricity Boards.
Private participation in distribution sector had been limited and existed in various forms. Tata
Power Company Limited (TPCL) and Calcutta Electricity Supply Company (CESC) are
privately owned and have been in operation in the cities of Mumbai and Kolkata for nearly a
century.
A stark realisation for all stakeholders in our country's economic development is about the
drastic reform and modernisation required for India's power sector. Any rationalisation and
modernisation of the policy regime in this sector will set an example for other infrastructure
sectors. Now further question that keeps electricity stakeholders on toes is to what extent
should distribution entities undergo further disintegration or unbundling under profit centric
approach? The answer clearly lies in the recent try-outs and experiences with the distribution
sector.
As in other infrastructure segments, PPP model has made its way in the power sector. There are
sufficient legal and regulatory provisions to allow SEBs or distribution licensee to authorize a
person or entity to distribute electricity on its behalf in a particular area within its area of
supply in form of a distribution franchisee. PPP initiative enabled greater private sector
participation with continued government ownership by reducing regulatory and political risk as
assumed by investors in earlier privatization model (full privatization in distribution sector).
Orissa became the first state to privatize its electrical distribution in 1999, followed by Delhi
with three distribution companies in 2002; both disinvesting 51% of the state government‘s
stake to private companies.
5 Act 54 of 1948 6 Bihar, Jharkhand, Kerala (Jul-2012)
[12]
Distribution privatization was then put into watchdog mode limiting further private
participation owing to direct consumer interaction, fixed returns and high risk demanded in the
distribution business.
1.3.2. Financial Reality
The clear lesson from recent Indian experience is that the most critical challenge faced by the
power sector lies at the distribution end of the generation- transmission- distribution value
chain. The dismal and deteriorating financial health of power distribution entities is seen to be
the key factor that has led to inadequate investments in the sector. With average AT&C loss
hovering around 35% mainly from technical losses due to old and decrepit conductors, longer
and remote loads, inefficient transformers, load imbalances and commercial losses due to theft,
poor billing, faulty meters and low collection.
The Planning Commission‘s
12th plan approach document
has termed the distribution in
the power sector as the
'weakest link' in the system.
As per the document, the
current losses of distribution
utilities before accounting for
state subsidy are
approximately ₹ 70,000 Cr.
which if projected at the present rate will go up to ₹ 140,000 Cr. by 20014-15. The problem,
identified by the commission, primarily lies in the lack of political will of states and the state
power regulators to increase tariffs and restrict un-metered use of electricity for the farm sector.
In 2011-12, the combined financial losses of all the power distribution companies were
estimated at a staggering ₹ 120,000 Cr., or nearly 1.5% of the country's GDP. These losses
were due to the rising gap between average cost of supply and the average realisation; going by
which distribution companies lose ₹ 2 for every unit of electricity sold by them. With average
cost of supply growing at over 7% CAGR in recent years, the situation has become untenable.
Today, distribution entities across the country, whether in public or private sector, urgently
require tariff hikes of 50-60% to meet their operating costs. The critical consideration here is
that purchase costs for power constitute up to 80% of the total cost of the distribution
operation.7
7 The Economic Times - Improving financial viability of distr. companies will spur investments, Jun 14, 2012 [28]
Figure 3: Financial Short-circuit
[13]
An increase of this magnitude will seem staggering to the political leadership and the
consumer, but the stark fact is that this hike would still leave unattended the issue of past
accumulated losses due to irrationally-low tariffs. One factor that has led to this more rational
view is to do with stringent measures made mandatory by banks and NBFCs8 for disbursal of
any fresh loans to the distribution companies, and the empowerment of state power regulators
to revise tariffs by the relevant appellate tribunals.
Aggregate accumulated losses of Indian utilities (state-owned) are estimated at over ₹ 2 trillion
as at the end of FY'12. About three-fourth of these losses were incurred over the last five years
and these were funded mainly by borrowing from banks and financial institutions. There are
about 89 discoms in the country. The estimates come against the backdrop of precarious
financial health of discoms raising concerns of default in the banking system. Power tariffs in
India rose just under five per cent per annum in the five years ended FY'10, during the same
time, per capita income grew by 13.4% every year while household expenditure increased by
10.6% per annum. Current power tariffs are well below the rates of inflation. If power tariffs
had kept pace with other household expenses, utilities would have earned additional revenue of
about ₹ 950 billion in this period. The realised tariff as a percentage of power generation cost
is 74% compared to 80-90% in some of the major developing countries.9
As discoms defaults on payment and instalments, banks have also started restricting disbursals
of money. There are several cases of debt restricting in various states. Private distribution
companies in Delhi have received
bailout from state government in form
of equity infusion. Even biggest
lenders like PFC and REC have
decided to stop sanctioning short-term
loans to high loss making utilities.
Stagnant tariffs have been one of the
major reasons for the high financial
losses10
. Between 2007-08 and 2011-
12, the difference between costs and
tariffs increased from ₹ 0.99 per unit
to ₹ 1.07 per unit. Even where tariffs
hikes are approved which are
primarily in range of 20-25% against
8 Non-Banking Financial Companies (NBFC) 9 Crisil Infrastructure Advisory in The Economic Times – May 7, 2012 [29] 10 PwC India; Resurrecting the Sector; World Energy Council; Jan-2012 [24]
Figure 4: Per Unit Gap; Cost of supply & Revenue
[14]
required 65%; on annual basis these hikes are still inadequate as compared to the increase in
power generation cost. In Nov-2011, the APTEL directed all SERCs to issue suo-moto tariff
orders11
but questions still arise about regulatory role in delays of tariff revisions.
In spite of Power generation segment undergoing huge Greenfield investments, it is under
immense strain due to absence of timely and proportionate investments in the nation‘s T&D
infrastructure. Even with the right quantum of investment in T&D, efficient project
management is the unlearned subject in the distribution segment. Unsure T&D baseline
information, particularly in commercial and technical aspects is the next big hindering factor in
the project management. Distribution in particular, remains grossly overloaded due to above
reasons causing most remarkable policy level interventions like R-APDRP and similar state
government schemes remaining aimless in reducing AT&C losses.
With the power sector struggling to achieve its target set in the 11th plan, the Economic Survey-
2011 tabled in the Indian Parliament called for bold reforms in power sector pointing out that
India currently has one of the lowest and most uneconomical average electricity tariffs in the
world, 8 cent at retail level against world average of 12-20 cents.12
It suggested the end of
monopoly of State Electricity Boards (SEBs) in power distribution, investigate in competition
through open access, reduce subsidies and cross-subsidies on electricity and hike tariffs. The
Transmission and Distribution systems are draining public revenues causing massive losses of
the level of 1% of the GDP to the SEBs. The T&D losses, at 35% are among the highest in the
world.13
One of the biggest challenges for the power sector in India is to find urgent solutions
to the dismal financial health of distribution utilities. If even a small fraction of the reform
signals translate into action on the ground, it would go a long way in sorting out the mess in the
country's power sector.
1.3.3. Rural Electrification
Rural electrification has a critical role to play in the overall economic growth of the nation. The
national level rural electrification program from the Govt. of India, Rajiv Gandhi Grameen
Vidyutikaran Yogna (RGGVY) for providing electricity for rural development including
Below Poverty Line (BPL) households is also falling short of planned targets. 268 million
people from rural and 21 million people from urban India still do not have access to electricity
together constituting of 25% of total population of India.14
This estimates an investment of ₹ 300 billion in on-grid, off-grid and mini-grid segments of
rural electrification. This is also backed by shifting of several opportunities from urban and
11 Sec. 121 of EA-2003 mandates SERCs to undergo periodic tariff revisions. APTEL mandates SERCs to initiate
suo-moto proceedings within one month after scheduled tariff revision filing. Only GERC took suo-moto action
based on the APTEL judgment. 12 12-15 cents in countries with coal/gas resources, 18-20 cents in other countries. 13 Business Line – Economic Survey calls for bold reforms in power sector, Feb 25, 2011[30] 14 World Energy Outlook 2011, Report [21]
[15]
high-end consumers that were on focus to strengthening of rural consumer base with ability to
serve them at affordable cost. This includes rural distribution with grid connectivity as well as
distributed de-centralized generation (DDG) providing off-grid rural generation and
distribution.
1.3.4. Credibility of Information - Metering and Feeder Segregation
The biggest struggle today for distribution utilities is maintaining and utilizing a
comprehensive information system, be it for their assets, commercial, financial or consumer.
All major decisions in improving efficiency especially in arresting thefts, estimating losses and
making further investment are stalled due to lack of above information. The focus on
implementing R-APDRP program and building actual, demonstrable and express capabilities is
the only measure to establish reliable and accountable baseline data that can aim for
performance measurement and sustained loss reduction. This is also the necessary precondition
before sanctioning any distribution strengthening measures.
The Act in spite of mandating metering15
of all consumers, many rural and agricultural
consumers are still unmetered putting a big question mark on the legitimacy of distribution loss
figures as reported by the utilities based on the estimated consumption of unmetered
consumers. The metering regulations issued by CEA also identify metering requirement16
at all
consumer level, feeder level and distribution transformers for accurate estimation of losses and
energy accounting. Most utilities have achieved cent per cent interfacing metering, they are still
struggling to achieve cent per cent energy accounting and audit metering covering all feeders
and distribution transformers. The Forum of Regulators‘ (FoR) working group report of
metering issues also recommends Automated Meter Reading (AMR), replacement to advanced
technology meters and consumer indexing.
IT-based information system under R-APRDRP Part A is currently in the process of
implementation with an outlay exceeding ₹ 100 billion covering all the urban population above
30,000 in normal category states and 10,000 in special category states. With AT&C loss
reduction targets under 15%, it will definitely give much needed impetus in improving the
performance and efficiency of the sector as a whole. By all resources, any capital investment in
the distribution segment will not yield sufficient gains unless activities related to developing
baseline data, addressing each element where performance improvement can be undertaken,
redesigning and streamlining process, program management, implementation of IT solutions
and finally enhancing accountability are executed. The state Government is required to keep
focus in providing support framework and developing correct institutional measures to
envisaged benefits.
15 Sec. 55 of The Electricity Act 2003 pertaining to the use of meters. [3] 16 Part III, Sec IV of CEA on Meter regulation applied to all level of Interface, consumer and Energy Audit
metering.
[16]
All individual business units within the distribution needs to build a robust metering
infrastructure supported by appropriate energy accounting/auditing system, identify specific
loss making networks and undertake necessary activities to arrest the commercial losses. In
absence of auditing system, the actual figures of AT&C loss could be higher than reported by
the utilities.
Secondly, there 15 million agricultural consumer base constituting nearly 10% of total
consumer base and 66000 MW connected load contributing 19% of total nation‘s connected
load.17
However most of the agricultural feeders in rural area also have both domestic and
commercial rural consumers connected on the same feeders. This makes categorical
ascertainment of energy consumption difficult influencing both losses as well as subsidy
estimations. This also impacts socioeconomic growth in rural areas as supply restrictions on
agricultural feeders due to power deficit also associate rural commercial consumer base. Clarity
on agricultural consumption will control subsidy estimation and locating losses that impedes
rural distribution performance. Thus many states have started segregating rural domestic and
commercial feeders from agricultural and rural lighting load feeders to serve the whole
purpose.
1.3.5. Discom’s independence from SEBs
Unable to find solutions to the recurrent bankruptcy of the SEBs, which is holding up the
power sector, the government is working on marginalizing their role. Power distribution
franchisees are likely to be allowed to directly buy and sell power over the next few years
instead of working through SEBs.
The Planning Commission is working on a model for franchisees to purchase power directly in
the 12th
Plan. This would be linked to its ability to reduce T&D losses and sustain profitability
over 2-3 years. The move will benefit around 62 private distribution companies in the country
and in a way; incentivise them for making distribution efficient.18
To address the anomaly of ballooning losses, the planning commission has a two pronged
strategy - to encourage privatisation of distribution facilities and to make banks restrict lending
to state electricity boards to fund their losses. Banks and government shall not keep funding the
losses. Till date, privatisations have been successful in bringing down T&D losses and expedite
tariff reforms.
The successful demonstration by Torrent Power Bhiwandi Limited in Bhiwandi, Maharashtra
which got operational in 2007 is considered as the most successful franchisee model that has
been able to reduce T&D losses from 62% to 15%. For the private sector, the franchisee model
is more acceptable to the overall privatization of distribution companies due to its flexible
17 CEA general statistics for 2009 18 The Economic Times – Discoms to work independent of SEBs, Sep 22, 2011 [20]
[17]
nature in a sense that it can be limited from catering to small segment of distribution business,
such as managing a single feeder or distribution assets, to taking care of all the distribution
functions for a complete circle.
1.4. Objective of the Study
Having recognized the need for franchising in both urban and rural areas with prime objective
of reducing AT&C losses and increased customer satisfaction, it is felt important to study the
activity in a methodical and integrated manner to ensure that the various layers of information
are properly analysed and understood by all the stakeholders, the Franchisor (Distribution
Utility) and the Franchisee (Private Entrepreneur/ Company).
Though the Distribution Franchisee model has scripted success stories in the past both in urban
and rural space, this assessment aims to evolve a generalized and conceptual understanding of
the process with the help of most feasible input based urban model for the electricity
distribution in India. The effort is made to understand the deployment process of distribution
franchisee keeping in view the actual process undertaken in Jharkhand State for
implementation in Ranchi circle.
The entire project has eventually been classified ensuring basic concepts from understanding
the power sector with the details of the subjects pertaining to under-mentioned topics:
A review of Indian power sector, its stages of reformations and present scenario.
Problems with distribution sector and its legal sustenance.
The Business Profile of the organisation and its advisory role in the process.
Performance of few franchisee operations and their analysis.
Bidding documents, stakeholder Agreements and obligations – A study of Ranchi Urban
circle.
Evaluation and awarding of Distribution Franchisee.
Revenue earnings during the period of franchisee operations.
1.5. Scope of Work
The study is based on the advisory role of IL&FS as advisor to the State Government of
Jharkhand and Jharkhand State Electricity Board in deploying the Distribution franchise in
three cities of Jharkhand viz. Ranchi, Dhanbad and Jamshedpur. The process was routed
parallel in all the three cities simultaneously, however it the willingness to understand the
entire deployment in due detail and analysing the relevant aspects appropriately, the scope of
this study is confined to only one city; Ranchi.
It is also clearly derived that the entire process is exactly similar in rest of the two cities and
hence, it is established that study of one urban circle Ranchi would be sufficient in concluding
the main objective of the study.
[18]
1.6. Limitations of the Study
Due to some deliberate reasons the study becomes limited to understanding of the topic then
necessary data exploration. There are two basis reasons,
Firstly, most of the sources of literature are the original correspondences occurred during the
time of the study and past documents that are available on public domain and relevant reports.
The process of private involvement in distribution sector is still undergoing turbulence of
thoughts. Even MoP, the Regulatory Commissions and CEA are undergoing a chain of
advisory and consultancy assignments at various levels to authenticate the conducive
environment for private participation in the distribution sector. Even the state utilities do not
find themselves convinced with the situation and many legal encounters are logged in the
various courts at state level. There has been least literature available on different policies on
distribution sector and that too generalized form. Distribution franchisees have more or less
become warfare strategies since its first success in 2008 with Bhiwandi and no playing entities
would like to showcase its success stories, particularly when the whole scenario is viewed as a
competitive battlefield on which a bid is lost and won for 0.001 of a rupee. Neither the utilities,
nor the stakeholders can tolerate their sharing of resources and hence this sector is fairly at
undercover.
Four years down the line since 2008, this sector of electricity distribution is gracefully awaiting
standardization of most of its concepts, clarities on many implementation issues and complete
research available on public domain. Four years since the deployment of Agra model, is
inconsiderable period to expect both primary and secondary literature and resources available
when the official entities governing the power sector are still stressed with the universality and
repeatability of its implementation.
Secondly, time constraint has been the most significant factor that has limited the study within
the purview of specific arena. Many expert views are of the opinion that Distribution
franchisee implementation and its analysis involves very detailed study of franchisee area,
distribution assets, actual facts and figures, growth trajectory of HT vis-à-vis LT consumers, a
delicate model of deciding competitive bid prices, deciding reasonable return on investments,
implications of open access policies and R-APDRP funding arrangement mutually with
Distribution Licensee for network strengthening and achieving loss reduction targets. Apart
from Bhiwandi where State Government have particularly been more favourable, Aurangabad,
Nagpur and Agra which have completed more than one year of operations are still stressed on
feasible financial returns in spite of appreciable network improvements.
This project work could have been extended to such aspects from the point of view of
Distribution Franchisee or the bidders who are participating in DF implementation in Ranchi
[19]
circle, but because of over cautious approach of bidders till date of completion of project
deadline uncertainties prevails on both the sides with suggestions and queries continuously
pouring regarding the RPF document, factual information and more lenient penalizing clauses,
the analysis from bidders part have not be undertaken as a part of study.
In fact there was a very detailed approach on queries and suggestions with all the bidders who
had minutely analysed and studied the terms and conditions and had come up with a
appropriate documentation on their views. Time among others is one of the main reasons of not
including these aspects in the project report.
1.7. Organisational Profile - IL&FS | Energy
IL&FS is one of India‘s largest infrastructure development and finance companies. IL&FS was
promoted by Central Bank of India (CBI), Housing Development and Finance Corporation Ltd.
(HDFC) and Unit Trust of India (UTI). Over the years, IL&FS has broad-based its
shareholding and inducted institutional shareholders like State Bank of India (SBI), Life
Insurance Corporation of India (LIC of India), ORIX Corporation – Japan and Abu Dhabi
Investment Authority.
IL&FS commenced its operations in 1988 with a twin mandate of catalysing the development
of infrastructure on commercial format in the country and a provision of array of financial
services. The development and financing of infrastructure necessitated IL&FS to spawn a
range of innovations to deliver its mandate. The organization has focussed on the
commercialization and development of infrastructure projects and creation of value added
financial services. From concept to execution, IL&FS houses the expertise to provide the
complete array of services necessary for successful project completion: visioning,
documentation, finance, development, management, technology and execution. Unlike
traditional models, the IL&FS project development cycle uniquely encompasses wide ranging
consultations with the local community, and also entails the assessment of all environment and
social issues on a comprehensive basis, leading to a programme that tackles environmental and
social issues within the project design and implementation cycle.
IL&FS has a unique organizational structure which blends technical and sectorial expertise
with skill sets in financial engineering. Over the years, IL&FS has successfully delivered
replicable, scalable, infrastructure prototypes on a self-sustaining basis, and has created the
necessary template to execute projects across an array of sectors. IL&FS has pioneered
innovative project development process, evolved innovative mechanisms and products to
facilitate financing and benchmarked private sector role and commitment to infrastructure
development in India. In the process, IL&FS has been continuously evolving itself as a leader
in implementing projects within PPP frameworks. With each project, IL&FS has been
innovative in putting together transparent, accountable and Convergent processes.
[20]
PROJECT PREPARATION
Conceptualization.
Identification of Sites.
Pre-feasibility Studies.
Statutory Clearances.
Regulatory Clearances.
Risk Management Framework.
PROJECT DEVELOPMENT
Project Structuring.
Detailed Studies.
Contractual Arrangements.
Marketing Strategies.
Business Plan & Modelling.
Financial Structuring.
PROJECT FINANCING
Preparation of IM.
Debt & Equity Syndication.
Financing Agreements.
Security Agreements.
Financial Closure.
PROJECT EXECUTION
Engineering & Procurement.
Project Management.
Construction Supervision.
Operations Management.
Over the years, IL&FS have been working across the country and has on-going relationship
with Government of India and strategic relationships with various state Governments for
facilitating infrastructure development, capacity development, creating awareness about PPPs
in infrastructure and has pioneered infrastructure development on PPP basis across sectors
through innovative process.
IL&FS has conceptualized, developed and managed projects across a variety of sectors like
Power Sector including Thermal, Hydro and other Renewable sources, Ports, Airports,
Telecom, Roads and Bridges, Water, Urban Infrastructure, Special Economic Zones, Municipal
Solid Waste management, Area Development, E-Governance and Environment as well as
social infrastructure projects in the areas of Education, Health, Sanitation, Municipal Finance
and Urban amenities etc.
Indian Power sector is currently reeling under the acute power shortage and to cater to the
growth of the sector and to become a major player in Power Sector. IL&FS has incorporated a
wholly owned subsidiary in the name of IL&FS Energy Development Company Ltd. (IEDCL).
IEDCL is uniquely placed with its pan India presence for development of power projects for
both Conventional and Non-Conventional Energy sources. IEDCL has extensive experience in
the development of Generation, Transmission and Distribution Projects in power sector and
completed no. of projects either as advisory services or in development of coal/gas based
power projects, Transmission projects, Co-Generation Projects, Renewable Energy projects
such as Biomass wind farm project, Waste to Energy Projects and Hydropower project.
IEDCL is currently associated with various public and private entities and power projects
aggregating to approximately 10,000 MW are under various stages of implementation. IEDCL
role play in various projects in implementation is as mentioned hereunder:
[21]
Figure 5: Roles of IL&FS Energy
[22]
Chapter-2: LITERATURE SURVEY, RESEARCH METHODS AND POLICY
2.1. Literature Review
Preetum Domah, et al (2000) [1] in his studies - The Restructuring and Privatisation of the
Electricity Distribution and Supply Businesses in England and Wales; concluded that a rapid
increase in controllable costs of the distribution and supply businesses, leaving costs at an
average of 11% above the pre-privatisation period during the first price control period. Net
efficiency gains from restructuring and privatization, which started accruing to consumers after
1999, amount to about £2.1bn. Labour productivity more than doubled in 1997-98 over its
1990-91 level, and is unparalleled by the Industrial Productivity Index. The regulatory structure
that defined the initial price controls during the early years of privatisation did not contribute to
cost decline. They found that the benefits of restructuring and privatisation came about mostly
from institutional changes after 1995, and from distribution and supply. The rapid increases in
profits during the first few years after privatisation, but the tough regulatory structures put in
place have eroded these profits, accompanied by windfall taxes in 1997. With the more
stringent regulation, there are expected to see more benefits to accrue to consumers to cover the
loss in the initial periods after privatisation. But tougher regulation designed to achieve greater
levels of ‗efficiency‘, can also significantly alter the distribution of those gains against
producers, inducing perverse effects on long-run efficiency, incentives, quality of supply and
service reliability.
P. A. Morris, Ph.D. et al (2000) [32] in their report - Reliability of Electric Utility Distribution
Systems; described what is known with respect to the reliability of electric power distribution
systems. They described the state of knowledge, tools and practices for distribution system
reliability. The report is based on an extensive literature survey, which investigated papers,
reports, books and electronic media. The report discusses definitions of reliability; perspectives
on reliability; measurement methods, including reliability indices; sources of data; utility
planning practices; the role of regulators; utility power quality approaches; and existing
methods for reliability analysis. The main conclusion of the report is that, although the theory
of reliability of systems is well-developed, the application of analytical techniques to
distribution systems planning is limited. There is no single, generally available, methodology
that distribution planners can use to answer the questions associated with reliability-based
planning.
Stephen C Littlechild (2001) [2] in his studies – Competitive bidding for long-term Electricity
distribution contract; followed some past view of competitive bidding as a replacement for
natural monopoly regulation and similar arguments that these problems of natural monopoly
regulation are inherent in long-term investment under uncertainty, and that both long-term and
[23]
short-term franchising contracts may be more problematic than regulation. London
Underground at that time had put out to tender a long-term (thirty-year) contract for the
operation, maintenance, repair and renewal of its electricity distribution network. The evidence
of this contract suggested that competitive bidding to provide a natural monopoly service is
feasible and advantageous. However, the contract involves considerable resources to formulate
and monitor, and envisages repeated modifications and additional works. The possibility of
competitive contracting to replace or supplement utility network regulation deserves further
consideration.
Core International Team (2002) [33] in their report – India Electricity distribution reform
review and assessment mentioned that USAID engaged the services of CORE International to
conduct a review and assessment of the distribution reform in India and submit a report on its
findings on the DR problem in the country. The Report provides an in-depth review of the
magnitude and seriousness of the electricity distribution problem in India and documents
current and planned reform initiatives. It also provides sample analyses to illustrate the
differences between urban and rural distribution and the need for very different approaches for
electricity distribution reform and efficiency improvements for the two sectors.
