Lessons From Bhiwandi

Distribution has been the biggest bane of the Indian power industry, often bringing the sector down to its knees with its inefficiency and high losses. However, efforts are under way at the Centre and in states to rectify the situation.

The action started this year, with 22 states hiking the tariff; it continued with the central government approving the restructuring of the distribution losses of state electricity boards in September. Now, two eastern states have decided to privatise their distribution operations, albeit under the power franchisee model. These are the first instances of privatisation of distribution since 2007.

Bihar and Jharkhand have decided to put a few selected cities under the franchisee model  to bring down their aggregate technical and commercial (AT&C) losses. To start with, the Jharkhand State Electricity Board (JSEB) has identified three major cities — Ranchi, Dhanbad and Jamshedpur — for the rollout of the franchisee model. Already, the board has issued Letters of Intent (LoIs) to Tata Power and CESC for Jamshedpur and Ranchi, respectively.

The distributor for Dhanbad will be decided in two months. “Our AT&C losses were as high as 46 per cent in June 2011 when I took over, and since then we have brought it down to 32 per cent. This step to bring in private companies to handle the operations of our distribution system is a move towards further reducing these losses,” says S.N. Verma, chairman of JSEB.

Bihar’s AT&C losses are also more than 40 per cent at present and the state is slowly but surely moving towards bringing down this burden. The Bihar State Electricity Board (BSEB) has already identified four cities — Patna, Muzaffarpur, Gaya and Bhagalpur — for implementation of the franchisee model. BSEB had earlier attempted to implement the franchisee model and had even issued an LoI to Essar Power. However, the deal was scrapped.

“We had to scrap the deal because Essar Power could not fulfil the Request for Proposal conditions. However, we are ready to invite fresh bids, and over the next two months we should be able to finalise the distribution companies for all the cities,” says a senior official of the BSEB, requesting anonymity. The BSEB recently floated a tender inviting bids from distribution firms, with 16 December as the deadline for receiving bids.

The franchisee firms will be in charge of billing and collection as well as maintenance of the distribution infrastructure. Both Bihar and Jharkhand suffer from high incidence of electricity theft, which is the largest contributor to the losses. These states are hopeful of improving collection and minimising theft by bringing in private companies.

Maharashtra was the first state to experiment with the franchisee model. It granted Torrent Power the franchisee rights for Bhiwandi as far back as 2006. The model has been in operation since 2007, and has helped bring down the state utility’s losses from 58 per cent in 2007 to 17.85 per cent in 2011-12. Bihar and Jharkhand now hope to repeat Bhiwandi’s success story.

(This story was published in Businessworld Issue Dated 05-11-2012)