Tonci Bakovic, et al (2003) [36] ―Regulation by Contract A New Way to Privatize Electricity
Distribution?‖ in their study stated that in many developing countries, both governments and
investors have expressed disappointment with the performance of recently privatized electricity
distribution companies. Governments complain that tariffs have increased without visible
improvements in service. Investors contend that they have not earned reasonable returns on
their investments. Both sides often express dissatisfaction with the new independent regulatory
commissions established at the time of privatization. In particular, investors argue that the
commissions have not lived up to their commitments and almost always side with consumer
interests. Some investors claim that the design of the new regulatory system in many
developing and transition economies is fundamentally flawed. They often recommend that
independent regulatory commissions be supplemented or replaced by more explicit ―regulation
by contract.‖ The paper examines whether regulation by contract or a combination of
regulation by contract and regulatory independence would provide a better regulatory system
for developing countries that wish to privatize some or all of their distribution systems. It
describes the key characteristics of regulation by contract as it has been implemented in several
developing countries and focuses on how regulatory contracts in several countries handle
certain key issues (pass through of power-purchase costs, foreign exchange fluctuations, loss
reduction and the obligation to serve). They also describes the strengths and weaknesses of
different approaches for dealing with disputes that inevitably arise in the application of
regulatory contracts and compares as well as contrasts some recent experiences of distribution
[24]
entities in Latin America and India, Examines some of Brazil‘s recent problems that may have
arisen because Brazil adopted a flawed variant of regulation by contract.
Anoop Singh (2007) [34] in his studies - Policy Environment and Regulatory Reforms for
Private and Foreign Investment in Developing Countries: A Case of the Indian Power Sector
undertook a review of the policy and regulatory developments in the Indian power sector. A
review of the literature and a comparative policy analysis helped us to unravel some of the
lessons to be learned for the process of reform in developing countries in general. The initial
phase of power sector reform in India allowed commercially-oriented IPPs to sell power to
financially weak SEBs, which do not rely on sound commercial principles. This marriage of
convenience is not sustainable. The initial phase of reforms in developing countries should be
aimed to restructure the sector and to set up an independent regulator. As private participation
grows, it would be suitable to introduce competition in the sector. This would not only help
lower the cost of power purchase, it would also provide greater incentive for performance
improvement. The experience of private sector investment in Latin American countries relied
on the introduction of commercial interest in the bulk power market by inviting IPPs as well as
introducing commercial principles at the end of buyer utilities through their divestiture. The
long-term interest of the consumers can only be served if reasonably priced electricity is
available over the long-run. Political interests would best be served by depoliticising tariffs,
which would be beneficial to consumers in the long-term through improved quality and
reliability of supply. Given the objective to electrify all villages by 2010 and to double the
generating capacity in the country by 2012, the need to improve the policy environment and
strengthen the regulatory framework cannot be ignored.
Pedro Antmann, (2009) [6] in his paper - Reducing Technical & Non-technical losses in Power
Sector reviewed the experience with efforts in developing countries by private as well as state-
owned electricity companies to reduce total losses in transmission and distribution and
provided examples of sustainable reductions. From a social point of view, non-technical losses
have several perverse effects. Customers being billed for accurately measured consumption and
regularly paying their bills are subsidizing those users who do not pay for electricity
consumption. There is a wide range of situations creating non-technical losses. He considered
theft of electricity through an illegal connection to the grid or tampering of a consumption
meter, unmetered consumption by utility customers who are not accurately metered for a
variety of reasons. Electricity theft is viewed as de facto subsidization of those who steal by
customers regularly paying bills according to their consumption. He concluded that unless this
situation is explicitly and transparently defined by the competent authorities and reflected in
the legal and regulatory framework of the sector—in some countries some categories of
consumers (e.g., agriculture users in India and Bangladesh) are unmetered and pay a fixed
[25]
amount for electricity irrespective of the amounts consumed, which means in practice that they
are subsidized by consumers in other categories, tax payers, or both. Depending on the
financial situation of the power sector, the savings from reductions in non-technical losses
could be channeled to reduce tax-payers subsidies or tariffs paid by customers, achieve an
average tariff level allowing recovery of costs reflecting efficient sustainable performance
(critical to assure service quality), subsidize consumption of selected categories of socially
sensitive existing users and extend access to electricity supply to currently un-served
population like the poorest and socially unprotected.
Pandey Ajay, et al (2009) [5] in his studies – Electricity Reforms and Regulations – A critical
review of last 10 years of experience focussed on the constraints faced in terms of achievement
of the objectives and the gaps between the vision, objectives and achievements. Based on the
review of the analysis, the study made a critical review of the impact of reforms initiatives of
the Government and regulatory initiatives of the Electricity Regulatory Commissions on the
Electricity Sector. It also brought out how gaps in overall reforms initiatives have impacted the
regulatory effectiveness and vice versa (i.e., how gaps in regulatory initiatives have impacted
overall reforms process in the electricity sector). The study also made recommendations on the
way forward by identifying desirable action by the stakeholders like the Government (Central
as well as State), Government agencies, Regulatory Commissions, Appellate Authorities, to
achieve the objectives of the Electricity Act, 2003.
Lahiri, R.N. et al (2010) [35] in his research - Privatization of power distribution utility in India
through Restructuring and Reformation stated that after enactment of Electricity Act 2003 in
India, a comprehensive change is happening in Indian electricity market, and power industries
are going through a reformation process to cope with the market change. In the post Electricity
Act'2003 scenario restructuring & reformation is happening very fast by unbundling the power
Utility by formation different business units like GENCO (Generation Company), TRANSCO
(Transmission Company), & DISCOM (distribution company) to improve the overall
efficiency of the Utility. Further to minimize the Aggregated Technical & Commercial (AT &
C) losses, privatization of power distribution utility (DISCOM) is going on. Privatization is
portrayed as means of improving efficiency and bringing in funds for investment. However,
governments often have to go to considerable lengths to attract investors. Such measures
include assuming the debt of the enterprise, avoiding unbundling of the sector and increasing
prices. Despite privatization, governments still have responsibility for the provision of stable
and affordable electricity. Hence after privatization there is a need for further support from the
government to subsidize electricity prices and in some. Alternatively, governments may also
restrict the create problem as firms may be unhappy to see their profits are squeezed. However,
whatever measures are used, private firms should start disconnecting non-payers quickly, with
[26]
presumably social implications. While privatization may deliver in the short term by reducing
leakages and providing more effective billing, the longer-term implications are less clear.
Possibly inefficient public sector enterprises may be replaced with powerful private sector
concerns, accountable to shareholders with no democratic responsibility in the country where
they are delivering this essential resource. This is particularly significant in India where the
institutional infrastructure is such that regulation is weak. Rather than blindly- - privatizing,
policy makers need to relegate privatization to its proper place of just one of a number of
policy reform options - and one that comes at a substantial cost.
Sanjeeb Kumar Dey, Dr., et al (2012) [31] in his studies – Revenue Sustainability through
Electricity Distribution Franchisee; suggested that after completing the infrastructure
development, improving the quality of services than the third step of revenue sustainability i.e
bridge the gap of revenue and expenditure is again a mind boggling task. It is imperative to
bridge the gap and there are three easy ways: Increase the Tariff – the consumer has to pay
more – impossible for the rural consumers, Government Subsidies – the taxpayer has to pay
more – not acceptable under the present arena when the taxpayer are paying more and Utilities
bearing the gap – till the coffer extinct- again U turn to the pre-reform era. To address the
above it‘s only imperative towards the approach of Revenue sustainability. They also explain
the distribution franchisee functioning with the help of SHGs and contribution towards revenue
sustainability in Electricity sector.
Planning Commission, Govt. of India (2012) [27] in their report ―Private Sector participation in
distribution‖ suggested that PPP model would ensure zero power cuts, reduced losses and
affordable distribution tariff. It should fall consistent with the EA-2003 under full regulatory
sight ensuring both consumer protection and competition. The ownership of the assets would
rest with the government and yet it should enable recourse financing and Viability gap funding
support. Nevertheless the report also clarified that these are subjected to constraints such as
political acceptability, resistance from views on private ownership of public assets but
advantages are not stronger side. It concluded that both PPP and franchisee model must be
encouraged and proper approach based on careful evaluation must be made.
2.2. Existing Policy Framework
2.2.1. Regulations and their Interpretation
Electricity Act, 2003
The most significant and wide-ranging change in legislation was the promulgation of the 2003
Act, which superseded all the previous electricity related legislations and created a more open
environment for investment and competition in the sector. The Act also required statutory
restructuring of integrated SEBs and separation of trading function from transmission and
system operation.
[27]
As such the Act gradually defines (Sec. 2) and identifies (Sec. 5, Sec. 13) the franchisee
operation in distribution sector.
Definition of Franchisee: Sec. 2(27) of the Act:
“Franchisee means a person authorised by a distribution licensee to distribute electricity
on its (distribution licensee) behalf in a particular area within his area of supply”
Above definition clearly identifies franchisee as an entity entitled to only distribute energy on
behalf of a distribution licensee. It however does not specify the functions related to operation
and maintenance, billing and revenue collection, investing in distribution and generating
revenue through tariff. Further, the Sec. 5 and Sec. 13 of the Act refers to the term franchisee
along with the undertaking of above duties.
Bulk Purchase and managing local distribution: Sec. 5 of the Act:
“The Central Government shall also formulate a national policy, in consultation with the
State Governments and the State Commissions, for rural electrification and for bulk
purchase of power and management of local distribution in rural areas through Panchayat
Institutions, users’ associations, co-operative societies, non-Governmental organisations or
franchisees.”
In reference to the above, the relevant extract from the Nation Electricity Policy (NEP) 2005
notified by the Ministry of Power read as:
O&M and Cost Recovery Arrangements: NEP 2005, 5.1.6:
“Necessary institutional framework would need to be put in place not only to ensure
creation of rural electrification infrastructure but also to operate and maintain supply
system for securing reliable power supply to consumers. Responsibility of operation &
maintenance and cost recovery could be discharged by utilities through appropriate
arrangements with Panchayats, local authorities, NGOs and other franchisees etc.”
This clearly refers franchisee operation in rural areas responsible for O&M and cost recovery
arrangements. No mention of franchisee arrangement in urban areas is made. Coming back to
the Act -
Allowed to distribute Electricity:
Sec. 12 of the Act:
“No person shall transmit, distribute or undertake trading in electricity unless he is
authorised to do so by a licence issued under Sec. 14, or is exempt under Sec. 13.”
Sec. 13 of the Act:
[28]
“The Appropriate Commission may, on the recommendations, of the Appropriate
Government, in accordance with the national policy formulated under section 5 and in
public interest, direct, by notification that subject to such conditions and restrictions, if any,
and for such period or periods, as may be specified in the notification, the provisions of
section 12 shall not apply to any local authority, Panchayat Institution, users’ association,
co-operative societies, non-governmental organizations, or franchisees.”
Separate License not required: Sec. 14 of the Act: (based on Sec.12)
“Provided also that in a case where a distribution licensee proposes to undertake
distribution of electricity for a specified area within his area of supply through another
person, that person shall not be required to obtain any separate license from the concerned
State Commission and such distribution licensee shall be responsible for distribution of
electricity in his area of supply.”
This legally, circular reference links as Sec. 5 Sec. 13, Sec. 12 Sec. 13, Sec. 13 Sec.
12 and Sec. 14 Sec. 12.
This can be interpreted as allowance of franchisee in rural distribution (Sec. 5) that can
transmit, distribute and trade electricity (Sec. 13) without the need of separate License (Sec.
14). The applicability is only in rural distribution but not in urban distribution meaning that it is
necessary of a distribution franchisee to obtain a distribution license if operating in non-rural
areas. One way to interpret this is that Franchisee distribution in urban areas in not recognized
by the Law and is a violation of Sec. 12 of the Act. Moreover, in all the discussions, including
the debate in the Standing Committee of the Parliament, any franchisee arrangement for cities
was never contemplated. This is clearly an after-thought and that too of a recent origin that can
invite many adverse consequences including several challenges in the court.19
Mahavitaran20
contends that the franchisee model was in consonance with Sec. 14 of the
Electricity Act. The legality of appointing distribution franchisees in urban areas was
challenged in the Nagpur Bench of the Bombay High Court, which upheld the allotment of
distribution franchisees in urban areas in its 2008 order under which the path in appointment of
M/s Crompton Greaves as distribution franchisee for three divisions of Nagpur for a period of
15 years, but with a rider that certain aspects of the distribution franchisee agreement needs
further scrutiny by the Maharashtra Electricity Regulatory Commission (MERC). A division
bench consisting of Justice Dilip Sinha and Justice Vasant Naik21
refused to quash the
appointment of private distribution franchisee and held that Maharashtra State Electricity
Distribution Company Limited (MSEDCL) had powers to go in for distribution franchisee and
19
Planning Commissioning Report on PPP in Distribution, Oct-2011 [13] 20 Maharashtra DisCom 21 Judgement Order dated 07-May-2008, Case No. 98 of 2007; Petition filed by MSEDCL on financial aspects/
viability in relation to Distribution Franchisee in Nagpur. [4]
[29]
that provisions to ensure consumers‘ interests have been incorporated in the agreement signed
on October 26, 2007 between the DF and the DL. Even the Power Ministers‘ conference held
on July 13, 2011 unanimously resolved that States would initiate steps to appoint distribution
franchisees in urban areas. Mahavitaran officials also raised the issue of tariffs, among other
things.
The National Electricity Policy (NEP) 2005 has given following directions to improve
electrical distribution. Multi-Year Tariff (MYT) framework is an important structural incentive
to minimize risks for utilities and consumers, promote efficiency and rapid reduction of system
losses. Private sector participation in distribution needs to be encouraged for achieving the
requisite reduction in transmission and distribution losses and improving the quality of service
to the consumers. It broadly says:
(a) Proper restructuring of distribution utilities essential for achieving efficiency gains.
(b) Adequate financing support to utilities. Such support could be provided with conditions to
achieve pre-determined efficiency gains and for reducing cash losses.
(c) Appropriate governance structure to be in place to insulate these organizations from
extraneous interference as also to ensure transparency and accountability.
(d) Private sector participation in distribution to reduce transmission and distribution losses
and for improving services to customers.
2.2.2. Larger role of Regulators and State Governments
Independent analysts while welcoming the move say that regulatory issues need to be clarified
before the franchisee model is implemented. From the regulatory point of view, a franchisee
has no identity. So if it is allowed to buy additional power, the regulatory framework needs to
be in place, right now only the distribution licensee interacts with the regulator.
Since after almost half a decade of experience in implementation distribution franchisee, it is
now high time for Regulatory Commissions to play a more vital and constructive role in the
concept of DF. This can be looked up by two viewpoints. Firstly, by making available,
standard guidelines and documentation of bidding process with consequent taxation and
performance treatment since there is a possibility of amending them from time to time for
benefit of the sector. This will significantly reduce various petitions that come to CERC for
hearing and time spent on them. With more and more urban areas expected to come under DF,
the same can be replicated by means of appropriate regulations. Presently issues that involve
SERC approvals are mostly based on AT&C loss trajectories, taxation, subsidies, incentives,
investment trajectory versus improvement in reliability and performance, etc. Secondly, tariff
fixation and revisions were based on analysis and financial and accounting reports presented by
SEBs. With a view of changed methodology of operating distribution systems which is
definitely more efficient that decades old methodology, there is also a need to treat the
[30]
franchisee area exactly on similar aspects as non-franchisee area. The standards should now be
based on the performance and achievements in DF area and set relevantly for non-DF area,
particularly in Loss reduction, reliability and tariff viability. For instance, failure rate of
distribution transformers is purely related to the loading on feeders and how closely periodic
preventive maintenance schedules are adhered to. The experience till now have shown that DF
are able to significantly lower the transformer failure rate in their initial one-two years of
operation by properly handling above two issues, something that even a SEB can more easily
handle but they unfortunately had not. The reason is obvious; SEB‘s exemption from
answerability to the SERC even in the event of non-performance while DF cannot.
In the power sector the regulator has the responsibility and the authority to regulate the
working of the utilities. Being placed in such a critical position, the regulator needs to examine
the feasibility of the franchisee models over long run considering the financial and operational
parameters ‐ existing and projected. The regulator‘s role is not limited to safeguarding the
interests of the consumers but extends to safeguarding the long‐ term interests of the electricity
sector as a whole. Franchisers need to keep the regulator informed about the performance of a
franchisee on a regular basis, particularly in regard to consumer complaints and their
resolution. It has also to be kept apprised of any disputes arising out of poor quality or
reliability of power supply or service standards provided by the franchisee.
The task force comprised by the Planning Commission in its latest report accepts the
Franchisee Model as a possible option and recommend22
the same for consideration of
respective State Government. Without the active support and recognition of the long term
advantages of the franchisee system by the regulator, no franchisee will ever become
successful and no utility will be able to structure the contract of the franchisee in a manner
beneficial for both the parties. The role of the regulator as defined under RGGVY guidelines is:
(1) To ensure adequate arrangements for supply of electricity by the licensee and that there is
no discrimination in the hours of supply between rural and urban areas.
(2) To ensure that the Bulk Supply Tariff (BST) for the franchisee is determined considering
the consumer mix connected load, prevailing consumer tariff, improvements to be made in
revenue and reasonable costs to be incurred by the franchisee, with a view to enabling
franchisee to have commercially viable operations.
(3) To ensure that the BST is arrived at in line with the above and is fully factored into the
submissions of the DISCOM to the State Electricity Regulatory Commission (SERC) for
revenue requirement and tariff determination.
22 Report of Task force on Private Participation in Power Distribution (Pg. 16), July 2012 [27]
[31]
Even if there was no the utility or franchisee, the government would not be able to shun its
responsibility of providing electricity to the people. It is, therefore, imperative for the
government to play its enabling role in a constructive manner. The role of the state government
is in the form of:
Creating the policy framework for establishing distribution franchisees in the state.
Advocacy of the franchising policy.
Providing administrative support.
Subsidizing those who need electricity but don‘t have the ability to pay.
Timely payment of subsidies and other dues.
Regular and timely payment of dues of government connections.
Setting up special Courts for speedy trial of electricity theft related offences.
Chapter-3: PRIVATE PARTICIPATION IN DISTRIBUTION SECTOR
Privatization involves complex social and labour issues. The crux of the problem is the
difficulty of the affected employees to accept that there is a necessity for undergoing change
and even making sacrifices, either for the survival of an organization or for the greater good.
The model should address significant issues such as the need for capital investments, ensuring
quantity and quality of supply, financial sustainability, competition and open access. The
experts feel neither the privatisation model as in Delhi nor the franchisee model would deliver
the desired outcomes and pitched for a well formulated PPP which would be consistent with
the Electricity Act.
In Delhi, despite 10 years of reform, the mandatory provisions of open access have not been
operationalized and the average power purchase cost has increased 49 per cent in the last two
years.
3.2. Review of Past Experiences
3.2.1. Odisha Model – Setback for PPP Model
Even though today it is evidently unsuccessful model, for the sake of completeness we review
the features of Orissa‘s attempt to privatize distribution. After initiating reforms process by
unbundling the sector and constituting the OERC in 1996 whereby the OSEB was unbundled
into GRIDCO (Grid Corporation of Orissa), Orissa Power Generation Corporation (OPGC) and
OHPC (Orissa Hydro Power Corporation), the state embarked on privatization of the sector in
the state. This unbundling process resulted in up valuation of assets with entities as compared
to the values on the books of OSEB. In 1998, 49% of the equity stake in OPGC was sold to a
private operator, AES, at ₹ 603 Cr. The entire distribution system of Orissa was divided into 4
distribution companies as subsidiaries of GRIDCO in 1996 itself. In the absence of clear
separation and accounts of each of the four DISCOMs and to quickly privatize, initially short-
[32]
term distribution operations agreement (DOA) approach was followed wherein the investments
were to be made by GRIDCO but the private entity (in this case, BSES) was expected to
provide key managerial staff. The approach failed and the contract had to be terminated as
GRIDCO felt that BSES failed to perform whereas BSES felt that it had no control over the
organization and employees. Based on this experience, it was decided to sell 51% stake of
DISCOMs to private players based on competitive bids. Prior to bidding, the tariffs were
determined by OERC at 35% T&D loss level against the request of 41% by GRIDCO. Very
few players bid for the privatization in 1999 and for three DISCOMs, awards were made to
BSES despite initial condition of not more than 2 DISCOMs per player and one discom went to
AES outside the bidding process as there were no bidders. The private players in the very first
year 1999-2000 realized that the billing in the DISCOMs was only 44% of input energy and
collections were meagre at 77%. The state government post reforms stopped paying subsidy,
realized funds from sale of its stake in OPGC and the government departments continued to
delay payments. The unsustainable losses resulted in liquidity problems for the DISCOMs
which stopped payments to GRIDCO, which in turn delayed payment to generators.
From the Orissa experience emerged the so called single buyer model of unbundling. This
involved the following:
Unbundling of the vertically integrated SEB into a few DISCOMs, one or more GENCOs, a
TRANSCO that besides carrying out transmission functions also played the role of a buyer
and seller of power from the generators and to the DISCOMs respectively.
Cleaning up the balance sheets of all companies so that the future operations could be on a
cash flow consistency basis.
Attempting to sell the DISCOMs and GENCOs to the private sector
Given the lack of clarity on the treatment of cross subsides the model did little to help potential
investors understand the future of the sector. The power sector restructuring in Orissa has shed
significant light on the inherent difficulties in the reform process. Valuable lessons could be
learnt from this project that could aid other states in restructuring and reforming their power
utilities. Some key results and insights23
are
The T&D losses that were assumed to be 39.5%24
, were actually greater than 50%. OERC
based their Tariff Order considering 35% T&D losses, leading to an additional T&D loss of
15% being absorbed by GRIDCO as losses. The higher than anticipated T&D losses are one
of the most important reasons for the current situation in Orissa wherein the private
distribution companies are unable to pay GRIDCO and hence have caused shadow on the
overall reform exercise. The higher than assessed T&D losses were in turn on account of
23 Infrastructure Development Plan for Chattisgarh, Annexure III.3 – Report by PricewaterhouseCoopers [15] 24 Staff Appraisal Report of the World Bank.
[33]
higher agricultural consumption, those were actually commercial losses. Non metered
supply to most agriculture consumers made it impossible to estimate the true extent of the
T&D losses.
Even though 100% Collection Efficiency was assumed by FY98, the actual collection was
83% in FY99.
Tariff increase was assumed to be 16% in FY97 and 18% in FY98. However weighted tariff
increase by OERC in its two orders was less than 10% each year, with a 20 month gap
between the two tariff orders.
The crucial aspect of government support during the transition period was neglected, and
GRIDCO was expected to break even in FY 98.
The project did not anticipate that in order to make the distribution companies attractive to
the private investors, GRIDCO would have to retain in its own books about three times the
quantum of liabilities passed on to the four distribution companies. To make the distribution
business attractive to private investors, only around ₹ 650 Cr. of total liabilities was passed
on the four Distribution Companies while GRIDCO, the Transmission company, retained
with it ₹ 1950 Cr. of liability in its own books, as all distribution companies were loss
making undertakings.
3.2.2. Delhi Model – Success story for PPP
The problems of the electricity sector in Delhi before privatisation were mainly as under.
Demand-Supply Imbalance
Transmission and Distribution
Losses Financial Position
Peak demand for energy
grew steadily but power
supply from DVB owned plants remained stagnant.
Many consumers including
commercial and industrial who are
on metered supply still indulge in power theft.
The Board‘s deficit rose from ₹
342.22 Cr. in 1994, ₹ 694.67 Cr.
in 1998 and ₹ 1103 Cr. in 2000.
Installed capacity was 700
MW Whereas available Power
was only 300-350 MW.
Legal connections not for
unauthorised colonies which in turn leads to illegal tapping of power
from mains.
Tampering with meters and exceeding the allowed limit of load.
The billing system does not work
efficiently. So for example only 57.3% of energy released in 1998
was billed and only around 88%
of the amount billed was received as revenue.
To solve this problem,
between 1994 and 1995, three new projects with
private sector participation
were identified. But for
various reasons, little progress was made in
implementing these projects.
Soft approach of governments and
electoral compulsions.
Because of continuous losses, on
the eve of privatisation, outstanding accounts had reached
a level of ₹ 6500 Cr. and DVB
owed over ₹ 1000 Cr. from
various organisations.
Table 1: Delhi PPP, Basic Issues
The privatisation process started in February 1999 when a Strategy Paper was issued by the
Delhi government, identifying the problems of the power sector in Delhi and emphasising the
[34]
importance of restructuring of the DVB25
. It argued that huge financial inputs are required to
improve the situation in Delhi‘s power sector, but that is not possible in the present
organisational, financial, legal and regulatory environment of the DVB.
Delhi Electricity Regulatory Commission and Delhi Electricity Reform Act came into
existence in 1999 and 2001 respectively. At the end of 2000, a tripartite agreement was
executed between the Delhi government, DVB and representatives of DVB employees. In early
2001, the Delhi Government approved the division of DVB into six successor entities; one
holding company, one generation company (GENCO), one transmission company
(TRANSCO) and three distribution companies (DISCOMs).
Bids were invited for private party participation in distribution sector. The base for these
bidding was to achieve minimum AT&C losses in which BSES and Tata Power Company Ltd.
showed interest. Tata Power acquired a share of 51% of the North-Northwest Delhi
Distribution Company Limited and BSES Limited obtained controlling interest of Southwest
Delhi Electricity Distribution Company Limited and Central-East Delhi Electricity Distribution
Company Limited.
The problem was that the accounts of the DVB were not audited and that no ‗fixed assets
registers‘ which could have given all the necessary details existed. Therefore it was decided to
use the business valuation method. According to this, the value of assets is reflected in future
tariffs and the assets were sold for ₹ 2360 Cr. to the new owners. A specified loss reduction
target to bring AT&C losses down to 34% within five years has to be achieved by each
distribution company. DISCOMs will receive 16% guaranteed revenues on their assets till
2007. Liabilities and past losses of DVB are not going to be passed on to successor companies.
All of them will start with a clean opening balance sheet. To keep electricity prices down and
to avoid a tariff shock, a loan of ₹ 2600 Cr. or of maximum ₹ 3450 Cr. is granted to the
Transmission Company (TRANSCO). The loan has to be repaid by GENCO, TRANSCO and
the three distribution companies within 13 years to the holding company. For the first four
years DISCOMS enjoy a moratorium on repayment and a waiver on interest and if necessary,
this can be extended to the fifth year.
Parameters 2000-01 2009
AT&C Loss Level 50 % 15 - 20 %
DT Failure Rate 15 % < 1 %
Load Shedding as % of Total supply 5 % 0.6 %
Financial Status ₹ 1103 Cr. Loss ₹ 20000 Cr. Saving
Table 2: Delhi PPP, Facts
25 Delhi Vidyut Board (DVB)
[35]
3.2.3. Bhiwandi Model – Torchbearer in Franchisee Model
The Govt. of Maharashtra took the initiative to introduce Input based Franchisee for Public
Private Partnership for distribution in Bhiwandi circle. The distribution company26
went
through an open competitive bidding process for selection and appointment of franchisee in
2006, and the bidders were required to quote the price of input electrical energy that the
franchisee will pay to the distribution company during the franchisee period which was 10
years in case of Bhiwandi. Torrent Power took over the operations in Jan-2007 with a
successful bid of ₹ 1.80 per unit in the first year and ₹ 2.45 per unit in 10th
year putting a
levelised price of ₹ 2.04 per unit. The average revenue recovery of the distribution licensee
before the handing over was ₹ 1.45 per unit meaning that now distribution licensee could earn
₹ 0.35 per unit more without undertaking distribution activity from the first year itself leading
to an expected increase in revenue of about ₹ 1500 Cr. to the distribution licensee in a period of
10 years.
27With almost 1.746 Lacs consumers, Bhiwandi is also India‘s major textile hub with more
than 6 lacs power looms (1/3rd
of total power looms in India) consuming 60% of total power
required in Bhiwandi. With annual energy requirement of 2400 MU and maximum net demand
of 675 MVA, Bhiwandi also recorded T&D loss of 45% and AT&C loss of 58%. Distribution
failure rate was around 40% and only 23% of consumers had accurate metering, rest of them
where either unmetered or unregistered consumers.
Bhiwandi faced a mandatory load shedding of 6 hours with further distressed load shedding
due to stressed network, frequent breakdown and tripping of lines resulting to about 8-10 hours
of power cuts. Within the first year of operation, following major steps were taken to overcome
acute system constraints.
More than 100 MVA in power transformation was added.
All the 46 feeders of 22 kV were overloaded with some of them to the extent of 200%. The
DF erected 24 more feeders to relive the overloading of feeders.
Around 80,000 meters were replaced for accurate metering.
More than 855 distribution transformers were either replaced or augmented with higher
capacity, 34 transformers were newly installed and revamping of 1572 transformers was
done to reduce failure rate.
Most of the LT lines were revamped along with line pillars.
In subsequent six months, around 200 MVA of power transformation capacity was planned
and 11 feeders of 22 kV capacities were expected to be erected.
26 Distribution Licensee – Maharashtra State Electricity Distribution Company Limited (MSEDCL) 27 CEA letter on PPP in distribution – experience of input based DF model in town from the chairperson of CEA,
Letter No. DPD/ Franchisee/Bhiwandi/ 2008/ 489, dated 10-Jan-2008.
[36]
―Ujjwal Bhiwandi Abhiyan‘ – a project for providing safe and legal electricity connection to
entire Bhiwandi town was initiated with aggressive theft detection and follow-ups. The
initiative generated tremendous response and goodwill among consumers.
The first year for DF resulted in a capital investment of ₹ 122 Cr. and further ₹ 50 Cr.
planned in next six months.
Parameters
Handover in
Jan-2007 Improvement28
AT&C Loss Level 58 % 19 % (Jan-09)
T&D Loss Level 45 % 22.7 % (Jan-08)
DT Failure Rate 40 % 14 % (Jan-08)
Consumer Metering 23 % 77.7 % (Jan-08)
Power Cuts 8-10 hours
System Average Interruption Frequency Index (SAIFI) 47.6 % 13.6 % (Jan-09)
System Average Interruption Duration Index (SAIDI) 23.6 % 3.55 % (Jan-09)
Consumer Average Interruption Duration Index (CAIDI) 0.49 % 0.26 % (Jan-09)
Table 3: Bhiwandi DF; Facts
Figure 6: Bhiwandi DF; Initial Performance
State Discom ended up realizing more revenue compared to any past realization. Additionally
there was saving of interest and depreciation on new capital expenditure as well as saving of
O&M expenses. However few issues like Status of MSEDCL arrear after DF implementation,
Revenue loss on account of non-audited value of ABR and load shedding by MSEDCL in
franchisee area where some of the major which were not handled in initial years.
28 Source; IDFC Report
0
10
20
30
40
50
60
70
80
90
Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07
Chart Title
DT Failure Rate % T&D Loss % Collection Efficiency
[37]
3.2.4. Agra Model – Learning Franchisee Model
Uttar Pradesh state utilities after studying Bhiwandi model and taking detailed account of
lessons learnt decided to opt for Input based Franchisee model in 9 cities including Agra. A
competitive bidding process was undertaken in Feb-2009 with an objective of improving
collection efficiency, consumer service and quality of supply through upgrading of utility
system. In a single stage bidding process, Torrent Power was once again declared the
successful bidder which took over the Franchisee operations of Agra Urban circle from
Dakshinanchal Vidyut Vitran Nigam Limited in April-2010.
The following impacts of operations were reported by the DF:
Parameters Apr - 2010 Oct - 2010 Oct - 2011
T&D Loss Level 67.7 % 51.7 % 46.3 %
% Collection 85.4 % 90.8 % 96.3 %
Input Energy 171.9 MU 182.4 MU 177.2 MU
Sales 55.4 MU 88.2 MU 95.3 MU
% of Complaints solved within 4 hours 31 % 97 % 94 %
Table 4: Agra DF; Facts
3.2.5. Learning from past Experience
Political will and support: It does not need much debate to conclude that without the
influence and guidance of the political leadership reforms would not have been successful.
Irrespective of their political affiliation from the initial stages till date have been providing
support to the privatization process. Reforms introduced in the sector cannot be revoked at any
stage the resulting difficulties can (only) be sorted out through the appointment of a high level
expert committee.
Legal structure conducive to privatization: Support in mere words and no action ever
produces the intended results. This would have been the case had not the political vision got
translated into creation, formulation and the implementation of the legal structure. Without the
legal backing Reforms would probably come to a grinding halt.
Cushioning effect to the pains and uncertainties of privatization: No matter how much
inevitable it is, any change is painful since it disturbs the status quo, more so when the present
is a monolithic structure steeped with a labyrinth of rules and regulations. Therefore, quite
naturally the reform process in the power sector causes a dissonance. In order to lessen the
disturbances and to depict that reforms are not all that bad various measures must be taken by
the management and statutory entities.
Extensive training for skill up gradation and changing mind-set: The primary objective of
privatization especially in the power sector is to serve the customer. In order to fulfil this
objective it is essential that the employees (both executives and non-executives) who are
[38]
ultimately responsible for service should be made capable of doing so. Thus not only should
employees be technically capable but also psychologically adaptable to the needs of the
emerging scenario. It is necessary to bring about a transformation in their mind-set. The
employees recruited and nurtured in the monolithic structure of SEB characterized by
complacency and unaccountability has to be changed into business oriented customer focused
personnel. Keeping this in mind employee training must be taken up extensively to upgrade
their skill level and reorient them and also to build self-sustaining training centres. This helps
in balancing the skill shortages and reorienting the organizational culture.
3.3. Business Models under PPP Mode
Major models identified in distribution sector under private sector participation or PPP model
are Management Contract Model, Franchise Model and Licensee Model. The allocation of
responsibility in the three models is as under:
Allocation of
Responsibilities
Management
Contract Model Franchise Model
Private Licensee
Model
Operation & Maintenance Private Private Private
Capital Investment Public Private Private
Commercial Risk Public Private Private
Asset Ownership Public Public Private
Duration 3-5 years 10-15 years Indefinite
Reform Process Slowest Balanced Fastest
Political Acceptance Most Balanced Lowest
Table 5: Comparing various PPP Model in DF
It is also apparent that distribution franchisee model is a trade-off between privatization
benefits and SEB driven reforms which is also politically accepted and yields good result at
moderate pace. The franchisee model is thus a right mix of progress, legislature and
Acceptability.
[39]
Figure 7: Right Mix of DF
In furtherance to the Distribution Franchisee Models, MoP29
has foremost defined six different
models30
of private participation as franchisee in distribution. Franchising is an outsourcing
activity and hence the proposed models vary from each other based upon the degree of
responsibility sharing and the payment structure of the franchise.
This section details the various franchisee options available with the utilities for franchising.
The responsibilities that define a particular franchisee model can be one or a combination of
the activities shown in the figure below:
Figure 8: Activities of DF
29 Reference Book: National Franchisee Training Program of Ministry of Power. [10] 30 Models: A to F is referred in RGGVY guidelines as advisory models in DF Implementation.
ENEGY PURCHASE
MAJOR O&M
MINOR O&M
REVENUE COLLECTION
METERING & BILLING
[40]
3.4. Models under Franchisee Mode
3.4.1. Model A: Collection Based Revenue Franchisee
The role of franchisee under this model is limited to billing, revenue collection, complaint
redressal, facilitating release of new service connection and keeping vigil on the distribution
network in the franchised area for providing appropriate feedback to the utility.
Such collection franchisees would be appointed for an area and be given a target for revenue
collection every month (which depends on the baseline collection in the area).
The remuneration methodology involves:
(1) Paying the franchisee margins (which will be a percentage of collections) on achievement
of the target,
(2) Levy of penalty for not achieving the target.
(3) Incentive for exceeding the target.
Drawback of this system is that the franchisee is not a partner in loss reduction - since its
compensation is linked to the revenue collections made - and not on the energy input coming
into the area. This model is the most basic of all franchisee models and is recommended for
areas which suffer from poor collection efficiency.
Revenue based Franchisee model is more suitable for rural area or small towns where primary
focus is to reduce commercial losses and improve collection efficiency. The role of franchisee
is limited to meter reading and revenue collection only. An extended model in rural areas
requires minor maintenance work entrusted to the franchisee. But either of them has limited
scope of improvement due to lack of ownership and funding.
Primary duty of the franchisee is revenue collection as the incentives are based on the revenue
which he collects on behalf of the utility. In this model the franchisee only acts as a facilitator
cum enabler in increasing the revenue collection through his efforts towards reaching more
consumers and motivating them to pay their dues in time. The franchisee can help to make the
consumers aware of the collection procedures and provide them with convenient payment
options, so that the incidences of defaults in payments are reduced. The utility needs to specify
the targets that are required to be achieved during the course of operation of the franchisee so
that there is clear understanding between the parties about the targets and the responsibility to
achieve them. The franchisee would be required to achieve these targets as early as possible as
the incentives are given once he crosses the set targets by the utility. In the process of revenue
collection the franchisee has no rights or responsibilities towards system improvement or loss
reduction. Though he gets benefit from such improvements but the Utility is not liable to take
up such works just for the franchisee on his request.
[41]
The franchisee needs to facilitate the consumers to make their payments, while the consumer
related complaints would still be handled by the utility as the billing and rest of the commercial
activities would still be with them. The utility may not carry out the system augmentation or
improvement works in the franchisee area depending on the need of the area and status of the
network. The complaint centre would still be handled by the franchiser. The only aim of the
Franchisee is to increase the revenue so as to maximize his earnings with activities within the
scope agreed in the agreement done between the franchiser and the franchisee.
3.4.2. Model B: Input based Revenue Franchisee
In case of the input based franchisee, the input energy into the area covered by the franchisee is
measured by the utility and the targets set for revenue collection are based on the collections
made as a percentage of the input energy supplied to the consumers beyond the point of
metering by the utility.
The operations and remuneration methodology of the input based franchisee is similar to that
of the collection franchisee. The basic difference is in the target setting mechanism by the
utility. The input based franchisee‘s area may be decided based on:
(1) Energy supplied by the utility through 11 kV feeder(s) as a point/ location of measurement
of energy supplied to franchisee and will need a metering unit in the individual 11 kV
feeders.
(2) Above system can also be distribution transformer wise located in the villages having
smaller area of franchisee operation.
The advantage of the Input Based Revenue Franchisee Model (model B) over the Collection
Based Franchisee Model (Model A) is that the franchisee also becomes a partner in loss
reduction and tries to reduce theft in the system. The franchisee‘s primary duties and
responsibilities are greater than in the previous models detailed above. This is due to the
linkage of the incentives with the T&D losses in the franchised area. The incentives for
attaining collection efficiency targets which are linked to T&D loss level would be higher
when the T&D loss level is less and vice versa. In this way the franchisee becomes a direct
beneficiary of loss reduction. The utility fixes the targets according to the existing loss levels in
the area. The utility monitors the targets and the achievements at regular intervals to assess the
performance of the franchisee.
In other words it can also be said that this models takes into account the reduction in AT&C
losses rather than just monitoring collection efficiency as in the case of the collection based
model. The target setting for the franchisee in this model shall also include the ration of the
energy input to the energy billed. Hence besides improving collection efficiency, this model
[42]
shall also improve the billing efficiency thereby reducing unauthorized connection and hooking
or any other means of theft.
3.4.3. Model C: Input based Franchisee
In this model the franchisee buys electricity from the utility at defined input point(s), which
may be any voltage level and pay electricity charges to it at a pre-determined rate. The price at
which the franchisee wishes to buy electricity from the utility is termed as ―Bulk Supply
Tariff‖. The electricity supplied/purchased is metered regularly at weekly or monthly intervals.
The franchisee collects revenue from the consumers by raising bills at the tariff decided by the
appropriate electricity regulatory commission and pays to the utility as per the contracted BST
for the electricity measured at the input point(s).
Once a franchisee signs an input based franchise agreement, he has to pay the utility for all the
energy he receives at an agreed bulk supply tariff. After collecting revenue from consumers, he
keeps with him the surplus left after paying the utility for the energy received. More efficient
he is in reducing losses and making collection and recoveries, more profits he earns. The
franchiser, on the other hand, is insulated from any losses arising from the working of the
franchisee in the area. The franchisee naturally has full powers to control pilferage of energy
and improve billing and collection in the area. The tariff is determined keeping in mind various
costs that would be borne by the franchisee in order to carry out the duties in the franchisee
area. The level of investments and expenses that the franchisee anticipates are incorporated in
the Bulk Supply Tariff. The earnings of the franchisee are directly affected by the quantum of
energy that is billed. A franchisee needs to pay for the amount of energy which is fed in the
area and thus it is his goal to reduce the losses and bridge the gap between the energy input and
the energy billed. This ensures a higher potential for the franchisee collections. As the
collection from the consumers would be the earnings of the franchisee, the collection would
not be shared with the Utility. The electricity duty however belongs to the government and is to
be transferred to the government through the Utility only.
The franchisee would be required to attend to the complaints of consumers and take corrective
action which would otherwise have been done by the utility. The consumers need to be billed
by the franchisee at the tariffs as approved by the appropriate regulatory commission. The
franchisee needs to facilitate the consumers in getting their problems solved relating to the
billings, connections, disconnections, etc. so as to improve his services in the franchised area.
Franchisee can set up collection cum customer care offices to make sure that that no
complaints are left unattended or inadequately attended.
Example:-
[43]
If a franchisee agrees to pay Re. 0.90/kWh to the Utility and the Energy input is 100,000 units,
then he needs to pay ₹ 100,000 x 0.9 = ₹ 90,000 to the Utility.
If the Average tariff is ₹ 3.00/kWh then assessment would be
₹ 3 x 100,000 x (1-T&D losses = say30%) = ₹ 3 x 70,000 = ₹ 210,000
Franchisee earns = ₹ 210,000 x Collection efficiency (say 70%) = ₹ 147,000 (for all expenses
and profits)
If the Franchisee decreases the loss to 20% his earning goes to = ₹ 3 x 100,000 x (1-(20)%) x
CE = ₹ 240,000 x (70%) = ₹ 168,000 (for all expenses and profits)
3.4.4. Model D: Operation and Maintenance Franchisee
In this model, in addition to the franchisee operation indicated above in Model C, the utility
may also hand over the O&M (operation and maintenance) of the network. In other words, this
model covers the entire gamut of activities under franchisee framework and is applicable for
both rural and urban areas.
This franchisee model is similar to the model described in the earlier paragraph; he needs to
purchase electricity at a predefined BST, he needs to reduce the T&D losses and improve the
collection efficiency in order to have higher gains. The input rate is dependent on the
anticipated cost of operation and maintenance of the 11 kV and LT networks in the franchised
area. These costs must be considered while calculating the BST by the franchisee. In addition,
following points may be noted:
(1) Consumer complaints need to be attended by franchisee and necessary action taken by him
for redressal.
(2) The income is dependent on the level of billing & collection which are the areas of prime
focus of the franchisee.
(3) The billing and billing system could be involved in his scope.
(4) This is a model where the franchisee can make investments for improvement and set up the
system himself with minimal interventions from the utility.
3.4.5. Model E: Rural Electric Co-operative Societies
This approach calls for the state to authorize the creation of traditional electric cooperative
society that is organized, owned and operated by its members. The society owns the
distribution utility assets and is responsible for all utility functions including operations and
maintenance, metering, billing and collections, accounting and finance, procurement, stores
and system planning and expansion. The operations of the co-operative society include:
(1) Organizing the community and recruiting the members.
(2) Owning the distribution system and carrying any debt on the assets.
[44]
(3) Responsibility for all facets of managing and operating the utility.
(4) Purchasing power from the state power utility
This model is applicable only for rural areas as the community based success is seen to work in
areas where collective social groups exist with support from the government and social bonds
between among the people is strong. However there is nothing that should come in the way of
its adoption in urban areas if cooperative societies having the kind of social cohesion and
structure that panchayats have were to come up in urban areas too.
3.4.6. Model F: Electric Co-operative Society-Operations Management by
Contracting
This is a variant of Model E, where the cooperative society may decide to run its operations
through an external experienced agency/organization with suitable fee structure. This can be
achieved through an appropriate 'operations contract' with built-in performance criteria. This
model is also applicable only in rural areas. The important features of this kind of model are:
(1) The Co-operative society may take the help of outsourcing of the activities to other
agency/organization through operation contracts.
(2) The Society shall carry all the activities of the Input Based Franchisee by itself or through
its agency; however the sole responsibility still remains on the franchisee towards the
franchiser.
(3) Input rate predetermined for the Franchisee as in other models based on the expenses and
the revenues envisaged.
(4) Cooperative carries out all the roles similar to other Models of the Franchisee.
The revenue and system related activities will also be the part of the scope of work of the
franchisee as in case of other Input based models. However if the franchiser feels the need of
any deviation in the roles and responsibility it can be agreed by both the parties before the
designing of terms and conditions of the model.
3.5. PPP Model and Franchise Model – Relative Actualities
There are many views on the relative merits and demerits in the PPP model and Franchise
Model. Some experts opine that promoting the franchisee model will restrict flow of long-term
investment into the sector and might jeopardize the PPP model for overall privatization of
power distribution companies. Long-term core investments may take a hit. It might also make
private investors opt for franchisee models to overall privatization model. However to compare
these two models particularly in distribution sector, it is necessary to compare them
individually based on their concerns and present issues.
[45]
The PPP Model:
(1) Complexity of Model: Structuring the PPP Model is comparatively difficult and many
practical issues as well as lawful matters and regulatory matters need to be addressed by
the state Government. This makes PPP model slightly complicated than Franchisee Model.
(2) Political Resistance: Considerable opposition against privatisation of public services may
threat on acceptability of the model.
(3) Tariff Regulations: PPP model being purely business model, the superiority and reliability
of services might require charging slightly higher tariff particularly in urban areas.
The Franchisee Model:
(1) Distribution License and Regulator: A DF undertaking electrical distribution without the
License in urban area does not comply with Sec. 12 of the EA, 2003. Consequently, they
are not regulated by SERC, thus creating a regulatory gap with legal obligations resting
with Discom whereas control of distribution operation is passed to the DF. The DF does
falls under the purview of jurisdiction of SERC and its obligations remains limited only up
to the contractual agreement with the DL.
(2) Capital Investment: The trickiest part of the DF model, wherein it has to deploy additional
funds based on the contractual agreement on capital investment for performance
optimization. The quantum of funds that DF has to invest year by year is based on the
initial assessment of the distribution assets which in most cases differ with the actual
requirement when the DF takes over the operations.
(3) Energy requirement: Since the power requirement in the franchisee area is delivered by the
DL, it has to take care that the operations of DF do not suffer due to DL. The DL‘s
commitment on entering long term PPA or arranging approvals of power requirement from
SERC is necessary for DF performance and quality of supply in the franchisee area.
(4) Open Access: The power procured by consumers under open access or by franchisee under
open access must have proper agreement among them and the licensee on the application
of wheeling charges and/or distribution charges. The mechanism for enabling and
enforcing these provisions involving all the three entities is more complex particularly for
their impact on the input rate.
(5) Documentary Support: The franchisee model being and evolving model needs much more
learning from the experience therefore requires respective authorities and government to
structure bid documents with mandatory provisions of the Act.
Two expert groups set up by the Planning Commission to suggest ways to reduce losses of
power utilities have come up with contradictory recommendations, reflecting the dilemma
faced by the authorities in introducing power reforms.
[46]
The high-level panel on financial position of distribution utilities, chaired by former
comptroller and auditor general V.K. Shunglu, has recommended the franchise model for
public entities involving private companies in power distribution. This runs contrary to the
views of a sub group headed by Planning Commission member B.K. Chaturvedi, which
favours the public private partnership (PPP) mode over the franchise model.
B. K. Chaturvedi Committee V. K. Shunglu Committee
Views on Franchisee Model
Not Regulated DF reports to DL who is regulated
Questions on Legal validity of the model Legal validity proved in court of Law
May not make Capital Investment Most of DF have made Capital Investment
Does not ensure quality and quantity Happy consumers lead to better revenues; these
features are already taken care in DF
No financial stability in long run Financial stability as revenue is directly linked to consumers
Has not lead to more competition and open access Competition is based on easier eligibility and
more participation
Not the right way ahead Sufficient experience in the model and should be
expanded to all 255 cities
Views on Public Private Partnership (PPP) Model
Tariff models to be revised; losses can be curtailed Separate tariff within state is more contentious
Tariff based revenue model to attract private
companies
Will need repeated tariff hikes and clearances,
no loss reduction effort
Government supports private players State government lacks funds to support private
players
Competitive bids to ensure financial stability Eligible participation will be limited, bids could be skewed
Right way ahead Complicate asset sharing among Govt. and
Private entity, financially stressful and hence not feasible.
Table 6: Chaturvedi Committee and Shunglu Committee
3.6. Input based Private Participation – Right model of DF
While these models serve as guides for laying down the roles and responsibilities of a
franchisee and correspondingly, the roles and responsibilities of the franchiser, an actual
franchise agreement needs to be tailored to meet the specific requirements that make a
franchise agreement attractive for the franchiser and viable for the franchisee at the same time.
In other words, a franchise model should strike the right balance between the interests of the
franchiser and those of the franchisee.
A suitable mix of the roles, responsibilities and performance indicators needs to be chosen
corresponding to the extent of operational and management control that the franchiser is
willing to pass on to the franchisee. Structuring of the franchisee model will address risk
[47]
sharing between franchisee and utility and therefore, the compensation structure for the
franchisee. Here it is quite important that the party who has the control on the risk should be
asked to bear the risk. Any over and under risk situation should be avoided. A fine balance will
have to be struck between the complexity of measuring specific parameters and the fact that all
risks are subsumed when the franchisee purchases power at a single point at a pre-specified
bulk rate.
Overall, Input based Distribution is a win-win scenario for all – Utility, Franchisee and
Consumer.
3.7. Risk Profiling in Distribution Franchisee
It is to be noted the risk involved in taking over of such distribution area is immense and
should be analysed beforehand. The risk involved is categorized into operational & financial
risk, the details of which are described in the sections below.
Operational Risk:
(1) Supply Security: Growth pattern of consumption would finally be a decider in the energy
requirement of the franchised area, which is uncertain and cannot be estimated accurately
for a particular period. If the growth is higher and the energy requirement goes beyond the
committed energy input it would pose a high risk to the Distribution Franchisee.
(2) External Power Purchase: Although there can be an option of external power purchase if
it is provided by the utility in the RFP, it should be kept in mind that the rates at which
power is available in the market is very high and dependence on external power purchase
for requirement over and above the committed by utility would pose a serious risk.
(3) Distribution Loss Target: The loss target defined is dependent on the baseline
distribution loss. Losses claimed by the utility in the RFP document might be much lower
than the actual losses due to under reporting. If this baseline loss gets changed and goes up
then the achievement of the target would be very difficult.
Utility / Discom
•Revenue Protection –Input Rate
•Assured efficiency improvement –AT&C
•Increased capex–No commitment from utility
•Better network condition/ customer service
•Avoided Costs –O&M, A&G, Capex
Franchisee
•Alternative to entry into business without licensing/ privatization
•Non-regulated, high returns if efficiencies betteredFlexibility –Investments, Processes, Manpower
•Opportunity to integrate and capitalize on other synergetic business areas
Consumer
•Improved quality & reliability of supply
•Quick redressalof faults
•Better & new tech. interfaces –Bill payment
•Faster/ improved compliant resolution
•Faster new connection/ load enhancement
[48]
(4) Investment plan: The investment plan is estimated based on the cost effectiveness of loss
reduction measures. If the measures undertaken do not lower the loss due to untimely
implementation there would be a huge impact in the revenues and cost of the distribution
franchisee. In addition to this, the risk of non‐approval of the investment plan would result
in either investment in capital expenditure projects being shelved or refund of depreciated
value of the investments not being allowed at the end of the tenure of the DF.
(5) Modern Metering Implementation: It has been seen that use of newer technology in
metering such as electronic metering result into resistance by the consumers due to the
immediate jump in consumption due to the accuracy of metering vis‐à‐vis the legacy of
slow and inaccurate mechanical metering. This resistance can create repercussions in the
implementation of electronic metering and revenue losses thereof.
(6) Administration of Employees: The distribution franchisee may have an option of
replacing or retaining all employees. But reduction of employees could affect the
operations of distribution franchisee and also replacing them with new employees‘ poses a
risk of lack of knowledge of networks and consumers by the new employees.
(7) Resistance from outside: The utility employees would resist the change in administration.
Hence the takeover has to be smooth to reduce the risk of resistance of employees. There
can be resistance from the consumers as well.
Financial Risk:
(1) Reliability of baseline data: The reliability of baseline data would hamper the financial
working and assumptions made for arriving at the bidding rates. The risk in inaccuracy of
baseline data exists in all the electricity distribution business in the country and cannot be
relied on fully although the MIS systems state utilities are quite strong. Therefore,
appropriate risk factoring needs to be done at the financial analysis stage.
(2) Collection Efficiency: The data for collection efficiency specifies that the collection
efficiency at times is even above 100% since it cannot be bifurcated into collection for
current bill and arrears. Further, since the target for collection efficiency is very high as
compared to collection efficiency existing in any utility in the country, achieving high
collection efficiency for the entire tenure would be a major risk for the distribution
franchisee.
(3) Load Growth: The growth of consumer load and sales has to be estimated practically to
get a proper revenue stream to sustain the business model of franchisee. If the growth
estimate goes wrong, that may result in lower revenues.
[49]
Risk Allocation Framework:
Risk Type Main
Risk
Bearer
Comments
Pre-operative/
Construction Risk
NONE The DF was an operating business at the time of handover.
Therefore, not applicable.
Procurement Risk DL, DF DL is obligated to supply the agreed quantum of power in absolute terms and at the agreed input rate payable by DF. The DF may
procure power from other sources for any shortfall.
Tariff Risk DL, DF The tariff charged to the consumer is regulated. At the same time, the input rate i.e. the cost of power purchase is indexed to the changes in
the consumer tariff. Thus in case of an increase/ decrease in tariff,
the input cost for the franchisee will also increase/ decrease in line with the formula prescribed in the DFA. However, on a net basis,
there will be some impact on the cash flows of the franchisee.
Market Risk DF The market risk in terms of power consumption, consumption growth, and consumer mix in the Franchise Area is borne by the DF.
Since the input rate bid by the DF is based on projections with
consumer mix and consumption growth assumptions, non-achievement of the same can adversely impact the franchisee cash
flows.
However, the DF is the exclusive franchise in the franchisee area and hence is not subject to any competition.
Financial/
Receivables risk
DF The onus of collection efficiency during the applicability of the DFA
is on the DF. This is including both past and present arrears with incentivized payments.
Risk due to
erroneous Baseline
data
DF The findings of the joint audit conducted post-selection of DF may
differ from the baseline data provided by DL. DF was allowed to conduct a due diligence of its own in the franchise area.
Socio-political risk DF Since the DF becomes the point of contact for consumers, any
dissatisfaction on account of action / inaction by the DF can lead to instances of opposition or resistance and political pressures. For
example, load shedding can lead to discontent among the consumers.
In such a scenario there may pressure from the state to ensure regular supply. As a result the franchisee may have to purchase expensive
traded power from the market.
Force majeure DL In case of force majeure event, no party is liable for performance of obligations under the agreement. However, in case of prolonged
force majeure, the agreement may be terminated by either party,
whereby assets would be transferred to DL against an expiry payment from DL.
Table 7: DF; Risk Allotment Framework
[50]
Chapter-4: DEPLOYMENT PROCESS OF DISTRIBUTION FRANCHISE
The Public-Private Partnership (PPP) models have been most important for distinguished
development of state infrastructure. Government of India have also promoted many schemes
involved in ‗Viability Gap Funding‘ under which the Government shall provide 40% of the
project funding to the state Government for various projects whilst the State Government shall
bear 50% of the project cost. The federal structure of the state is not sufficiently capable in
preparation of Feasibility and relevant reports as well as selection of appropriate private partner
for such projects. The state Governments hence can involve other firms and agencies in the
advisory role for deployment of such projects under PPP mode. This includes procedure of
Feasibility Study, Expression of Interest documents, Request of Proposal documents, Project
Information Memorandum, Eligibility Criteria, Pre-bid meetings and conferences,
Shareholders Agreements, Concept and Development Agreement, Inviting and Evaluation of
Bid documents and Selection of suitable Partner Agency to carry out relevant infrastructure
project. The process has to be carried out in an accountable and transparent manner as specified
by the Government of India VG Funding Scheme. Such Advisory Agencies who would carry
out the process is eligible to receive Professional fees for all the above processes as well as
Success Fees at the end of successful deployment of the selection of process. Usually the ratio
of Professional fees and Success Fees are 60:40 and is the range of 1.6-1% of the project cost
for projects above ₹ 100 Cr. and 2-3% of the project cost for project up to ₹ 100 Cr. Additional
study if required for successful implementation of project is charged separately. The fee
charged by the Advisory Agencies is normally considered as Project cost and is recovered from
the Private Partner Agency. However such Advisory Agency is required to abide rules of the
State Government and must undergo periodic evaluation.
4.4. Advisory Role of IL&FS
4.4.1. Memorandum of Agreement
The Memorandum of Agreement is signed between Jharkhand Industrial Infrastructure
Development Corporation (JIIDCO) which is a Government of Jharkhand undertaking
established with an objective of facilitating Industrial growth and activities for attracting mega
industrial projects, Government of Jharkhand (GoJ) and IL&FS Ltd. to create a special purpose
company Jharkhand Infrastructure Development Corporation Limited (JINFRA) with a 50:50
Joint Venture among them.
JINFRA sent its Proposal for Advisory Services for Distribution Franchisee in Urban areas of
Dhanbad, Jamshedpur and Ranchi in Aug-2010. The proposal was appropriately taken up
under Jharkhand State Electricity Board (JSEB) resolution in Aug-2010 and consequently to
Principal Secretary, Energy Department, GoJ in Mar-2011. Following the process, the Letter of
[51]
Intent was awarded to JINFRA in Apr-2011 for providing consultancy services for selection of
Distribution Franchisee in the three cities. The LoI from JSEB as well as MoA signed between
JSEB and JINFRA in Sep-2011 featured following basic terms and conditions:
Establishing Baseline Data: The baseline data for the cities shall be compiled by JINFRA
including Energy received at input points in MU, Revenue assessed, Revenue billed,
Revenue collected, percentage T&D loss, percentage collection efficiency and percentage
AT&C Loss.
Developing Financial Model: A financial model estimating revenue generating for next 10-
15 years, expected cost structure, expected annual load growth, bulk supply tariff (BST)
with calculation and AT&C loss reduction trajectory for next 10-15 years.
Finalization of Bid Document: The document stating the structuring of Franchisee
appointment, scope of work of Franchisee, CAPEX commitment of system strengthening,
Network growth in the area, support from distribution licensee (in this case, JSEB) and
envisaged financial arrangement such as payment structure, sharing of profit, etc.
Managing Bid Process: The process includes preparation of Request for Proposal (RFP)
and Distribution Franchisee Agreement (DFA), inviting of bids, submission of bids and
analysis of bidders to JSEB, assist JSEB in providing clarifications to the queries raised by
the bidders during pre-bid conference or during the process, amend RFP and DFA
accordingly if required, analysis and evaluation of technical and commercial bid documents,
shortlisting of bids, evaluation of financial bid documents, recommending selection of
successful bidder and assist in signing the contract agreements with the Franchisee.
Distribution Franchisee Agreement: DFA must cover typically Scope of work, Term,
Performance Guarantee, Supply of Energy, Distribution asset capital investment, Treatment
of Arrears, Treatment of employees, Payment to utility/distribution company, wheeling
charges, penalty, Treatment of subsidy, etc. as well as other roles and responsibilities of the
Distribution Franchisee and Utility/Distribution company.
Fees: The fees for providing the services shall be paid per cities on a milestone basis on
progressively percentage of work as under:
Sr. Milestones % of Prof. fees
1. Preparing of RFP, DFA and inviting bids. 15%
2. Pre-bid conference, receipt of bids, opening and evaluation of technical bid documents.
10%
3. Opening and evaluation of commercial bids. 15%
4. Recommending JSEB on awarding DF 30%
5. Signing of DFA 20%
6. Handing over the Distribution Franchisee 10%
Table 8: Fees disbursement on milestone basis.
[52]
The fees related to the research work and team, out sourced experts and additional
consultants, expenses towards travel, accommodation, etc. shall be borne by JINFRA
whereas taxes on the fees, hiring conference halls for bidders meet, seminars, promotional
material and publications, tender notices in media, etc. shall be borne by JSEB and
reimbursed after recovering from successful bidder. Similarly Success fee shall be payable
after realization of successful bidder per town.
The above fees shall still be payable to JINFRA in the event of Force Majeure events,
change in applicable laws, termination on JSEB account of default or JSEB decision to
abandon the project.
Timeline: Three months after signing of agreement provided JSEB shall furnish all
necessary data, clearances and approvals within three days of freezing bid documents.
Security Deposit: 5% of the total fees to paid to JSEB partially in form of DD, partially in
form of Bank Guarantee at the time of executing the contract and remaining deducted by
JSEB from the running bills. The same shall be released without any interest within 1 month
of satisfactory completion of work envisaged in the contract. Similarly 1% of Professional
fees shall be charged per month of delay subject to maximum 5% of Professional fees.
4.4.2. Summary of Role of JSEB
(a) To facilitate JINFRA in co-ordination with concerned State Government departments,
agencies for specific project work, approvals on issues related to project clearances,
project agreements, permits, licenses, sanctions, No objections, fiscal concessions, etc. as
required.
(b) To share requisite information available with JSEB or any public agency of the
government required from time to time for successful implementation of the project.
(c) Nominate a nodal officer of appropriate capacity for co-ordination for successful delivery
of the project.
(d) Effortful ascertainment that Government provides JINFRA with its Project Development
Agencies, sub-consultants, representatives and personnel with work permissions and
documents to perform required services and issue appropriate instructions to its officials,
agents or representatives for prompt and effective implementation of the services.
4.4.3. Summary of Role of JINFRA
(a) Services as per Memorandum of Agreement (MoA) between JSEB and JINFRA
mentioned above.
(b) Shall be accountable and responsible for its output and deliverables, keep posted to JSEB
about the progress/problems on regular basis and endeavour to resolve the same in
coordination with concerned authorities and JSEB.
[53]
(c) Contribute human resources with requisite technical or managerial expertise or other
manpower to undertake project identification and development.
4.4.4. Potential benefits to JSEB
Progressive reduction in AT&C loss and improvement in quality of supply, metering, billing
and collection.
Reduction in CAPEX and operating expenses as the same is to be invested by the
Franchisee.
Single entity dealing as a distribution licensee for most of functional responsibilities.
Improved customer satisfaction, industrial and economic activities.
Surplus revenue to State exchequer, increased electricity duty and taxes to the state.
Breakeven of Power purchase cost and revenue realized likely within 3-4 years.31
Estimated aggregate revenue increase after meeting the power purchase expenses as
compared to current level and expected bid price shall be ₹ 1700 Cr., ₹ 550 Cr. and ₹ 250
Cr. respectively for Ranchi, Dhanbad and Jamshedpur for a term of 10 years.
31 Based on the then available data with JSEB
[54]
4.5. Single stage bidding Process
Figure 9: Single stage bidding process
COMMENCEMENT OF FRANCHISEE OPERATIONS
AWARDING DISTRIBUTION FRANCHISE
Letter of Intent Schedule of Obligatory
Conditions Signing of DF Agreement
Joint Audit
EVALUATION OF BID
Identify Technically Qualified Bidders
Comparision of Finacial Proposal
Identify H1 & H2 bidders
RECEIPT OF BID
Technical Proposal Financial Proposal
SALE OF RFP
Start of Sale of RFP Pre-bid Conference End of Sale of RFP
REQUEST FOR PROPOSAL
AT&C Loss Reduction Target
Bulk Supply Tariff Techno-Commercial
Agreements & Obligations
CIRCLE, DIVISONS AND SUB-DIVISIONS
Technical & Commercial Loss Level
Infrastructure Strengthening
Collection Efficiency Revenue Generation
DISTRIBUTION LICENSEE
Area Finalization Data Exploration & Compilation
[55]
4.6. Preparation of RFP
4.6.1. Area Finalization
Most bureaucratic involvement prefers distribution franchisee only for urban area. Practically
most of circles are combination of urban as well as rural area. Moreover areas with non-urban
population also have majority of industrial consumers and HT consumers.
Under the circumstances, it is impossible to differentiate the urban or rural distribution areas
due to seamless mix of urban plus rural plus industrial consumers at least at the feeder level or
more precisely at Divisions‘ level. At JSEB, a process of several round of meeting at various
levels were able to conclude that a distribution franchisee would be awarded at Circle level and
not on the basis of urban area. The process took 2 months in deciding.
4.6.2. Data Exploration
Most of the officers in the JSEB were unwilling to give the data and the level of assistance
from them was not up to the mark. The reason is most of them were not favouring private
participation for distribution system. Most of the data pertaining to meter readings and
commercial revenue collections are to be referred at division level, where in spite of approval
from JSEB the employees preferred to give the raw un-compiled data rather than consolidated
report already made by them. The reason is to remain away from lawful endorsements of the
AT&C figures. The process undergoes several verification and cross verification of same data
at sub-division level, division level as well as circle level, compiling at every stage and
formatting accordingly. A process requires 10 days of activity.
4.6.3. Data Compilation and Finalization Issues
Once the data is compiled and finalized in form of Average revenue collection against Average
revenue billed, the ultimate figure of Collection efficiency and Technical losses thus generated
usually do not conform to similar figures available with the circle offices even by a reasonable
margin. The figures of rural or agricultural consumption keeping in view the impact of subsidy
figures normally do not tend to tally easily because of the un-metered consumer base and un-
segregated feeders. The final figures of technical loss, commercial loss and collection
efficiency and in return the AT&C loss which is of prime significance in the fixing the realized
tariff thus faces the first hindrance at this very stage. The loss figures as calculated by the
distribution licensee are often at substantially lower level then actually are. Even the processes
by which these figures are arrived at are based on the raw un-compiled feeder wise meter
reading available at sub-division offices which are unaudited and possible manipulated. Thus
even the loss figures and collection efficiency referred in the RFP document for a particular
circle could also substantially differ from the actual ones. The RFP document though insist the
bidders to undergo reassessment of relevant figures as per their bases, however investing both
[56]
time and money in the process at pre-bidding stage requires quick and detailed analysis than
SEB‘s effort32
.
4.7. Request for Proposal (RFP) – Contents and Articles
The Request for Proposal (RFP) is the most crucial bidding document that decides the
participation of bidders and the expected financial and operational viability of the project. As
of now, there is still an uncertainty on legal commendation on urban distribution franchisee.
The reason is more related to universal consensus among SEBs and Regulatory Authorities
over the agreement on the issue. Bearing one or two documents on RFP for Distribution
Franchisee, both CEA and CERC are in the process of standardization of RFP document. An
un-authenticated sample document on ‗Appointment of Distribution Franchisee‘33
with CEA
and ‗Final Report of Standardization of Distribution Franchisee Model‘34
by FoR are presently
only two reference documents based on RPF apart from those Discoms35
mentioned earlier that
have already implemented the model. As of the latest development, Ministry of Power (GoI)
have finally formulated ‗Standard Bidding document for Appointment of Input based Urban
Distribution Franchisee‘36
in June-2012 for facilitating the process at State Level. Factors that
affects successful deployment of urban franchisee model is:
The commercial viability of the project particularly its incentive structure.
Effective backing and monitoring of Distribution Licensee.
Awareness among area consumers and related authorities.
Generally parameters that are mapped for the contractual agreement and upon which
framework of RFP is based are:
Franchisee Area Billing and Payment mechanism
Information in the bidding documents Treatment of Duty and Taxation
Cost of the Bidding process Tariff Indexation
Pre-qualification criteria Treatment of employees
Consortium / Joint Venture Treatment of existing contracts
Capital Investment Handling of offices and other assets
Evaluation Criteria Adherence to Performance benchmarks
Contractual period Audit and Inspection
Baseline parameters Penalties
Performance benchmarks Incentive on Collection of Arrears
Supply of Energy Termination of contract
Energy Procurement from other sources Responsibility/Quantum of Investment
Table 9: Parameters mapped in RFP framework
32 Refer: Sec. 3.2.4 , figures during the initial years after the Torrent Power Limited took over the operations. 33 Available at CEA website, not referred as Standard CEA document. 34 Sep-2010 report, prepared by Feedback Ventures Pvt. Ltd. for Forum of Regulators (FoR) [8] 35
States Discoms of Maharashtra, Uttar Pradesh, Bihar and Madhya Pradesh. 36 June-2012 document not uploaded officially on public domain as on July-2012, hardcopy circulated to various
stakeholders for reference and comments which incidentally is taken from above mentioned Sep-2010 report by
Feedback Ventures for FoR.
[57]
4.7.1. Definitions and Abbreviations
Definitions and explanations of all the terms and abbreviations used in the document constitute
the opening section of the RFP document. A small sample calculation is also illustrated while
defining terms such as AT&C loss, etc. in this section.
4.7.2. Introduction
Introduction section consists of brief description of the franchisee area preferably with a map.
This consists of some details about Jharkhand State Electricity Board (JSEB) like
Present Registered consumers: 20.34 Lacs.
Present Effective consumers: 16.77 Lacs.
Electricity Supply Area: 6
Total Supply Circles: 13
Total Supply Divisions: 39
Presently Approved ARR by JSERC37
: ₹ 2588.8 Cr. for FY 2011-12.
Revenue from sale of Energy and Non-tariff Income: ₹ 2136.8 Cr.
Revenue Deficit: ₹ 452.1 Cr.
Formation and Role of JINFRA in bidding process.
Description and details of Franchisee Area as mentioned below:
AT&C Loss Level:
The present AT&C Losses in Franchisee area are around 40.55% for the base year 2010-11.
The sample calculation of AT&C loss with illustration is explained in Section: 7.1.
Details of Distribution divisions:
Circle Division Sub-Division
Ranchi East Ranchi Ormanjhi, Tatisilwai, Bundu
West Ranchi Ratu Road, Ratu Chatti, Mandar
New Capital Ranchi Upper Bazar, Kanke
Central Ranchi Main Road, Ashok Nagar, Harmu
Kokar RMCH, Lalpur, Kokar
Doranda Doranada, HEC Dhurwa, Tupudana
Khunti Khunti, Torpa
Table 10: Ranchi Circle; Distribution Divisions
Details of Distribution Infrastructure:
Particulars U/M Ranchi Circle
132/33 KV EHV Substation Nos. 2
33/11 KV Substations Nos. 43
33/11 KV Substations Capacity MVA 560
33 KV Feeders Nos. 69
11 KV Feeders Nos. 122
37 JSERC Tariff Order of July-2011, Sec. 7 of 2011 [14]
[58]
33 KV Overhead Line C km. 753.75
11 KV Overhead Line C km. 5115
33 KV Under Ground Line C km. 3.25
11 KV Underground Line C km. 21.5
LT Overhead Line C km. 61662
LT Underground C km. 0
33 KV Lines Poles Nos. 9799
11 KV Lines Poles Nos. 61380
LT Lines Poles Nos. 1110027
11 kV/ 400 V DTS Nos. 3662
Table 11: Ranchi Circle; Distribution Infrastrucuture
Details of EHV Substation and Load:
Sr.
No. Name of EHV S/S
Installed
Capacity
Maximum
Demand
Nos. of Outgoing
33 kV Feeders
1. 132/33 kV GSS Namkum & Hatia 300 MVA 200 MVA 20
Table 12: Ranchi Circle; EHV Substations & Load
Consumer Profile:
Sr.
No. Consumer Category
No. of
Registered
Consumers
No. of
Effective
Consumers
Connected
Load in MW
Million Units
sold as on
31-Mar-2012
1. Domestic 2,67,017 224,036 322.076 461.59
2. Commercial 40,044 25,293 86.962 106.76
3. Industrial LT 5,382 2,223 36.199 40.29
4. Industrial HT 345 324 305.175 330.35
5. Public Lighting 450 213 4.632 76.22
6. Irrigation 5,591 4,779 5.034 10.29
7. TOTAL 3,18,829 2,56,868 760.078 1,025.50
Table 13: Ranchi Circle; Consumer Profile
Details of Energy and Revenue:
Year
Energy
Input
(M.Units)
Energy
Billed
(M.Units)
Revenue
Billed
(₹ Million)
Average
Tariff
(₹/kWh)
Revenue
collection
(₹ Million)
Average
Revenue
Realization
(₹/kWh)
2006-07 1113.93 611.37 1939.24 3.17 1558.10 1.40
2007-08 1205.66 665.29 1979.16 2.97 1729.30 1.43
2008-09 1361.42 784.11 2224.50 2.84 1946.70 1.43
2009-10 1402.46 898.62 2501.32 2.78 2229.50 1.59
2010-11 1500.24 1025.50 3131.91 3.05 2723.80 1.82
Table 14: Ranchi Circle; Energy & Revenue
[59]
Details of Work in Progress in Ranchi Town for the month of July-2012:
Sr. No. Particulars Work in Progress
1. 33 kV Line 0.5 km
2. 11 kV Line 22.2 km
3. LT Lines 26 km
4. 11 kV/440 V DSS 66 Nos.
5. Domestic/ Commercial Connections 7656 Nos.
6. Industrial Connections 126 Nos.
7. Capital under Maintenance
Transformer Burnt Transformer Replaced
Conductor Replaced
200 Nos. 168 Nos.
4.5 km
Table 15: Ranchi Circle; Work in Progress
Details of CAPEX planned under Part-A of R-APDRP for Ranchi Town:
Sr. No. Particulars Amount in ₹
1. Geographical Information System (GIS) 37,620,600
2. Metering 4,815,000
3. Automatic meter Reading (AMR) 24,802,050
4. IT based Billing and Collection System 1,097,100
5. Centralized Customer Care services 318,097
6. Networking and communication Infrastructure 10,16,41,086
Table 16: Ranchi; CAPEX under part-A of R-APDRP
Details of CAPEX planned under Part-B of R-APDRP for Ranchi Town:
Sr. No. Particulars Amount in ₹
1. Renovation and strengthening of 11 kV Level
Substations
75,00,00,000
2. Renovation, Modernization and strengthening of
Transformers/Transformer centres
90,00,00,000
3. Re-Conductoring of 11KV and below lines 60,00,00,000
4. Feeder Separation 55,00,00,000
5. Load Balancing 25,00,00,000
6. Aerial Bunched Conductoring 75,00,00,000
7. Installation of Capacitor Bank 20,00,00,000
8. Strengthening of 33/11Kv Lines 25,00,00,000
9. Replacement of defective Energy meters with
Electronic meters
50,00,00,000
Table 17: Ranchi; CAPEX under part-B of R-APDRP
[60]
Details of agencies appointed for IT implementation R-APDRP for JSEB Area:
Sr. No. Particulars Agency
1. IT Consultant (ITC) Wipro Limited
2. IT Implementation Agency (ITIA) HCL Infotech
3. SCADA/DMS Consultant (SDC) Tata Consulting Engineers
4. SCADA/DMS Implementation Agency (SDIA) In process of finalization
The process is scheduled to be completed by Sep-2014
Table 18: JSEB; IT implementation of R-APDRP
4.7.3. Project Description
The most important part in this section is the role and responsibilities of DF and the support
given by the Distribution Licensee, JSEB in present case during term of agreement. These
details have been reproduced in subsequent Section: 4.7.4 of this report.
The section also mentions the successful bidder entering into Distribution Franchisee
Agreement (DFA) with JSEB for the Term of Agreement of 15 years from the Effective date
of commencement of operation. The Base-year shall be FY 2011-12 for the project.
4.7.4. Roles and Responsibilities of DF and DL as mandated in RFP document
Brief Roles and Responsibilities of successful bidder/Distribution Franchisee:
(1) Undertaking all the liabilities and obligations of the Distribution Licensee in the
Franchisee Area as set forth in the License and as stipulated in Electricity Act, 2003 and
corresponding regulations, as if the Distribution Franchisee were the original Licensee;
(2) Discharging all duties and responsibilities on behalf of JSEB as per the terms and
conditions of the license.
(3) Undertaking any other activity as may be notified from time to time by JSERC to
Distribution Licensee;
(4) Complying with all the directives issued from time to time by JSERC and the instruction
issued by the JSEB.
(5) Undertaking the distribution and supply of power to the consumers of JSEB in the
Franchisee Area.
(6) Undertaking all Operations and Maintenance related activities in the Franchisee Area.
(7) Maintaining the existing distribution network and replacing failed distribution
transformers and defective meters within the prescribed time frame including repair of
the same.
(8) Administering and maintaining the on-going contracts. Normally, the Distribution
Franchisee will honour all the contracts executed by JSEB. In exceptional circumstances,
JSEB may cancel the on-going contracts as per the terms and conditions of the contracts
entered into by JSEB, except the contracts for capital expenditure, if requested by the
[61]
Distribution Franchisee. In such event JSEB will bear all the liabilities and third party
claims accrued prior to the Effective date. But all the expenditures/ claims arising on
account of premature contract will be borne by the Distribution Franchisee. Distribution
Franchisee will also be liable to honour the decisions/ orders of the Arbitrator/Court in
this regard. In case of Contract transfers to the Distribution Franchisee, if there is delay
or the contractor abandons the on-going project, then JSEB shall not be responsible for
such act and no compensation shall be allowed to Distribution Franchisee whatever
circumstances may be. In the event of non-performance of any Contractors either
appointed by the Distribution Franchisee or JSEB (in case of transfer of Contract after
the Effective Date) in execution of work for which it has been appointed, JSEB on its
own with sufficient justification may terminate any of the Contracts and get the desired
work done by itself at the risk and cost of the Distribution Franchisee;
(9) Undertaking reading of meters, Generation of the bills, distribution of the same and
payment collection from the consumers in the Franchisee Area, as per the retail tariff
structure determined by JSERC and abiding by the Conditions of Supply laid down under
the license conditions thereof;. The Distribution Franchisee shall install the software
which shall be limited for the purpose of billing only. The billing software installed shall
be in complete sync with the other software installed by Licensee i.e. Metering, Energy
auditing etc. through R-APDRP programme. If the Distribution Franchisee uses JSEB‘s
IT systems for billing the Consumers, separate charges for the same shall be payable.
(10) Making payments to JSEB as per the terms and conditions hereof and as more
particularly set forth in the Distribution Franchisee Agreement (DFA)
(11) Collection of arrears as an agent of JSEB, and remittance of the same as per the terms
and conditions of the DFA;
(12) Distribution Franchisee is required to maintain and up-grade the consumer service centre
as per JSERC/JSEB‘s specifications given from time to time;
(13) Redress Commercial and Billing Complaints.
(14) Allotting new connections and carrying out all necessary activities for release of the
same;
(15) Maintaining consumer database and billing records as per the format prescribed by JSEB;
(16) Generating Management Information System (MIS) periodically and monitoring reports
in prescribed formats and online communication of the same to JSEB.
(17) Installing leftover metering devices and carrying out energy audit on monthly basis and
submit the report of the same to JSEB.
(18) Carrying out periodical demand estimation / load forecasting and apprising JSEB of the
same;
[62]
(19) Maintaining rolling stock of transformers and other necessary material as to meet the
necessary standard of Performance as per the order and regulation of JSERC;
(20) Upgrading, renovating and maintaining the existing distribution network/ systems/ assets
as per Prudent Utility Practices and the standards that may be prescribed by JSERC.
(21) Initiating necessary action, in accordance with the Electricity Act, to prevent the theft of
power, interference with meters and extinguishing public lamps, theft of electric lines
and material etc.;
(22) Paying applicable charges to JSEB in case power is brought into the Franchisee Area
from sources other than JSEB;
(23) To invest minimum capital expenditure (investment plan spread over a period of 5 years)
of ₹ 160 Cr. The Franchisee shall roll out its investment in such way that at least 10% of
the minimum investment plan is spent every year for the first five years of the contract
period;
(24) The Distribution Franchisee shall also be responsible for implementation of work as
approved under the Part-B of R-APDRP Programme. Distribution Franchisee shall be
responsible for timely implementation of such projects. Distribution Franchisee shall
intimate on a monthly basis the progress of the Project to JSEB.
(25) As an integral part of R-APDRP Scheme, the Distribution Franchisee shall be responsible
for achieving AT&C loss level over the period of franchising as per the trajectory
specified in the RFP. DF should take into account the desired loss level to be achieved
year wise while quoting for the Annualised Input Rates. Bidder should also factor into
their Input Rate calculation, the cost impact of utilizing the R-APDRP funds as a form of
capital expenditure for system augmentation & improvement.
Support given by Distribution Licensee/JSEB:
(1) JSEB shall supply the power at Input Points as per its aggregated power supply and load
shedding schedule planned periodically, based on instructions of SLDC/directives issued
by JSERC on load shedding and availability of EHV transmission capacity at Input Points.
(2) JSEB shall communicate to Distribution Franchisee any shortfall or inability to supply the
scheduled power load sanctioned to the Distribution Franchisee.
(3) JSEB shall carry out the meter reading activity jointly with Distribution Franchisee on a
monthly basis at input point of the Franchisee Area.
(4) JSEB will endeavour that the deployment of R-APDRP Funds is aligned with the loss
reduction program to be undertaken by Distribution Franchisee and set up a joint
monitoring mechanism along with Distribution Franchisee to ensure both timely
implementation as per plans and course corrections, if any.
[63]
4.7.5. Instruction to Bidders
The Bidding Entity:
Must be registered under the Companies Act, 1956.
A consortium of max. 2 companies can participate out of which one company would be
nominating itself as Lead Member. The purpose of this provision is to encourage
participation in the process by the companies which do not have technical expertise in
power sector but are financially capable or vice versa. This is required since private
participation in power sector is yet in nascent course.
The successful bidder shall have to create a Special Purpose Company to execute DFA.
The Timetable and Milestones:
Sr. No. Milestone
Date
Schedule
Date up to
15:00 Hrs (IST)
1. Commencement of Sale of Bid documents D 30-Apr-2012
2. Pre-bid Conference D + 35 4-Jun-2012
3. Last Date of Sale of Bid documents D + 50 19-Jun-2012
4. Last date of submission of Technical and Financial Bids
(Bid Due Date)
D + 65 04-Jul-2012
5. Opening of Technical Proposal/ Bids D + 65 4-Jul-2012
6. Opening of Financial Proposal/ Bids D + 85 24-Jul-2012
7. Completion of Bid Evaluation and Issue of LoI D + 95 3-Aug-2012
8. Acceptance of LoI and submission of Bank Guarantee by successful bidder
D + 110 18-Aug-2012
9. Signing of DFA D + 125 02-Sep-2012
10. Precedent conditions/ formalities to be completed D + 215 01-Dec-2012
11. Effective date D + 216 02-Dec-2012
12. Subsequent conditions/ formalities to be completed D + 306 02-Mar-2012
IMPORTANT: If the notified day falls on Saturday/ Sunday/ Holiday, then the next working day
shall be considered. Bidders are requested to keep checking the updated schedule on the website of
JSEB.
Table 19: DF; Bidding Process Timetable
Validity and Withdrawal of bid
180 days after the Bid due date mentioned above. The date has to be mentioned explicitly in
the proposal documents. Bids can be withdrawn by delivering the written notice to JSEB
before the Bid due data mentioned above in a sealed envelope marked ‗WITHDRAWAL‘.
The Equity Holding/Lock-in in Special Purpose Company:
Company
Structure
0-3 years 3 -15 years Remarks
Individual
Company
= 100% >= 51% <= 49% divested to not
more than 2 new members.
[64]
Consortium Lead member: >=74%
Other member: <=26%
Lead member: >=51%
Other member/s: <=49%
Required to sign Joint
Bidding Agreement and
Power of Attorney to Lead member by other members.
Table 20: Bidders; Equity holding
Submission of Technical Proposal:
Envelope-1: TECHNICAL PROPOSAL
[in Original + Duplicate + CD, in three sets of sealed envelopes marked appropriately]
Section-1 Covering Letter. Comprises the participation in bid and accepting terms and
conditions as in RFP.
Signed by: Bidder in case of an Individual company or Lead Member in case of a Consortium.
Demand Draft / Original
Receipt of Processing Fee.
Amount: ₹ 2 Lacs
DD in case if bid document is downloaded from JSEB website,
Original Receipt in case if purchased from the office of JSEB.
Bank Guarantee for Earnest Money Deposit
(EMD)
Amount: ₹ 50 Lacs
Issued and Signed by: Bank against the Bid Security Deposit undertaking to pay the said amount unconditionally, if Bank
Guarantee is revoked.
Validity: 270 days from bid date with claim period of 90 days. To be Returned within 30 days of issue of LoI or 60 days of
expiration of bid validity period which ever earlier for non-
successful bidders except H2.
For H2 bidder, to be returned within 30 days of signing DFA by H1 bidder.
Section-2 Description of Bidding
Company or the Bidding Consortium.
Contains details such as companies incorporation details,
Contact, Authorized person, etc. in the prescribed format. In case of consortium – additional details of the participating
members, their role and equity sharing among them.
Section-3 Letter of Acceptance.
States the understanding and acceptance of RFP. In case of Consortium, authorizing the lead member to perform
the tasks in the project.
Signed by: All member/s of the Company or Consortium
Board Resolution. States that ownership stake in bidding company as well as
financials of the last two years in terms of Net worth, Cash
Accruals and Annual Turnover. Signed by: CEO/MD of the Associate Company participating
in consortium.
Power of Attorney in
favour of signatory of the Bid documents
Authorizing the person to sign the bid documents on behalf
and in connection with the submission of bid. Notarized document, Signed by: Attorney and Executant,
Attested by the Notary.
Power of Attorney in favour of lead member
of the consortium
Authorizing the Lead member to undertake all roles and responsibilities of the project.
Signed by: All members of the consortium in presence of the
witnesses.
Joint Bidding
Agreement (JBA)
Agreeing the formation of consortium with individual role,
Joint Liabilities, Equity shareholding and representation in the
project. Notarized Document on non-judicial stamp paper.
Signed by: The Lead Member and the Associate Member.
Attested by the Notary.
[65]
Affidavit Document Acknowledging the responsibility to have ascertained the base
line data, location, infrastructure, applicable laws, accepting
the risk due to errors and omission in RFP documents and relevant agreement format, etc. through their own sources.
Signed by: Bidder or Lead member as applicable.
Section-4 Information for
Evaluation of Financial Capability of
Bidding Company/
Lead Member OR
Promoter of the
Bidding Company
Name of: Bidding Company/ Promoter of Bidding Company/
Lead Member. In case of Promoter: Relationship of promoter with the Bidding
Company/ Lead Member.
Financial Net Worth in ₹ Cr. as on 31-March-2012.
CRITERIA/ MANDATORY REQUIREMENT:
Minimum ₹ 150 Cr. of [Paid Up Share Capital + Reserves and Surplus – (Revaluation
Reserves, goodwill, miscellaneous
expenses not written off and other intangible assets)]
Audited Annual Turnover in ₹ Cr. for FY 2010-11 & FY 2011-
12.
CRITERIA/ MANDATORY REQUIREMENT: Minimum ₹ 400 Cr. of
[Gross Sales or Gross Revenue]
Audited Gross Cash Accruals in ₹ Cr. for FY 2010-11 & FY 2011-12.
CRITERIA/ MANDATORY REQUIREMENT: Minimum ₹ 75 Cr. of
[Profit after tax + Depreciation]
Audited Annual Reports for the last two years for all the
corporate entities that are considered for evaluation.
Statutory Auditor Certificates.
Certificate of Incorporation (Form I.R).
Certificate of commencement of business pursuant of
section 149(3) of the Companies Act, 1956.
Memorandum of Association of company.
Articles of association.
Information for
Evaluation of Technical Capability of
Bidding Company
OR
Member of Bidding
Consortium
HANDLING RETAIL CONSUMER BASE:
NAME of the corporate entity/s to be considered for Technical
Capability and their:
Equity stake in the Consortium.
Nos. of Retail Consumer served at bid submission.
Nos. of employee at time of bid submission.
CRITERIA/ MANDATORY REQUIREMENT:
Minimum 3 year experience in activities of distribution of
electricity like O&M, billing, metering, revenue collection,
etc. prior to the date of opening of Technical proposal.
Serving at least 1,50,000 Retail Electricity consumers.
Employed and managed average work force of 450 or more
employees in 3 years.
At least, 90 employees (20%) should be on roll of the
bidding company.
[66]
KEY PERSONNEL EMPLOYED:
NAME of the corporate entity/s to be considered for Technical
Capability and their:
Equity stake in the Consortium.
Nos. of Executives on full time basis.
Bio-data/Curriculum Vitae of each of these executives
limited to 2 pages jointly signed by the person and bidder.
CRITERIA/ MANDATORY REQUIREMENT:
Minimum 7 Executives serving of full-time basis.
Minimum educational qualification of B.E/ B.Tech/
equivalent degree in Electrical engineering.
More than 10 years of experience in power sector at the
time of bid submission.
TECHNICAL WRITE-UP, consisting of:
Conceptual Approach, methodology, plan for achieving
performance and schedule for project implementation.
Proposed capital investment aimed at system improvement
and loss reduction.
Documentary evidence for experience in handling
consumer base and employee workforce.
All the pages of the proposal to be signed/initiated with Authorised Signatory
Table 21: Bidders; Technical Proposal
Submission of Financial Proposal:
Envelope-2: FINANCIAL PROPOSAL
[in Original + 2 Duplicates, in three sets of sealed envelopes marked appropriately]
Section-1 Covering Letter. Comprises the participation in bid and accepting terms and
conditions as in RFP.
Signed by: Bidder in case of an Individual company or Lead Member in case of a Consortium.
Section-2 Financial Proposal. Contains year-to-year Reserve/Benchmark Price and
Annualized Input Rate in ₹ per kWh in the prescribed tabular format for the agreement period.
Signed by: Bidder in case of an Individual company or
Lead Member in case of a Consortium.
All the pages of the proposal to be signed/initiated with Authorised Signatory
Table 22: Bidders; Financial Proposal
Proposed AT&C Loss Target, Reduction Trajectory and Reserve Price:
The Year-to-year AT&C Loss Target as fixed by JSEB in Ranchi Circle is as mentioned. Based
on the AT&C loss level in Base year (2011-12) is 40.55% as mentioned in the RFP document,
the trajectory of year-to-year reduction of AT&C loss is also shown here for reference.
Similarly Reserve Price/ Benchmark Price are the minimum Input Annualised Price that every
bidder must quote for that particular year.
[67]
Year
Financial
Year
AT&C Loss
Target
AT&C Loss
Trajectory38
Existing Reserve /
Benchmark Price
Base Year 2010-11 0 % 40.55 % 1.816
1st Year 2013-14 7 % 33.55 % 2.029
2nd
Year 2014-15 7 % 26.55 % 2.243
3rd
Year 2015-16 5 % 21.55 % 2.396
4th
Year 2016-17 3 % 18.55 % 2.487
5th
Year 2017-18 2 % 16.55 % 2.549
6th
Year 2018-19 1 % 15.55 % 2.579
7th
Year 2019-20 1 % 14.55 % 2.610
8th
Year 2020-21 1 % 13.55 % 2.640
9th
Year 2021-22 1 % 12.55 % 2.671
10th
Year 2022-23 1 % 11.55 % 2.701
11th
Year 2023-24 0.50 % 11.05 % 2.717
12th
Year 2024-25 0.25 % 10.80 % 2.724
13th
Year 2025-26 0.25 % 10.55 % 2.732
14th
Year 2026-27 0.25 % 10.30 % 2.739
15th
Year 2027-28 0.25 % 10.05 % 2.747
Table 23: Year-wise AT&C Loss Targets
Verification of Information:
The bidders are encouraged to verify and ascertain the authenticity of the information and base
line data, site condition, location, surrounding, climate, power availability, resources and
utilities, applicable laws and regulation, distribution assets, billing, metering and revenue data.
The careful and minute examination of RFP document, agreement formats and relevant aspects
has to be done by the bidders before preparing the proposals.
JSEB shall not be liable of any omission, mistakes and errors, inadequacy of information in the
RFP document and other informational material related to the project.
Amendment of RFP document:
JSEB may amend the RFP document by issuance of an Addenda; any time before the deadline
of submission of bids; for any reason, whether at its own initiative or in response to the
clarifications request by the prospective bidders. Such addendum shall be put on JSEB website
and hence bidders are requested to visit the JSEB website regularly.
Expense incurred on various bidding activities:
The amount of ₹ 4,750,000 exclusive of taxes in form of Demand Draft/Pay Order of
Scheduled Bank39
shall be paid by the successful bidder to JSEB before signing the DFA. This
38 Not specified in RFP document, calculated here for understanding AT&C Loss Targets. 39 As defined in the 2nd Schedule of the Reserve Bank of India Act, 1934
[68]
payment shall be towards the cost incurred by the JSEB for preparatory activities,
preliminary/detailed survey, data collection and compilation, activities for obtaining various
approvals in the project, invitation of bids, pre-bid conference, receipt and evaluation of bids
and selection of DF.
Term of Franchisee:
The DF Agreement period shall be for a period of 15 years from the Effective date.
4.7.6. Opening and Evaluation of Bid
The section explains in detail the process of opening and evaluation of bids. However the
process is explained here in brief:
(1) Proposal/ Bids received after due date or those with given notice of withdrawal will be
returned back to the owner without opening.
(2) For the remaining bids, envelope marked as Technical Proposal shall be opened and bids
accompanied with Bid security, amount and validity shall be verified including the
confirmation from the issuing bank if required.
(3) Further verification of authorized signatories, relevant certificates, undertaking and bid
documents.
(4) All bids found non-responsive or invalid shall be returned to the owners with Financial
Proposals.
(5) The bidders than are verified for their technical and financial capability on the evaluation
criteria and terms as mentioned above.
(6) The bidders thus fulfilling Technical Capability are now evaluated for Financial Proposal
and their AT&C loss trajectory.
(7) The envelopes for Financial Proposals are opened for evaluation.
(8) The evaluation of Financial Proposals submitted by the Bidders shall be carried out by
comparing the levelised Annualized Input Rate for entire term of DFA, computed at a
Discount rate40
notified by CERC.
(9) The bidder with highest levelised Annual Input Rate is determined as the successful
bidder.
Withdrawal or Disqualification of Successful bidder:
(1) In such instances, the JSEB may annul the entire bidding process or
(2) Alternatively process undergo Second round of bidding in which JSEB invite all the
remaining bidders to extend their bid security and match the bid of the Highest Bidder
(H1).
40 Presently; 11.10% as per 28-Dec-2010 notification of CERC in pursuance of Clause 5.6 (vi) of MoP
notification.
[69]
(3) If only one bidder matches the highest bidder, it shall be the preferred bidder.
(4) If two or more bidder matches the highest bidder, the bidder whose bid value was highest
in the first round of bidding shall be Preferred Bidder.
(5) If no bidder matches the highest bidder in the second round, both first and second of
bidding process is annulled and JSEB invites from all the bidders to extend their bid
security and submit fresh bids except the H1 bidder in Third round of bidding.
(6) In the third round of bidding process, all the bids are considered for evaluation whose bid
value is higher than second highest bidder (H2) in first round of bidding.
4.7.7. Miscellaneous Articles
Fraud and Corrupt Practices:
The bidders, their officers, employees, agents, advisors, etc. shall observe the highest standard
of ethics in the process and during the period of agreement shall not involve themselves into
any kind of corrupt, fraudulent, coercive, undesirable and restrictive practices.
Deputation of JSEB employees:
The DF may depute JSEB employees during the period of contract with all the benefits like
Travelling allowance, Leave and Medical Reimbursements, PF41
and Gratuity contribution,
Transport facility, Accommodation, Loans, Insurance cover, Perquisites, Retirement Benefits,
etc. which the employee was drawing at the time of deputation. The pay would be equal to at
least the total pay drawn prior to the deputation with an additional deputation allowance of
minimum 20% of the basic pay. Above benefits shall also be eligible for periodic increments as
amended by JSEB rules.
Precedent Conditions by DF and JSEB:
These are the conditions met by DF and JSEB during the period between the award of LoI and
the Effective date when the operations are handed over to DF.
(1) Performance Bank Guarantee: Submitted by the DF equivalent to the three months of the
estimated billing amount payable to JSEB.
(2) EMD Refund: Money to be refunded to DF by the JSEB upon receipt of Performance
Bank Guarantee.
(3) Infrastructure roll-out plan: DF shall submit the plan stating the investments to be made to
lower AT&C losses and improve quality of power.
(4) Auditing of Parameters: DF and JSEB shall appoint an independent auditor with 4 months
of DFA to carry out audit on opening level AT&C losses, Collection Efficiency, Average
tariff of the base year, Asset Register, Inventory Register and details of on-going contracts
awarded by JSEB. Audit variation within 10% of the RFP document shall be allowed
41 Provident Fund, employer‘s contribution towards employee‘s post-retirement benefit scheme of GoI
[70]
without adjusting DF proposal, but in case of variation higher than 10%, the independent
auditor shall decide the adjustment in the Financial Proposal submitted by the DF.
(5) Calibration of Meters at input point: Calibration of interface meters shall be done jointly
and Methodology of price variation and computing of AT&C loss for each year shall be
finalized.
Subsequent Conditions by DF and JSEB:
These are the conditions met by DF and JSEB within the 30 days of Effective date when the
operations are handed over to DF.
This shall be completed by the Joint Audit team to verify opening Asset register, opening level
of arrears, segregation of permanently disconnected and currently live arrears, credit balance
from consumers, details of permanently disconnected consumers, calculation of average tariff
and details of charges received against New Connection charges and connection provided.
Term of Agreement:
The term of Agreement shall be 15 years from the Effective date with possibility of renewal
upon written and mutual consent.
(1) Termination: The agreement stands terminated under Event of default either by JSEB or
DF.
(2) Abandonment and Step-in-Rights: The agreement stands abandon if DF fails to provide
power for 48 consecutive hours without valid explanation. JSEB shall execute Step-in-
right and can take over the operations of the distribution system in its control.
(3) Exemption: The agreement shall not be affected in the event of Force majeure, scheduled
outage or non-supply of power from JSEB.
Grant of Distribution Franchisee:
The JSEB agrees to sell/supply the electricity to the DF at Annualized input rate and allow DF
to perform and undertake all roles, responsibilities and obligation under the RFP and DFA. DF
also mutually agrees on the same. The distribution assets will however be owned by JSEB.
DF shall not be required to obtain separate license for the purpose but can appoint sub-
contractors for relevant out-sourcing work with consent of JSEB. The Franchisee area of
operation shall be mapped appropriately with details on existing distribution network,
EHV/HV sub-stations, areas on the basis of tariff and duty, etc. by JSEB.
DF shall comply with directives of JSEB and JSERC regarding laws, regulations and orders.
Capital Expenditure:
[71]
(1) DF shall make minimum investment equivalent to 50% of the total revenue billed in the
base year (₹ 105 Cr., in this case) spread over 5 years subject to at least 10% of the
minimum required investment (₹ 10.5 Cr., in this case) each year of initial 5 years.
(2) DF shall achieve 100% metering at all consumer end, Distribution transformer level and
11 kV feeder within 2 years of effective date.
(3) Capital expenditure by DF shall include replacement of distribution assets that are featured
in the list presented in RPF. The cost of other assets added by DF that do not feature in the
list shall be equally shared by DF and JSEB but the cost shall be ascertained quarterly by
an independent agency appointed by DF with consent of JSEB.
(4) All electrical equipment added by DF shall comply with BEE and energy efficiency
norms.
(5) Appropriate records of such assets and expenditure to be maintained by the DF.
(6) DF can make effort to avail funding from development banks, multilateral funding
agencies, Asian Development Bank, State and Central Government if the option is better
than available options with DF‘s own funding sources.
(7) Upon completion of agreement period, all the assets shall be returned back to JSEB at their
depreciated value whose rate is approved by JSERC.
Inventory of O&M Spares:
JSEB shall hand over the inventory of O&M spares to DF and DF shall compensate difference
between the inventory levels at the end of agreement period to JSEB. If inventory level at the
end of agreement period is less than minimum inventory norms of JSEB, it shall compensate
DF at latest acquisition price.
Supply of Energy:
(1) DF shall be obliged to supply power to the consumers shall be limited to the supply from
JSEB, subject to JSERC/SLDC directives on load shedding. Schedules of load shedding
must be strictly adhered by the DF.
(2) DF may procure power from other sources subject to regulatory provision and JSEB shall
put best effort for approval of such procurement of power. In this case, reliability charges
levied to the consumer may be retained by the DF.
(3) Issues related to cross-subsidy surcharge applicable on purchase of power shall be
presented at the forum level by JSEB at DF‘s expense. However wheeling charges for
using network for distribution in franchisee area shall be payable by DF.
(4) DF shall not sell power to anyone outside Franchisee area.
[72]
4.7.8. Duties and Responsibilities of Distribution Franchisee
Technical:
The DF shall carry out demand estimation, load forecasting periodically and energy audit on
monthly basis up to DT level as per prescribed methodology of JSEB.
The DF shall also perform O&M of distribution assets from outgoing 33 kV feeders at EHV
S/S onwards which includes repair, operate, maintain, upgrade, renovate and replace
distribution assets under prudent utility practice and standards. The planned outage must be
subsequent to the permission and coordination from JSEB and/or concerned EHV substation as
required.
Commercial:
(1) Maintaining consumer database and billing records, meter reading, billing to all the
consumers as per JSERC approved retail tariff and revenue collection from all the
consumers including the arrears.
(2) DF may create a website with software application to get access to the database of
consumers in the Franchisee area.
(3) Initiate necessary action in accordance to the procedures for anti-theft, disconnection and
loss control mechanism.
(4) Undertake meter reading jointly with JSEB at input points on franchisee area on monthly
basis and ensure timely payments to JSEB as agreed upon.
Consumer Services:
(1) DF shall ensure continuous supply of power on feeders that have distribution loss under
15% for three consecutive months.
(2) DF shall also establish Consumer Service Centres (CSC) to handle queries related to new
connection, meter and billing related, disconnection and dismantlement related, supply
related, other service requests and complaints.
(3) The expenditure involved in proving new connection shall be recovered from consumer in
form of Service connection charges (SCC) and the same shall be retained by the DF. The
assets are added in the JSEB Distribution Assets and shall not be compensated by JSEB at
the end of agreement period.
(4) DF shall not grant new/re-connection to permanently disconnected consumers without the
consent of JSEB due to legal cases involved in many cases.
4.7.9. Calculation of Invoice raised by JSEB
Term MAIN INVOICE
FI Fortnightly Invoice Amount, = (EIF i – EIF o) * AIRM * TIR n
[73]
EIF i Energy Input in kWh during the relevant fortnight.
EIF o Energy sourced from other sources in kWh during the relevant fortnight.
AIRM Annualised Input Rate applicable for the relevant year.
TIR n Tariff Indexation Ratio,
= (AT n/AT b)
AT n Average Tariff for preceding calendar month.
AT b Average Tariff of the base year.
Term SUPPLEMENTARY INVOICE
SI Supplementary Invoice Amount, = (WC m + ED rm + TOSE m + SDN m + R mt + P + P os +FPPPA + UB rm +ADJ n
+ EMP m + RAV m + MISC m + RT m) - (S m + REB m + FE m + CARPD rm +
CARCL rm + CARUB rm )
WC m Wheeling & other Charges applicable to energy NOT purchased from JSEB.
ED rm Electricity Duty applicable as notified by GoJ.
TOSE m Other tax and statutory charges such as Holding tax, etc. other than Electricity duty.
RAV m Amount collected against recoveries on account of audit and vigilance from
consumers.
RT m Payment due from the DF in the month for use of various Testing facilities.
SDN m Security Deposit/ Additional/ Insufficient Security Deposit collected for new
connections.
R mt Transformer/Meter Rent of existing equipment.
P os Outstanding Amount for delay in previous payments.
P Penalty leviable on DF for delay of previous payments, computed @18% p.a. quarterly
compounded on the outstanding amount.
ARPD rm Amount of arrears on account of PD Consumers.
CARPD rm Credit available to DF for incentive on arrears from PD Consumers collected and
remitted, based on incentive of 20%, 15% and 10% from arrears collected between 0-3, 3-6 and 6-15 years of DF operation,
= (ARPD m * n%)
ARCL rm Amount of arrears on account of Currently Live Consumers.
CARCL rm Credit available to DF for incentive on arrears from Currently Live Consumers collected and remitted, based on incentive of 15%, 10% and 5% from arrears collected
between 0-3, 3-6 and 6-15 years of DF operation,
= (ARCL m * n%)
UB rm Amount of arrears accrued on the arrear after effective date but pertaining to period
between last JSEB bill and Effective date.
CARUB rm Credit Available to the DF for incentive on arrears from the current live Consumers
collected between last JSEB bill and Effective date, 5% of the amount, = (UB rm * 0.05)
FPPPA Amount of arrears received from the consumers for Fuel Price & Power Purchase
Adjustment
S m Subsidy, if provided to any Consumers for which energy bills have been raised but not
payable by the Consumer.
REB m Rebate, if provided to any Consumers on account of prompt payment for which energy bills have been raised to Consumers
FE m Free Electricity, if provided to Consumers for which energy bills have been raised to
Consumers.
EMP m Amount against terminal benefits of the JSEB Employees on deputation with the DF.
[74]
ADJ n Adjustment arising out of Tariff Indexation Ratio certification by the Independent
Auditor.
MISC m Miscellaneous charges payable by the DF.
Table 24: Invoice calculation by JSEB
4.7.10. Commercial Obligations
Metering and Inaccuracy:
(1) The DF shall inspect and recalibrate metering system on regular basis at least once every
three months. Meters that are found burnt, showing erratic display, non-functional or
having errors beyond the permissible limit have to be replaced immediately.
(2) In case where the difference between main meter and check meter is within 0.5%, reading
of main meter is taken as final.
(3) In case where the difference between main meter and check meter is more than 0.5%, re-
calibrating of main meter with higher accuracy class standard meter. Computation of
energy is done for preceding three months in order of feasibility by first considering check
meter reading, followed by correcting of error by ascertaining percentage error by
mathematical calculation and finally by estimating energy on the basis of meter reading
installed on LV side of power transformers or HV side of DT.
(4) Metering reading shall be undertaken at Input points at 00:00 hours on 7th, 14
th, 21
st day
and last day of each month by DF and reported the same to JSEB before 12:00 hours next
business day. Month end meter reading shall be jointly taken and JSEB shall raise
fortnightly or monthly invoices as agreed to DF based on this data.
Billing and Payments to JSEB:
(1) Billing Pattern: The billing frequency can be made weekly or fortnightly as decided by DF
at the time of signing DFA. There shall be two set of invoice raised by JSEB – One for
Input Energy on Fortnightly basis and another on monthly basis for Components other
than Energy called Supplementary Invoice (SI).
(2) Invoice Amount: The Invoicing amount shall be based on the specific formula based on
input energy drawn, Annualized input rate, tariff indexing ratio, wheeling charges, taxes
and duties, security deposit and rents collected, credit availability of the DF due to last
billing settlements, subsidy, rebates, etc.
(3) The detailed formula of invoice amount with sample calculation is explained in Section:
7.1.
(4) JSEB shall maintain consumer wise data of meter reading, energy billed, security deposit,
taxes and duties levied, etc. in the format prescribed by JSEB.
(5) The details of credit given to certain consumers as per directions of JSERC/ State Govt./
Court as well as subsidy/ free electricity, arrears collected amount shall be given to JSEB.
[75]
(6) In case if DF avails Open Access, DF shall retain Cross-subsidy surcharge paid, but
wheeling charges shall be apportioned between JSEB and DF as agreed.
Amount collected against Arrears:
(1) DF shall be collecting arrears from all consumers including State and Central undertakings
and Central Government. Collection of arrears from State government shall be
responsibility of JSEB.
(2) Arrears are classified as arrears from connected live consumers, permanently disconnected
consumers and on account of Fuel Power Purchase Cost Adjustment (FPPCA).
(3) Arrears collected shall be maintained in separate accounts and details be provided to JSEB
within 7 days.
(4) Expenses incurred on collection of arrears shall be purely borne by the DF.
(5) For arrears recovered from Live and Permanently Disconnected (PD) consumers accrued
within three months prior to effective date shall be collected by DF and it shall receive an
incentive based on the percentage of arrears amount collected net taxes and duties as
follows:
Arrears recovered from Live Consumers PD Consumers
Between 0 - 3rd
years 15% 20%
Between 3rd
- 6th
years 10% 15%
6th
year onwards 5% 10%
Table 25: Incentive on Arrears recovery
(6) Amount forfeited or adjusted from security deposit of the consumers shall not be counted
as Arrears recovered by the DF.
(7) Upon end of agreement period, DF shall not be liable to pay the arrears accrued in the last
month and it shall be collected and remitted by JSEB non-obligatory to DF; however JSEB
shall receive an incentive of 10% and 20% from amount collected from Live and PD
consumers respectively.
Provision of Subsidy/ Free Electricity:
(1) The DF shall furnish information and documents to JSEB on account of subsidized/ free
electricity provided to certain category of consumers to enable JSEB raise the claim from
Government of Jharkhand.
(2) JSEB shall credit the DF for the claim towards supply of power to such subsidized/ free
category of consumers in the franchisee area in the invoice raise by JSEB to the DF after
the receipt from State Government. Reconciliation of accounts, if required shall be done on
quarterly basis.
(3) The details of subsidy shall be audited by certified Auditor appointed mutually and shall
also be liable to be verified by Government Auditor.
[76]
(4) Any change or withdrawal in subsidy structure by Government during the period of
agreement shall be binding to DF for appropriate implementation.
Provision of Electricity Duty:
(1) DF shall maintain separate accounting for Electricity Duty liability collection as per
JSERC regulations.
(2) The accounting details shall be audited by certified Auditor appointed mutually and shall
also be liable to be verified by Government Auditor.
(3) The DF shall remit the realised amount to JSEB and Any change or withdrawal in subsidy
structure by Government during the period of agreement shall be binding to DF for
appropriate adjustment.
Performance Bank Guarantee:
(1) Purpose: Recovery of outstanding payment by JSEB if payments are not made with in the
due date. To be submitted by DF through a Scheduled42
/nationalized Bank.
(2) Amount: Equivalent to three months of estimated amount payable to JSEB against energy
input at annualized Input Rate quoted by DF in that year.
(3) Period/Validity: One year, to be renewed before 15 days of expiry or within 7 days of
encashment notice given by JSEB, whatever the case may be but the Guarantee shall be
provided afresh or replenish to its original level either way by the DF.
4.7.11. Legitimate Obligations
Reporting and Auditing:
Data / Reports to be submitted to JSEB Interval of Submission
Billing and collection, electricity duty,
Security deposit collected.
Fortnightly / Monthly
as mutually agreed
Updated Asset Register Quarterly (0 - 1 year) Monthly (2 year onwards)
Detailed Inventory Status Report Annually
Details of major incident affecting the distribution system Within 15 Days
Other Management Information System (MIS) As required
Capacity of Audits performed by JSEB Interval of Audit
Record of Distribution Assets Annually
Record of Inventory Level Annually
Billing data and Consumer data base Annually
Electricity Duty and Subsidy claims As and when required
Physical Verification of Distribution Assets As and when required
Table 26: Time interval of Reporting and Auditing
42 As defined in the 2nd Schedule of the Reserve Bank of India Act, 1934
[77]
Indemnification:
The clause is particularly important when two or more entities jointly working together each
specialized in their respective roles and areas of operation, must not held other responsible or
victimize other due to negligence or omission by one of them. Indemnification clause lawfully
relates more to financial aspects in such agreements.
(1) DF shall indemnify and hold JSEB and all its employees harmless due to acts of
omissions, claims made by third parties to JSEB due to negligence of the DF, monetary
obligations of DF and non-payments of DF as a result of these commercial transactions.
(2) JSEB shall indemnify and hold DF and all its employees harmless due to acts of
omissions, claims made by third parties to DF due to negligence of JSEB within 6 months
after the Effective date provided reasonable care of Distribution Assets have been taken by
the DF. In case of legally established claims, JSEB shall compensate liabilities of
maximum ₹ 50 Lacs within this period.
(3) The indemnified party and the indemnifying party shall notify each other immediately
regarding such proceedings by third party. If either JSEB or DF is entitled to Indemnifying
losses from pursuant parties, the Indemnifying party shall pay the losses within 30 days of
the receipt of notice seeking indemnifying losses.
Insurance:
DF shall obtain and maintain proper insurance cover to all distribution assets purchased
required under the laws of India.
4.7.12. Legal Aspects
Amicable Settlement:
(1) The agreement is delivered and executed in accordance to the laws of India and laws
applicable to the state of Jharkhand. All disputes comply under the jurisdiction of court at
Ranchi.
(2) All disputes and differences in connection of the agreement shall be given to the other
party with written notice stating the details, grounds of dispute along with supporting
documentary evidences. Both parties shall try to counter-claim, defend or resolve the
matter with relevant documentary evidences through formation of permanent dispute
resolution body having equal representatives from both parties who will communicate
decision within 30 days.
(3) Non-settled dispute is taken up by body constituted by Chairman-JSEB and Head-DF who
would resolve and communicate decision within 15 days.
[78]
(4) Disputes not settled through negotiations and above process, shall be referred for
Arbitration43
with notices to each other. An Arbitration tribunal is formed consisting of
three members, one from each parties and one nominated by two appointed arbitrators
within 30 days of receipt of such notice.
Disputed Payments and Arrears:
(1) Payment disputes shall be handled by a high level committee envisaged for recovery of
arrears. The committee comprises of independent external legal, financial and technical
experts constituted by JSEB. The Chairman of JSEB also serves as legal expert in the
committee. The expense of the committee would be borne by JSEB.
(2) Payment related disputes resolved in favour of one party, other party shall remit/refund the
adjusted amount within 7 days along with the interest of 12% per annum from the date of
remission of payment.
(3) In case of recovery of arrears, the committee would decide on validity and quantum of
arrears, waiver of interest and/or principal on merit basis and JSEB policies, suitable
instalments on settled arrear amount or schedule of payments, etc.
Force Majeure:
All liabilities of either parties in delay of performance or serving obligations under the
agreement shall be restricted due to occurrence of force Majeure including acts of God, acts of
any Government (de jure or de facto) or regulatory body or public enemy, war, riots,
embargoes, industry-wide strikes, the reduction in supply due to outage of generation facilities/
transmission lines or any other causes, circumstances, or contingencies, whether of a similar or
dissimilar nature to the foregoing, beyond the parties control, which cannot be reasonably
forecast or prevented, thereby, hindering the performance by the parties of any of their
obligations hereunder.
The clause requires immediate notification to each other in writing or best possible means with
full particulars and both DF and JSEB shall make best possible efforts to remove the cause or
minimize the effect of Force Majeure situation.
4.7.13. Event of Defaults, Termination and Expiry of Agreement
DISTRIBUTION FRANCHISEE
Critical Event of Default:
Failure to make payments, submit information, maintain performance guarantee and minimum service
quality due to inadequate capital investments.
Non-critical Event of Default:
(Converted to Critical Event of Default beyond 60 days of default)
Corrupt or Fraudulent practice. Winding up resolution by shareholders.
43 Proceedings conducted under provisions of Arbitration and Conciliation Act, 1996
[79]
Declaration of insolvency/bankruptcy. Unlawful intention or representation.
Sale of energy outside Franchisee area. Inconsistencies in energy and revenue accounting.
Submission of periodic operational reports for two consecutive months.
Persistent non-compliance of SoP and JSERC‘s Electricity Supply Code for 3 consecutive months.
Consequences of Termination:
Payment of all dues, claims, expenses and handing over all distribution Assets to JSEB.
All liability of meeting repayment obligations on account of financial arrangement of such assets
lie with DF.
DISTRIBUTION LICENSEE - JSEB
Critical Event of Default:
JSEB is not able to ensure supply of power to DF above 90% of entitled pro-rata quantity for 6 days in
a month.
Non-critical Event of Default:
(Converted to Critical Event of Default beyond 60 days of default)
Breach of terms and conditions under the agreement for 30 consecutive days.
Consequences of Termination:
Payment of all dues and claims to DF.
Termination Procedure before the expiry of Agreement:
(1) Issuance of Termination notice to defaulted party.
(2) 15 days (critical) or 60 days (non-critical) period for elimination/ mitigation the event of
default.
(3) Issuance of Final Termination notice to defaulted party after 30 days of issuance of
preliminary Termination notice.
(4) JSEB to exercise Step-in-rights44
with 30 days transition assistance obligation by DF.
During this period, JSEB may invoke the Bank Guarantee to recover dues or outstanding
amount from DF and transfer the fixed Assets brought by DF as a part of capital
expenditure to JSEB.
Payments upon Termination in case of Event of Default:
(1) The termination payment broadly constitutes of Depreciated Value of Capital Assets and
current Assets as well as Arrears accrued in last one month prior to termination.
(2) At least 50% of amount of depreciated value of capital assets as worked out in audit shall
be paid within 15 days of termination date to DF. The balance amount to be paid within 60
days of termination date after physical verification. The payment shall be based upon
deductions on account of outstanding if any.
44 The process of taking full control of the distribution operations and their assets.
[80]
(3) JSEB may furnish a Bank Guarantee of an amount equivalent of depreciated value of
distribution assets based on the audit conducted and physically verified by Joint Audit
Team.
Payment upon Expiry of the Agreement:
(1) The expiry payment broadly constitutes of Depreciated Value of Capital Assets and
current Assets as well as Arrears accrued in last one month prior to termination.
(2) At least 70% of amount of depreciated value of capital assets as worked out in audit
conducted at the end of 9th year shall be paid within 15 days of termination date to DF. The
balance amount to be paid within 60 days of expiry date after physical verification. The
payment shall be based upon deductions on account of outstanding if any.
(3) JSEB may furnish a Bank Guarantee 6 months prior to the date of expiry; of an amount
equivalent of depreciated value of distribution assets based on the audit conducted at the
end of 9th
year and physically verified by Joint Audit Team.
4.7.14. Supplementary details of Ranchi circle
(1) Registered and un-registered consumers – Category wise
(2) Distribution network details.
(3) Schedule of costs for Distribution Assets.
(4) Depreciation Rates of Distribution Assets.
(5) Schedule and Methodology of Energy Audit.
(6) Schedule of Standards of Performances (SoP) and compensation to affected consumers in
case of non-compliance of SoP. The compensation is based on specific amount per day
depending on the type of default and non-performance.
(7) Specification, operations and functions of Consumer Service Centres (CSC).
4.8. Sale of Bid-Document and Pre-Bid Meeting
Normally with yearn of revenue generation, most of bid documents are put on sale at a price of
₹ 2 to 3 Lacs per RPF per circle. In case of JSEB, the same was waived-off at the time of
purchase of bid-document and interested bidders were required to submit the same at the time
of submission of bid documents in form of Demand Draft. Consequently the RPF document
was available in freely downloadable version from the official website of JSEB. The step was
aimed to greater involvement of the interested entities but also invited multiple comments and
counter feedbacks related to the deployment process and RFP document during the pre-bid
conference.
Normally the last date of sale of bid documents is much earlier than the last date of submission
of bids. In case of JSEB, the last date of submission of bids was on the next day of closing date
of sale of bid documents. Also the pre-bid meeting (PBM) is held in a week preceding the last
[81]
day of sale of bid documents. In case of JSEB, due to large number of feedbacks related to the
RFP document and consequent amendments from JSEB, it was required to revise certain terms
and conditions of RFP document, hence deferring the date of submission of bid document by
almost a month.
Chapter-5: BID EVALUATION AND AWARDING
5.1. Calculation of Reserve/ Benchmark Price
[82]
20
10
-11
FY
En
ter
the
bas
e y
ear
of
the
pro
ject
.
20
06
-07
FY
En
ter
the
last
fin
anic
al y
ear
up
to
wh
ich
dat
a is
av
aila
ble
.
20
12
-13
FY
En
ter
the
fin
anci
al y
ear
in w
hic
h t
he
Fra
nch
isee
op
erat
ion
sh
all s
tart
.
5Y
ears
4Y
ears
2.5
1R
s./k
Wh
As
per
rel
evan
t SE
B T
arif
f O
rder
.
11
.10
%E
nte
r th
e d
isco
un
t ra
te a
s p
er C
ER
C g
uid
elin
es.
15
Yea
rsE
nte
r th
e n
o. o
f y
ears
as
per
dis
trib
uti
on
fra
nch
isee
agr
eeem
ent.
Yea
r o
f E
ffec
tiv
e D
ate:
Co
st o
f P
ow
er:
Dat
a A
vai
lab
le f
or
:
Bas
e Y
ear
:
Co
mp
ou
nd
ing
Per
iod
:
Dat
a A
vai
lab
le f
rom
:
Agr
eem
ent
Per
iod
:
Dis
cou
nt
Rat
e :
De
tail
s o
f E
ne
rgy
an
d R
ev
en
ue
Da
ta
Yea
rE
ner
gy I
np
ut
En
ergy
Bil
led
Rev
enu
e
Bil
led
Av
erag
e
Tar
iff
Rev
enu
e
coll
ecti
on
En
ergy
Rea
lize
dA
T&
C L
oss
Av
erag
e
Rev
enu
e
Rea
liza
tio
n
Dis
trib
uti
on
Co
st
Co
llec
tio
n
Eff
icie
ncy
(MU
)(M
U)
(Rs.
Mn
.)(R
s./k
Wh
)(R
s. M
n.)
(MU
)(%
)(R
s./k
Wh
)(R
s. M
n.)
(%)
20
06
-71
11
3.9
36
11
.37
19
39
.24
3.1
72
15
58
.10
49
1.2
15
5.9
0%
1.3
99
19
5.4
08
0.3
5%
20
07
-81
20
5.6
66
65
.29
19
79
.16
2.9
75
17
29
.30
58
1.3
05
1.7
9%
1.4
34
20
9.3
08
7.3
8%
20
08
-91
36
1.4
27
84
.11
22
24
.50
2.8
37
19
46
.70
68
6.1
94
9.6
0%
1.4
30
24
4.9
08
7.5
1%
20
09
-10
14
02
.46
89
8.6
22
50
1.3
22
.78
42
22
9.5
08
00
.97
42
.89
%1
.59
02
51
.80
89
.13
%
20
10
-11
15
00
.24
10
25
.50
31
31
.91
3.0
54
27
23
.80
89
1.8
74
0.5
5%
1.8
16
26
4.3
08
6.9
7%
CA
GR
(%
)7
.73
%1
3.8
0%
12
.73
%-0
.94
%1
4.9
9%
16
.08
%-7
.71
%6
.74
%7
.84
%2
.00
%0
12
34
56
78
91
01
11
21
31
41
51
6
20
11
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
40
.55
%3
3.5
5%
26
.55
%2
1.5
5%
18
.55
%1
6.5
5%
15
.55
%1
4.5
5%
13
.55
%1
2.5
5%
11
.55
%1
1.0
5%
10
.80
%1
0.5
5%
10
.30
%1
0.0
5%
9.8
0%
0.0
0%
7.0
0%
7.0
0%
5.0
0%
3.0
0%
2.0
0%
1.0
0%
1.0
0%
1.0
0%
1.0
0%
1.0
0%
0.5
0%
0.2
5%
0.2
5%
0.2
5%
0.2
5%
0.2
5%
0.0
0%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
26
4.3
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
0
0.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
2.0
0%
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
0
Lo
ss R
edu
ctio
n T
raje
cto
ry:
Dis
trib
uti
on
Co
st o
f B
ase
Yea
r (R
s. M
n.)
:
Dis
trib
uti
on
Co
st E
scal
atio
n (
%):
Yea
r-to
-Yea
r D
istr
ibu
tio
n C
ost
(R
s. M
n.)
:
FY
en
din
g M
arch
of:
Yea
r-to
-Yea
r A
T&
C L
oss
Pro
file
(%
):
Yea
r-to
-Yea
r R
edu
ctio
n T
arge
t (%
):
N.A
:
En
ergy
gro
wth
rat
e (%
):
N.A
:
Re
fere
nce
Pri
cin
g
01
23
45
67
89
10
11
12
13
14
15
16
20
11
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
0.0
0%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
7.7
3%
15
00
.24
16
16
.17
17
41
.05
18
75
.59
20
20
.52
21
76
.65
23
44
.85
25
26
.04
27
21
.24
29
31
.52
31
58
.04
34
02
.07
36
64
.96
39
48
.16
42
53
.25
45
81
.91
49
35
.97
40
.55
%3
3.5
5%
26
.55
%2
1.5
5%
18
.55
%1
6.5
5%
15
.55
%1
4.5
5%
13
.55
%1
2.5
5%
11
.55
%1
1.0
5%
10
.80
%1
0.5
5%
10
.30
%1
0.0
5%
9.8
0%
89
1.8
71
07
3.9
21
27
8.7
81
47
1.3
71
64
5.6
81
81
6.3
81
98
0.1
92
15
8.4
72
35
2.4
72
56
3.5
72
79
3.2
43
02
6.0
93
26
9.0
93
53
1.5
73
81
5.1
04
12
1.3
64
45
2.1
7
3.0
53
.05
3.0
53
.05
3.0
53
.05
3.0
53
.05
3.0
53
.05
3.0
53
.05
3.0
53
.05
3.0
53
.05
3.0
5
27
23
.80
32
79
.78
39
05
.43
44
93
.62
50
25
.97
55
47
.30
60
47
.56
65
92
.02
71
84
.52
78
29
.21
85
30
.65
92
41
.78
99
83
.90
10
78
5.5
31
16
51
.44
12
58
6.7
61
35
97
.06
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
0
1.8
16
2.0
29
2.2
43
2.3
96
2.4
87
2.5
49
2.5
79
2.6
10
2.6
40
2.6
71
2.7
01
2.7
17
2.7
24
2.7
32
2.7
39
2.7
47
2.7
55
1.0
00
00
.90
01
0.8
10
20
.81
02
0.7
29
20
.65
64
0.5
90
80
.53
18
0.4
78
60
.43
08
0.3
87
80
.34
90
0.3
14
20
.28
28
0.2
54
50
.22
91
0.2
06
2
1.8
21
.83
1.8
21
.94
1.8
11
.67
1.5
21
.39
1.2
61
.15
1.0
50
.95
0.8
60
.77
0.7
00
.63
0.5
7
2.5
01
Dis
cou
nt
Fac
tor:
Pre
sen
t V
alu
e R
es. P
rice
(R
s./k
Wh
):
Le
ve
lize
d P
rice
: (R
s./
kW
h):
En
ergy
Rea
lize
d (
MU
):
Av
erag
e B
illi
ng
Rat
e (R
s./k
Wh
):
Am
ou
nt
Rea
lize
d (
Rs.
Mn
.):
Dis
trib
uti
on
Co
st (
Rs.
Mn
.):
Res
erv
e P
rice
(R
s./k
Wh
):
Yea
r:
FY
en
din
g M
arch
:
Gro
wth
rat
e E
ner
gy I
np
ut
(%):
En
ergy
In
pu
t (M
U):
AT
&C
Lo
ss T
arge
t (%
):
[83]
5.2. Evaluation of Bid
The Evaluation process comprises of three basic steps placed in following sequential order:
Figure 10: Evaluation process of a bid
First step is ‗Verification of Technical Bid‘ that normally is done on the day or next day of last
date of submission of Technical and Financial Proposals. The Technical part consist of
documents related to the bidding company and/or consortium, letters of acceptances and
commitments by various stakeholders, audited reports of last two years showing their financial
strength, past experience in handling retail consumer business, their workforce details, etc.
Besides submission of relevant amount towards procession fees and Earnest Money Deposit,
bid validity date, etc. is also verified by the JSEB authorities.
Next step is ‗Verification of Financial Bid‘ that covers commercial criteria of the bidding/
consortium entities including Net worth, Cash Accrual, Annual Turnover of last two years and
their supporting documents, etc. If required, authentication may be carried out and the
companies that do not comply with the required documents and minimum criteria are
disqualified for non-responsiveness.
List of verification and qualification checks carried out in the process are enlisted in Section
5.3.
The bidders that fulfil qualification criteria are then selected for opening of their ‗Financial
Proposal‘. This is the most important part of bidding process and takes place with accountable
and transparent process in presence of the various stakeholder and bidders, few days after the
Technical proposals are validated.
It requires calculation of Levelised Tariff to arrive at one single input rate figure based on the
annualised input rate given by the respective bidding entities.
JSEB have specified minimum benchmark rates for the entire term of the franchise which the
bidders have to comply and quote rates higher than the specified rates. However, not specifying
the projected input energy could possibly lead to bidders quoting lower rates in the initial years
and higher rates only towards the later period of the contract, a tendency which is best known
front loading rates. This tendency could be checked by specifying the projected input energy
during the contract period, taking into account the past and future growth, and then asking the
bidders to quote their rates. In such cases, the bid evaluation is done by computing the value of
the projected revenues to the JSEB based on the projected input energy multiplied by the
bidders‘ quoted input rates and then discounting the projected revenues by a discounting rate
specified in the bid document, also known as present value method.
Verification of
Technical Bid
Verification of
Financial Bid
Comparision of
Financial Proposal
Deciding
H1 and H2 bidder
[84]
In order to estimate the energy input for the contract period for fixing the reserve price, a
CAGR of energy sales for past 5 years may be ascertained and applied to compute the energy
sales in the contract period. The projected energy input may be arrived at by applying the
projected T&D loss reduction trajectory. A step wise and detailed calculation procedure is
shown in Section 5.1.
5.3. Evaluation of Technical Proposal
Sr.
No. Aspects / Particulars Criteria Bidder 1 Verify
Background Information
1 Bid Document No. DF-1/Circle/2012-13 Verified
2 Bidder Single Company /
Consortium
Verified
3 Name of the Company
(in case of Single Company) or Name of the Lead Member
(in case of Consortium)
ABC Ltd. Verified
4 Consortium Details (Name of Member Company, Proposed
equity Participation in %, Role
Envisaged)
>= 51% ABC Ltd., 90%, Lead member -
Strategy, Technology
and Finance
Verified
<= 49% UVW Ltd.,
10%, Execution and
Management
Verified
Responsiveness
1 Received by due date and time specified
in the RFP
04-Jul-2012,
15:00 Hrs.
Received on XX-
XXX-XXXX, XX:XX
Hrs
Verified
2 Sufficient Information is provided for
evaluation and Compliance with format
for bid submission.
Verified
3 All the pages of all sections of the bid
signed/ initiated with date by Authorized Signatory and delivered in Sealed
envelope.
Verified
4 Submission of processing fee in form of DD from any Nationalized or Scheduled
bank contained in 2nd Schedule of RBI
Act, 1934
₹ 2 Lacs Bank Name Verified
DD No. Verified
DD Date Verified
DD Amount Verified
Validity Date Verified
5 EMD in form of DD from any
Nationalized or Scheduled bank contained
in 2nd Schedule of RBI Act, 1934
₹ 50 Lacs Bank Name Verified
DD No. Verified
DD Date Verified
DD Amount Verified
Validity Date Verified
6 The Bidder seeking deviations on the
principles of DFA
No Verified
Compliance with other instructions
[85]
1 No. of copies of Bid submitted
[1 original + 2 copies]
Verified
2 Validity of bid document
(6 months from the date of opening)
04-Jan-2013 Valid up to
DD-MM-YYYY
Verified
3 Audited Account Statement/ Annual
Report elaborating calculation of Net worth, Turnover, cash accrual for last 2
years.
Audited / Unaudited Verified
FY 2010-11 Verified
FY 2011-12 Verified
Technical Bid Evaluation
1 Covering letter for Technical Proposal As per format Verified
Dated Verified
Signed by Authorized
Representative
Verified
Details of contact
person
Verified
Stamp and seal of the
company
Verified
2 Letter of Commitment (from Promoter(s),
Affiliate(s) Company for using their
credentials in technical bid)
Provided /
Not Applicable
Verified
3 Letter of Acceptance (from the Member
Companies of the bidding Consortium)
Provided /
Not Applicable
Verified
4 Description of the Bidding Company/ Consortium
Provided as per format Verified
Signed by Authorized
Representative
Verified
Stamp and seal of the
company
Verified
5 Information requirement for Technical
Proposal
Provided as per format Verified
Signed by Authorized
Representative
Verified
Stamp and seal of the
company.
Verified
Financial Capability Verified
Experience and Track Records
Verified
Technical Write-up Verified
6 Bidders financial Strength for the last 2
years with documentary evidence (Audited balance sheet)
Provided as per format Verified
Signed by Authorized
Representative
Verified
Stamp and seal of the company
Verified
7 Experience in handling retail Electricity consumers OR Experience in Employee
handling
Provided as per format Verified
Signed by Authorized
Representative
Verified
Stamp and seal of the
company
Verified
8 Consent of work certificate of key Personals with BE/ B.Tech (Electrical)
and having 10+ years of experience
Provided as per format Verified
Signed by Authorized Representative
Verified
[86]
Stamp and seal of the
company
Verified
9 Technical write-up providing details of
approach and methodology for
implementation of project, capital
investment, loss reduction and implementation schedule
Provided /
Not Provided
Verified
Technical Criteria
1 Experience in handling Electricity
consumers
>= 150000 X,XX,XXX Qualified
2 Experience in handling employees in
Electricity Distribution business
>= 450 XXX Qualified
3 No. of employees on permanent roll of the
bidding company
>= 90 XX Qualified
4 Personals with BE/ B.Tech (Electrical)
and having 10+ years of experience
>= 7 X Qualified
Commercial Criteria
1 Net worth (FY1) >= ₹150 Cr XXX (2011-12) Qualified
2 Cash Accruals (PAT + Depreciation - Average of FY1 and FY2)
>= ₹ 75 Cr XX (2011-12), XX (2010-11)
Qualified
3 Annual Turnover –
Average of FY1 and FY2
>= ₹400 Cr XXX (2011-12),
XXX (2010-11)
Qualified
Remarks if any based upon evaluation process
Recommendation QUALIFIED FOR FINANCIAL BID
Table 27: Checklist of Technical Evaluation
5.4. Evaluation of Financial Proposal
The figure of Levelised tariff obtained is compared up to three decimal places, the bidder who
quoted the Highest Tariff rate is selected as the successful bidder called H1 bidder. The next
bidder with second highest tariff rate is referred as H2 bidder.
Bidder Company Levelised Input Rate
Levelised Reserve
Price by JSEB
ABC Ltd. (H1) ₹ 2.9173 / kWh ₹ 2.501 / kWh
PQR Ltd. (H2) ₹ 2.8931 / kWh ₹ 2.501 / kWh
ABC Ltd. will thus be invited for final round of negotiations and awarding the operations as a
Distribution Franchisee of Ranchi Area under the Distribution Licensee JSEB.
Basic Calculation Formula, Calculation of Levelised Input Rate and Year-to-Year Cash
Inflow/Outflow of JSEB:
[87]
Dis
cou
nt
Rat
e (d
):1
1.1
0%
Agr
eem
ent
Per
iod
(t)
:1
5Y
ears
Dis
cou
nt
Fac
tor:
Inp
ut
Rat
e:
A:
Lev
elis
ed T
arif
f:
N =
1/(
1+
d)^
t
B B x
N
{(A
1 +
A2
+…
An
)/(N
1 +
N2
+ …
Nn
)}
Ye
ar
(t)
12
34
56
78
91
01
11
21
31
41
51
6
Bid
de
rs2
01
32
01
42
01
52
01
62
01
72
01
82
01
92
02
02
02
12
02
22
02
32
02
42
02
52
02
62
02
72
02
8
Dis
cou
nt
Fac
tor
(N):
0
.90
00
90
.81
01
60
.72
92
20
.65
63
60
.59
07
90
.53
17
60
.47
86
30
.43
08
10
.38
77
70
.34
90
30
.31
41
60
.28
27
70
.25
45
20
.22
90
90
.20
62
00
.18
56
0
Res
erv
e p
rice
(JS
EB
):
1.8
16
2.0
29
2.2
43
2.3
96
2.4
87
2.5
49
2.5
79
2.6
10
2.6
40
2.6
71
2.7
01
2.7
17
2.7
24
2.7
32
2.7
39
2.7
47
Bid
de
r 1
(H
1)
Inp
ut
Rat
e (B
):
1.9
95
2.3
42
2.6
55
2.9
61
3.1
18
3.2
42
3.3
45
3.3
91
3.4
54
3.5
19
3.5
90
3.6
45
3.7
12
3.7
60
3.8
10
3.8
90
Cal
cula
tin
g A
: 1
.79
57
1.8
97
41
.93
61
1.9
43
51
.84
21
1.7
24
01
.60
10
1.4
60
91
.33
94
1.2
28
21
.12
78
1.0
30
70
.94
48
0.8
61
40
.78
56
0.7
22
0
Sum
A:
Sum
N:
LE
VE
LIS
ED
TA
RIF
F:
Bid
de
r 2
(H
2)
Inp
ut
Rat
e (B
):
2.0
60
2.3
80
2.6
40
2.9
00
3.0
40
3.1
90
3.3
30
3.4
00
3.4
60
3.5
20
3.5
80
3.6
50
3.7
10
3.7
78
3.8
20
3.8
70
Cal
cula
tin
g A
: 1
.85
42
1.9
28
21
.92
51
1.9
03
51
.79
60
1.6
96
31
.59
38
1.4
64
81
.34
17
1.2
28
61
.12
47
1.0
32
10
.94
43
0.8
65
50
.78
77
0.7
18
3
Sum
A:
Sum
N:
LE
VE
LIS
ED
TA
RIF
F:
Bid
de
r 3 Inp
ut
Rat
e (B
):
1.9
64
2.2
71
2.5
33
2.7
93
2.9
37
3.0
81
3.2
24
3.2
90
3.3
54
3.4
18
3.4
50
3.5
32
3.5
79
3.6
42
3.6
90
3.7
10
Cal
cula
tin
g A
: 1
.76
78
1.8
39
91
.84
71
1.8
33
21
.73
51
1.6
38
41
.54
31
1.4
17
41
.30
06
1.1
93
01
.08
38
0.9
98
70
.91
09
0.8
34
30
.76
09
0.6
88
6
Sum
A:
Sum
N:
LE
VE
LIS
ED
TA
RIF
F:
All
In
pu
t R
ates
>
Res
erv
e P
rice
YE
SY
ES
YE
SY
ES
YE
SY
ES
YE
SY
ES
YE
SY
ES
YE
SY
ES
YE
SY
ES
YE
SY
ES
2.9
15
8
22
.20
46
7.3
36
9
3.0
26
4
XY
Z L
td.
21
.39
28
7.3
36
9
PQ
R L
td.
22
.24
04
7.3
36
9
3.0
31
3
AB
C L
td.
Ye
ar
to Y
ea
r O
utf
low
s/In
flo
ws
of
SE
B
01
23
45
67
89
10
11
12
13
14
15
16
20
11
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
37
65
.60
40
56
.58
43
70
.04
47
07
.73
50
71
.51
54
63
.40
58
85
.57
63
40
.37
68
30
.31
73
58
.10
79
26
.68
85
39
.20
91
99
.05
99
09
.89
10
67
5.6
51
15
00
.59
12
38
9.2
7
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
00
.00
0.0
0
37
65
.60
40
56
.58
43
70
.04
47
07
.73
50
71
.51
54
63
.40
58
85
.57
63
40
.37
68
30
.31
73
58
.10
79
26
.68
85
39
.20
91
99
.05
99
09
.89
10
67
5.6
51
15
00
.59
12
38
9.2
7
27
23
.80
32
79
.78
39
05
.43
44
93
.62
50
25
.97
55
47
.30
60
47
.56
65
92
.02
71
84
.52
78
29
.21
85
30
.65
92
41
.78
99
83
.90
10
78
5.5
31
16
51
.44
12
58
6.7
61
35
97
.06
-10
41
.80
-77
6.8
0-4
64
.62
-21
4.1
1-4
5.5
48
3.9
01
61
.99
25
1.6
63
54
.21
47
1.1
16
03
.96
70
2.5
87
84
.85
87
5.6
59
75
.78
10
86
.17
12
07
.79
35
89
.48
43
09
.29
51
23
.41
58
92
.29
65
89
.80
72
73
.45
79
29
.60
86
43
.83
94
21
.22
10
26
7.2
51
11
87
.92
12
12
1.0
61
30
94
.66
14
14
6.3
61
52
82
.42
16
50
9.6
0
-46
7.1
0-6
0.7
54
15
.68
82
0.7
81
12
6.4
01
38
7.8
81
58
9.2
31
81
3.5
32
06
3.1
12
34
0.5
72
64
8.7
22
92
2.0
13
18
4.7
73
47
0.7
13
78
1.8
34
12
0.3
2
Am
t. R
ec. a
t In
pu
t R
ate
of
H1
(R
s. M
n.)
:
Pro
fit/
Lo
ss t
o S
EB
at
AIR
(R
s. M
n.)
:
Pro
fit/
Lo
ss t
o S
EB
at
Res
. Pri
ce (
Rs.
Mn
.):
Yea
r:
FY
En
din
g o
n:
Ou
tflo
ws:
Co
st o
f P
ow
er (
Rs.
Mn
.):
NA
:
To
tal E
xpen
ses
(Rs.
Mn
.):
Am
t. R
ec. a
t R
eser
ve
Pri
ce (
Rs.
Mn
.):
[88]
5.5. Significance of Reserve Price and Input Rate
The Reserve price is the minimum year wise Annualized rate that a Distribution Licensee
should expect during the agreement period. It is derived on the basis of present or average
consumption of the franchised area and expected growth.
Input price means ₹ per unit of input energy supplied by the franchisee at the Input Point which
is either quoted by the franchisee in case he is selected through a bidding process or is mutually
decided between the licensee and the franchisee, in other cases. It shall be quoted by the Bidder
year wise, which should be either equal or above the given Benchmark rate for respective year.
The highest offer by the selected bidder shall be considered as Input Rate /Annualised Input
Rate (AIR) and the same shall be used for all future commercial transaction. In fact the DF
while quoting input rate should also consider apart from the costs to be incurred by him in
terms of Capital Costs including Investment in improvement works, Recurring costs including
Operation & Maintenance expenses, employees cost, Administration & General cost, finance
cost and depreciation, should also take into account a reasonable return on his investments
while quoting his Input Energy Rate. The input based franchisee should also take into account
the other costs, charges, taxes, cess, levies and duties to be collected by him from the
consumers which he will need to pass on to the distribution licensee.
As for the case of Ranchi Distribution Circle, the year wise difference between the Reserve
Price and Input rate given by the H1 bidder is shown below: The chart is based on calculation
process shown in Section 5.4 and Section 5.1.
Figure 11: Input, Reserve Price of H1 Bidder
Similarly in case of Ranchi Distribution Circle, the year wise earning of additional revenue due
to franchisee operations is shown below: The chart is based on the calculation process shown
in Section 5.4.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Reserve Price and Input Rate of H1 Bidder
Reserve price (JSEB): Input Rate (B):
[89]
Figure 12: Break-even of JSEB
5.6. Awarding Distribution Franchise
Once the H1 bidder or the successful bidder is identified, series of agreements and settlements
are initiated by the Distribution Licensee in the following order.
Figure 13: Awarding of DF
The first step is negotiating with the successful bidder on the possible alteration in the
agreement in favour of better improvement of operations that are not featured in the bidding
documents. This includes escalation in input rate after few years of operation, change in
annualised input rate due to Tariff Indexing Factor on account of delay in commencement of
services. As in the case of Ranchi circle of JSEB, the base year is considered as FY 2010-11
and the AT&C loss level is 40.55%. Assuming the operations being taken over in FY 2013-14
(expected effective date of Jan-2013), there may be change in the loss level as well as the
Average Billing Rate (ABR) i.e. the average tariff in the preceding year FY 2012-13.
This factor brings in the Tariff Indexation Ratio or TIR for that particular year which is equal
to the ratio of ABR in the preceding period and ABR in the base year which is FY 2010-11.
The billing details or the input rate which ever have been mutually decided at this time shall be
escalated by TIR ratio. Similarly the factors like billing frequency which can be fortnightly or
weekly, etc. is mutually decided. On the bidder side, the factors like lineation in penalty
clauses and relevant issues due to difference in base line data furnished and actual possible
during the lapse period could feature up in the negotiation process.
-2000
-1000
0
1000
2000
3000
4000
5000
2011 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
PROFIT/LOSS of JSEB Reserve Price & Input Price
Profit/Loss to SEB at Res. Price (Rs. Mn.): Profit/Loss to SEB at AIR (Rs. Mn.):
Negotiations with H1 Bidder
Awarding Letter of
Intent (LoI)
Signing of DFA
Predecent Conditions
Effective Date of
Operation
Satisfying Subsequent Conditions
[90]
The next step is awarding Letter of Intent to the successful bidder and same has to fulfil certain
obligations before and soon after the effective date of operation commencement. These
obligations have already been discussed in Section 4.7.7 under Precedent and Subsequent
Conditions to be met by both DF and JSEB.
5.7. Letter of Intent (LoI)
The Letter of Intent is awarded to the successful bidder based on the discussion which is the
Documentary evidence indicating the award of the Distribution Franchise to the Selected
Bidder for acceptance.
The Letter is addressed by Chief Engineer (Commercial) of JSEB to authorised person
normally the Business Development Head of successful bidder. Apart from various
communicational references in the bidding process the Letter of Intent consists of following
major conditions:
(1) The latest base line data if available during the period of the process. In the present case, if
the average billing rate in the year Base year FY 2010-11 was ₹ 3.054 per kWh45
and
assuming the same for FY 2011-12 is now available at ₹ 3.201 per kWh, then the TIR is
TIR2011-12 = ABR2011-12 / ABR2010-11 = 3.201/3.054 = 1.04
This will now, as per the conditions of RFP document shall automatically escalate the AIR
quoted by the bidder by a factor of 1.07
Thus bidder will pay to JSEB based on this new input rate which will be taken into
calculation at the time of fortnightly Invoicing by JSEB.
(2) The bidder shall indicate the preferred billing frequency as well as complete all the
precedent obligations like furnishing Performance Guarantee and EMD amount as per the
terms and conditions of RFP document within the stipulated time period.
(3) The bidder shall also furnish and sign Distribution Franchisee Agreement as per RFP
document with necessary resolution/ issue Power of Attorney on non-judicial stamp paper
by the Board of Directors of the participating entities.
(4) Upon the signing of DFA, the bidder shall furnish Infrastructure Roll-out plan, schedule of
Joint Audit Team and its detailed scope of work, agreement of confidentiality, details of
employees of JSEB that the DF wishes to depute, list of authorised persons on the side of
DF, confirmation of commencement of operations as on effective date, etc. within the time
limits and formats specified in the bidding document.
(5) JSEB shall be authorized to forfeit the EMD amount if the DF fails to sign the DFA or
meet the precedent conditions as per the RFP document within 30 days of the issue of this
LoI. This is also the validity period of LoI.
45 Refer Section: 4.7.2 Introduction > Details of Energy and Revenue Data
[91]
5.8. Distribution Franchisee Agreement (DFA)
The successful bidder shall also furnish and sign Distribution Franchisee Agreement as per
RFP document with necessary resolution/ issue Power of Attorney on non-judicial stamp paper
by the Board of Directors of the participating entities which primarily are the Distribution
Licensee and the successful bidder along with the consortium entities.
The agreement broadly includes following aspects:
(1) Confirming legal status of Licensee and its entitlement to distribute electricity in a
specified franchisee area.
(2) The resolution by JSEB stating completion of bidding process and details of LoI awarded.
(3) Successful bidder‘s confirmation of accepting the conditions of LoI and obligations as per
RFP document as franchisee within the framework of a limited liability company
incorporated as per Company Act, 1956.
(4) Acceptance by JSEB, in allowing retain sale and distribution of power, use of existing
distribution network, assets and infrastructure within the franchisee area and related
activities by the franchisee.
[92]
Chapter-6: DISCUSSION AND SENSITIVITY ANALYSIS
The Sensitivity Analysis is a study of extent up to which the variation of one parameter affects
another parameter or a group of parameters. In the present case, following four parameters are
altered in each case presented below:
(1) Actual AT&C loss level is different from the available baseline AT&C Loss level.
(2) Change in AT&C loss trajectory keeping the start and end AT&C Loss figures same.
(3) Change in the Agreement period of Franchisee Operations.
(4) Change in the predicted CAGR of Energy then the CAGR envisaged with the help of
baseline data.
However, of the sake of simplicity and better understanding of the analysis, following
assumptions have been taken.
There shall be no distribution cost incurred during the agreement period as far as the
Distribution Licensee is concerned after the Distribution operations are handed over to the
franchisee.
The operational expense is taken as negligible, since most of them is borne by the
Franchisee or is under the scope of franchisee obligations. The remaining cost as per the
agreement is either jointly borne which stands negligible. Certain fixed expenses like
salaries, rent of assets, etc. remain constant irrespective of change in parameters that are
considered for this study.
No disputes or arbitration process shall be initiated during the period of agreement and the
mutual roles and responsibilities of both DF and DL will be delivered with optimum
beneficial practices.
Thus, only two major sources of revenue inflow and outflow are considered from
Distribution Licensee viewpoint. The major part of expenses consists of cost incurred
towards procurement of power at cost of supply and the major part of income is the
amount received from the DF based on the procured power made available to the DF at
Annual Input Rate quoted. The net annual revenue generated is thus the difference
between the two.
And finally, the energy requirement in the distribution franchisee area is completely
fulfilled with the energy input by JSEB considering the annual growth rate of energy
requirement in the area. This means that at no point of time, DF needs to procure energy
for its requirement under open access neither it is directed to undertake load shedding.
[93]
6.1. AT&C Loss Percentage
Change revealed in actual AT&C Loss level against the AT&C loss (40.55%) calculated with the help
of available baseline data during handing over the operations to DF.
The graphical representation shows the actual AT&C Loss level on horizontal axis.
Change in Average Revenue per annum and Net Revenue at the end of for 15 years generated by
JSEB based on the AIR of H1 bidder and Energy CAGR as per baseline data.
Change in Levelised Reserve Price Change in earliest year at which the JSEB shall
start earning profit based on AIR of H1 bidder.
Conclusion:
If the AT&C loss level shown in the baseline data is lower than the actual figure, DL shall be
on advantage with higher net revenue realization based on the Annualized Input Rate of
successful bidder. This is also because Reserve Price comes out to be proportionately higher in
this case then it should have been. Also it results in the amount received from DF at AIR
(income) surpassing the amount paid for cost of power procurement by the DL (expense) to
realise earlier in the agreement period.
However lower AT&C loss figure will discourage participation in the bidding process since the
scope of improvement as it apparently appears becomes limited, thereby impeding the
-500
0
500
1000
1500
2000
2500
3000
31 35 40 45 50 55 60
Average Revenue p.a. in Rs. Mn.
-10000
0
10000
20000
30000
40000
50000
31 35 40 45 50 55 60
Net Revenue in Rs. Mn. at end ofDFA
0
0.5
1
1.5
2
2.5
3
31 35 40 45 50 55 60
Levelised Rate JSEB
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
31 35 40 45 50 55 60
Start Year to Earn Profit
[94]
necessary competition. This may result into poor participation and hence lower Annualized
Input Rate at which the DF may be awarded. This may threaten the viability of entire bidding
process.
Higher the AT&C Loss beyond 6-10% will give more scope for DF to convert the remaining
loss figures into revenue and hence viability of the project.
6.2. AT&C Loss Trajectory
Change in AT&C loss Trajectory either due to allowance granted to DF or DF fails to achieve.
The graphical representation is based on four different trajectory variations with start and end AT&C
loss (reduction from 40.55% to 10% in 15 years) are kept same.
L0 is as per RFP document and L1-L2-L3 is directing towards more moderate AT&C reduction targets
in initial years.
L3: 3%, 3%, 3%, 3%, 3%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%
L2: 5%, 5%, 3%, 3%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1.5%, 1%, 1%, 1%, 1%
L1: 7%, 5%, 3%, 3%, 1.5%, 1.5%, 1.5%, 1%, 1%, 1%, 1%, 1%, 1%, 1%, 1% L0: 7%, 7%, 5%, 3%, 2%, 1%, 1%, 1%, 1%, 1%, 0.5%, 0.25%, 0.25%, 0.25%, 0.25% (as per RFP)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y19 Y11 Y12 Y13 Y14 Y15
AT&C Loss Trajectory
L3
L2
L1
L0
0
200
400
600
800
1000
1200
1400
1600
1800
2000
L3 L2 L1 L0
Average Revenue p.a. in Rs. Mn.
0
5000
10000
15000
20000
25000
30000
L3 L2 L1 L0
Net Revenue in Rs. Mn. at end ofDFA
[95]
Change in Average Revenue per annum and Net Revenue at the end of for 15 years generated by
JSEB based on the AIR of H1 bidder and Energy CAGR as per baseline data.
Change in Levelised Reserve Price Change in earliest year at which the JSEB shall start earning profit based on AIR of H1 bidder.
Conclusion:
Considering the given AT&C loss trajectory as per the RFP document (L0) as the most
stringent one with loss reduction at higher rate in initial years, then in the later ones. DL shall
be on advantage with higher net revenue realization based on the Annualized Input Rate of
successful bidder. This is also because Reserve Price comes out to be proportionately higher in
this case then it should have been. Also it results in the amount received from DF at AIR
(income) surpassing the amount paid for cost of power procurement by the DL (expense) to
realise one year earlier in the agreement period.
However such rigorous AT&C Loss reduction trajectory accompanied with non-performance
penalty clauses will discourage participation in the bidding process thereby impeding the
necessary competition. Instead viewing from the DF side, higher the AT&C loss reduction,
more will be the earning against fixed Input rate, hence it will always be in the scope of DF to
try their best in going for best achievable AT&C loss reduction year by year.
2.15
2.2
2.25
2.3
2.35
2.4
2.45
2.5
2.55
L3 L2 L1 L0
Levelised Rate JSEB
2015
2016
2017
2018
L3 L2 L1 L0
Start Year to Earn Profit
[96]
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Y0 Y2 Y4 Y6 Y8 Y10Y12Y14Y16Y18Y20
AT&C Loss trajectory
10
15
20
6.3. Period of Franchisee Operations
Change in time period for which the
distribution operations are awarded to
the DF. The graphical representation is based on
three time period of 10, 15 and 20 years
respectively. One significant aspect in the present
analysis is that the AT&C loss trajectory
slope is almost kept same for all the three period of agreement, the same as
mentioned in the RFP document for
period of 15 years. Thus the start and
end AT&C loss level are also same for all these three period of DFA.
Change in Average Revenue per annum and Net Revenue at the end of for 15 years generated by JSEB based on the AIR of H1 bidder and Energy CAGR as per baseline data.
Change in Levelised Reserve Price Change in earliest year at which the JSEB shall
start earning profit based on AIR of H1 bidder.
Conclusion:
There have been always been more anxiety on the financial viability of DF operations. Bidders
always desire to undertake DF operations for longer periods of agreement with the DL. The
0
500
1000
1500
2000
2500
10 15 20
Average Revenue p.a. in Rs. Mn.
0
10000
20000
30000
40000
50000
10 15 20
Net Revenue in Rs. Mn. at end ofDFA
2.2
2.4
2.6
2.8
3
10 15 20
Levelised Rate JSEB
Levelised Rate H1
2015
2016
2017
10 15 20
Start Year to Earn Profit
[97]
reason is quite obvious that both DL and DF are higher benefit towards the later part of the
agreement period.
In the present analysis, all other factors including the AT&C loss trajectory and start and end
loss level is kept same, the higher the period of DF agreement, the higher will be the net
revenue realization for DL based on AIR. This is also because Reserve Price comes out to be
higher in this case. But the amount received from DF at AIR (income) surpassing the amount
paid for cost of power procurement by the DL (expense) shall realise in same year of the
agreement period.
From the viewpoint of DF, the Levelised AIR will be higher but the same principle of
proportionately higher revenue earning in the later years will favour participation in the
bidding process. Thus higher the Period of Franchisee Agreement, better the financial viability
of the project.
6.4. CAGR of Input Energy Requirement
Change in compounded annual growth rate of Input energy against the one envisaged with the help of
baseline data. The graphical representation is based CAGR of 2.5% to 10% per annum of energy.
Change in Average Revenue per annum and Net Revenue at the end of for 15 years generated by
JSEB based on the AIR of H1 bidder and Energy CAGR as per baseline data.
Change in Levelised Reserve Price Change in earliest year at which the JSEB shall
start earning profit based on AIR of H1 bidder.
0
500
1000
1500
2000
2500
2.48 5.09 7.73 9.99
Average Revenue p.a. in Rs. Mn.
0
10000
20000
30000
40000
2.48 5.09 7.73 9.99
Net Revenue in Rs. Mn. at end ofDFA
2.2
2.4
2.6
2.8
3
2.48 5.09 7.73 9.99
Levelised Rate JSEB
Levelised Rate H1
2015
2016
2017
2.48 5.09 7.73 9.99
Start Year to Earn Profit
[98]
Conclusion:
Finally we analyse the effect on the revenue realisation of DL if the compounded average
growth rate of energy requirement is either higher or lower than envisaged in the RFP
document i.e. at rate of 7.73% annually, but in both case the growth rate is positive. DL shall
be on advantage with higher net revenue realization for higher energy requirement in the
Franchisee area. However the Reserve Price, Input rate and the year of breakeven remains the
same in all the cases.
Thus, the uncertain variation in energy growth rate year by year shall have proportional and
neutral effect on revenue generation for both DL and DF. Also higher CAGR means more
industrial or bulk consumers than domestic consumers in franchisee area and shall favour
better participation and viability of project by the bidders. It can also be inferred that larger
area of DF also favours more participation and benefit to both the entities.
6.5. Closing Summary
Briefing up the entire project study, following inferences can be drawn:
Higher level of AT&C loss in the Franchise Area is more favourable for both the Licensee
and Franchisee.
More stringent AT&C loss reduction trajectory will be favourable for DL, but for DF the
same shall be favourable only when penalizing clauses are reasonable in case of non-
achieving yearly loss levels.
It is advisable to award franchisee for 15-20 years against 10 years for financial viability of
DF and better participation.
Growth rate of energy requirement is proportional to the financial viability of DF. Thus
higher industrialized or potential industrializing DF area will receive better participation.
Certain key Issues that need to be addressed are:
Parameters Remarks
Standard bidding
document for DF
Standardized selection process & terms of contracts in case of DF.
Structuring of
Franchisee area
Large enough (Energy input) with defined technical boundary.
Clear picture on revenue potential, sales mix, present revenue loss matrix and LT loss level of the area must be drawn at the time of bidding.
Contract period Impact on depreciation/transfer value of assets during the period.
Qualification criteria Participation of consortium allowed in recent bid process must be continued. Other ways to optimize competence and competition must be focussed.
Quality of base-line
data
Key success factor for successful bid process and benefits that shall accrue to
both licensee and franchisee. Baseline data specified in RFP must be audited and any deviation in found after DFA must be compensated to DF.
Reserve price for
bidder
Higher reserve price makes the proposition non-lucrative, may be left to
market driven input rate;
[99]
Loss Reduction
Trajectory
DF must decide the slope of AT&C loss trajectory while the targets must in
slab of every five years.
Table 28: DF; Key Issues
Some area of concern that affects the Distribution Franchisee operations:
Parameters Remarks
Average Billing Rate Process for periodic joint auditing to be a part of contractual obligations.
Power sourcing option
for DF
Regulatory approval for additional Power purchase.
FoR study recommends reliability charge to compensate sourcing price.
Performance
Improvement Target
Loss trajectory and related incentive/penalty may lead to limited
participation.
Treatment of subsidy Pass through of subsidy should be based on area profile/ viability of the project without subsidy.
Capital expenditure DF should have independence of CAPEX decision in the initial years in long
term contract.
Role of regulator Regulator should recognize DF operations.
Utility ARR must consider DF revenue options.
Cartelization Possibility of forming cartels among bidders in future.
Emerging initiatives Addressing responsibility for emerging interventions –Smartgrid , AMI,
DSM initiatives, etc.
PPA for DF Allowing DF to sign PPA from private producers or set up a power plant.
Table 29: DF; Area of Concern
6.6. The Road Ahead
With the MoP developing a rating system to realistically assess utilities‘ performance and risk
and stake holders long term demand of revising tariffs have been implemented, it is now high
time to reduce the losses through improved governance and network and go for IT upgrading.
Keeping in view for Distribution Franchise, there is no single formula for success but in the
course of time some broad patterns have emerged.
With an outlay of ₹ 500 billion, the Central Government‘s scheme of R-APDRP enables all
distribution utilities to establish energy accounting systems and upgrade network assets. Clear
guidelines on transfer of funds to Franchisee by the Distribution Licensee in the event where
similar activities are successfully undertaken by the Franchisee are yet to be put in proper
documentation. Alternatively the government plans to review R-APDRP considering private
Distribution utilities.
In longer run of agreement period of franchisee, significant efforts driven towards smart grid
framework incorporating bidirectional flow of power and information, demand side
management and self-healing system disturbances mechanism also needs to be incentivised
appropriately. This also must cover issues such as power shortages, erratic outages,
unpredictable demand peaks and automated metering infrastructure. If finance availability
schemes become more conducive, DF must first undertake feeder segregation to improve
[100]
quality of power supply to rural and agricultural consumers. With proper metering practices,
use of prepaid meters needs to be receiving focus in some urban areas.
In future, the success of distribution franchisee business shall be subjected to challenges like
rising power procurement costs, stringent financial scrutiny and regulatory focus on
performance and consumer satisfaction. This should be affected with higher rise in energy
requirement in the franchisee area and availability of power keeping in view the slippages in
generation capacity additions. The current policy stance shows a shift towards higher emphasis
on performance subsequent to the MoP‘s rating methodology for evaluating utilities; the
distribution franchisee business shall be required to incorporate key parameters of commercial
viability such as AT&C losses, cost coverage ratio, subsidy received and timely audit of
accounts.
[101]
Chapter-7: BIBLIOGRAPHY AND REFERENCES
[1] Preetum Domah, Michael G.Pollitt, ―The Restructuring and Privatization of the
Electricity Distribution and Supply Businesses in England and Wales‖ July 2000
[2] Stephen C Littlechild, ― Competitive bidding for long-term Electricity distribution
contract‖ July 2001
[3] ―The Electricity Act‖ GoI, 2003
[4] MERC; Judgement Order dated 07-May-2008, Case No. 98 of 2007; ―Petition filed by
Maharashtra State Electricity Distribution Company Ltd. as per direction of the Hon‘ble
Bombay High Court, Nagpur Bench, on financial aspects/ viability of the Bid floated by
MSEDCL in relation to Distribution Franchisee in NagpurABPS Infrastructure Advisory
Private Ltd. ―Study of evolving an appropriate model for distribution margin‖ 2008
[5] Ajay Pandey, Sebastian Morris, Mr, ―Electricity Reforms and Regulations – A Critical
review of last 10 years of Experience‖ IIM-A-2009
[6] Pedro Antmann, Mr; ―Reducing Technical & Non-technical losses in Power Sector‖
World Bank - Energy Sector; July-2009
[7] Prayas Energy Group, ―Review of the Distribution Franchisee model implemented by
MSEDCL in the Bhiwandi circle‖ June-2009
[8] Feedback Ventures Pvt. Ltd.; ―Final Report on Standardization of Distribution
Franchisee Model‖ FoR Report; Sep-2009
[9] Hitesh Sachdeva, Saurabh Kamdar, Mr; ―Distribution Franchisee - Evolution, Experience
& Outlook‖ PowerLine; Sep-2009
[10] Reference Book, ―National Franchisee Training Program‖ by Ministry of Power,
Published by Rural Electrification Corporation Ltd. (REC), 2009
[11] MoP-UNDP Report; ―Access to Energy - Enhancing effectiveness in electricity
distribution and end use‖, 2010
[12] Request for Proposal (RFP) Document, MahaVitaran (MSEDCL), Nov-2010
[13] Planning Commission - GoI; Report of Sub-group on ―PPP in distribution of Electricity‖
Oct-2011
[14] Jharkhand State Electricity Regulatory Commission, ―Provisional Tariff Order on Annual
Revenue Requirement for FY 2007-08, FY 2008-09, FY 2009-10, FY 2010-11 and FY
2011-12 and Determination of Provisional Tariff for FY 2011-12 for Jharkhand State
Electricity Board (JSEB)‖ July-2011
[15] PricewaterhouseCoopers (PwC India), ―Power Sector reforms in Orissa‖ Annex-III of
Infrastructure Development Action Plan for Chhattisgarh
[16] ―Regulatory and Policy Environment‖ India's Energy Sector, Dun & Bradstreet
Publication, http://www.dnb.co.in/IndiasEnergySector/Regu_Power.asp
[17] CRISIL Infrastructure Advisory Report, ―Study of various Power Distribution Models in
India‖ Jul-2011.
[18] Puneet Munjal, Shri; Tata Power Delhi Distribution Ltd. ―Private Sector Participation in
distribution‖; Dec-2011
[19] Deloitte Touche Tohmatsu India Pvt. Ltd. ―Urban Distribution Franchisee – Benefitting
from Private Sector Participation‖ 2011
[20] The Economic Times – Discoms to work independent of SEBs, Sep 22, 2011
[21] ―World Energy Outlook‖ Report, 2011
[22] ―Driving Reforms in Distribution‖ PowerLine; June-2012
[102]
[23] Torrent Power Ltd. ―Distribution Franchise - An experience‖ Mar-2011
[24] PricewaterhouseCoopers (PwC India), ―Resurrecting the Sector; World Energy Council‖
Jan-2012
[25] PricewaterhouseCoopers (PwC India), ―Emerging opportunities and challenges – Energy
Distribution‖ India Energy Congress - 2012
[26] Request for Proposal (RFP) Bid Specification No. DF-1/Ranchi/2012-13, Jharkhand
State Electricity Board (JSEB), Apr-2012
[27] Planning Commission - GoI, Report of Task force on ―Private Participation in Power
Distribution‖ July-2012
[28] The Economic Times, ―Improving financial viability of distr. companies will spur
investments‖ Jun 14, 2012
[29] The Economic Times; Crisil Infrastructure Advisory Article, May 7, 2012
[30] Business Line, ―Economic Survey calls for bold reforms in power sector‖ Feb 25, 2011
[31] Sanjeeb Kumar Dey, Dr., Abhay Kumar Panda, Dr and Sanjeev Kumar Dey ―Revenue
Sustainability through Electricity Distribution Franchisee – A case study of NESCO Ltd.,
Odisha; ZENITH International Journal of Business Economics & Management Research,
Vol.2 Issue 7, July 2012, ISSN 2249 8826.
[32] P. A. Morris, Ph.D. and R. Cedolin ―Reliability of Electric Utility Distribution Systems‖
EPRI White Paper, EPRI, Palo Alto, CA: 2000. 1000424, Oct-2000
[33] Core International Inc., ―India Electricity distribution reform review and assessment‖
Report, Sep-2002
[34] Anoop Singh, ―Policy Environment and Regulatory Reforms for Private and Foreign
Investment in Developing Countries: A Case of the Indian Power Sector‖ Asian
Development Bank, Research Paper – 64, April-2007
[35] Lahiri R. N., Sinha A., Chowdhary S.P.; ―Privatization of power distribution utility in
India through Restructuring and Reformation‖, Power and Energy Society General
Meeting, IEEE, July-2010
[36] Tonci Bakovic, Bernard Tenenbaum, Fiona Woolf; ―Regulation by Contract A New Way
to Privatize Electricity Distribution?‖ World Bank Working Paper 14, Sep-2003
ANNEXURES
7.1. Calculation of AT&C Losses by JSEB
AT&C Loss is defined as the sum of total of technical loss, commercial losses and shortage
due to non- realization of total billed demand.
The AT&C losses shall be measured using the formula mentioned below:
AT&C Losses = [1 - (Billing Efficiency x Collection Efficiency)] x 100
Where Billing Efficiency = Total Units Sold (MU) /Total Input (MU)
Collection Efficiency = Revenue Collected (₹) /Amount Billed (₹)
SAMPLE Illustration for AT&C Losses for the Project Area:
[103]
Sr.
No. Description Formula
Base line
(Year - 00)
1. Input Energy (Import-Export)
33-11 kV Feeders MU
Ei 100
2.a Energy Billed (Metered) MU E1 60
2.b Energy Billed (Un-metered) MU E2 10
2.c Total Energy Billed (E1+E2) Eb 70
3. Amount Billed (₹ Cr.) Ab 400
4.a Gross Amount Collected (₹ Cr.) Ag 410
4.b Arrears Collected (₹ Cr.) Ar 40
4.c Amount Collected w/o Arrears (₹ Cr.) Ac= Ag – Ar 370
5. Billing Efficiency Φ = (Eb/Ei) x 100 70 %
6. Collection Efficiency ω = (Ac/Ab) x 100 93 %
7. AT&C Loss [1- (Φ x ω] x 100 35 %
Table 30: Sample AT&C Loss calculation
7.2. Present Picture of Distribution Franchisee in India
Details as on July-2012
Commencement
of Operations
Urban
Circle,
State
Distribution
Franchisee
Distribution Licensee Remarks
Jan-2007 Bhiwandi Torrent Power Ltd. MSEDCL 10 years ₹ 2.04 / kWh
Apr-2010 Agra Torrent Power Ltd. Dakshinanchal Vidhyut
Vitran Nigam Ltd., UPPCL
20 years
₹ 1.94 / kWh
Apr-2011 Aurangabad GTL Ltd. MSEDCL 15 years
May-2011 Nagpur Spanco Ltd. MSEDCL 15 years
2012-13
(tentative)
Patna Essar Power Ltd. BSEB 10 years
₹ 3.01 / kWh
2012-13
(tentative)
Kanpur Torrent Power Ltd. Kanpur Electricity Supply
Company Limited (KESCO),
UPPCL
20 years
₹ 2.165 / kWh
2012-13
(tentative)
Gwalior Essel Group
(Smart Wireless
Ltd.)
Madhya Pradesh Madhya
Kshetra Vidyut Vitaran
Company Limited
15 years
₹ 4.14 / kWh
2012-13
(tentative)
Ujjain Essel Group
(Smart Wireless
Ltd.)
Madhya Pradesh Pashchim
Kshetra Vidyut Vitaran
Company Ltd
15 years
₹ 3.781 / kWh
2012-13
(tentative)
Sagar Essel Group
(Smart Wireless
Ltd.)
Madhya Pradesh Poorv
Kshetra Vidyut Vitaran
Company Limited.
15 years
₹ 3.726 / kWh
Table 31: DF; Present Scenario
