Power supply franchisee model cuts losses, improves supply quality

While the franchisee model in power supply has helped to significantly reduce losses, there is room for improvement in areas like arrears recovery, bidding process and franchisee monitoring, says an NGO report

Franchisee models for power supply could significantly help to cut down losses. This is an observation made regarding Bhiwandi town, which had high technical and commercial losses in the pre-franchisee period, says a report by Prayas, a Pune-based NGO which specialises in energy research. Supply quality has also improved considerably after implementation of the franchisee model.
However, recovery of arrears and lack of customer confidence in the franchisee for metering and billing systems remains a problem, says the NGO.
The report, made public on Wednesday, revealed that the franchisee, Torrent Power Ltd (TPL), has been able to significantly reduce losses in the Bhiwandi circle. In the first two years of operation—since the agreement was inked in 2007—aggregate technical and commercial losses have come down from 63% to about 19% as per the data made available by the Maharashtra State Electricity Distribution Company Ltd (MSEDCL). These reductions in the technical and commercial losses have been brought about by a capital infusion of over Rs200 crore in the first year of operations to upgrade the distribution system coupled with several management and administrative changes.

The study also reported improvement in the supply quality post implementation of the franchisee model. Consumers in Bhiwandi are finding it much easier to get new connections. Transformer failure rates and accidents have reduced significantly and about 66% of respondents surveyed by Prayas opined that the change has been good for consumers, stated the report.

However, lack of post-franchisee monitoring by the licensee has also been highlighted as an important shortcoming in the model.

MSEDCL handed over power distribution in the power-loom town of Bhiwandi to TPL under a 10-year franchisee agreement in January 2007. The urban, input-based franchisee model is considered to be the next step in distribution reforms. Prayas carried out a detailed study of this model for the Planning Commission of India.

The input-based franchisee model, as implemented in Bhiwandi, is an arrangement under which a private company (in this case, TPL) was appointed to manage distribution business of the Bhiwandi circle of MSEDCL for a period of 10 years. The franchisee pays an agreed input rate to the licensee for input energy injected into the franchisee area.

Though there have been significant reduction in the losses and improvements in the supply services, a certain amount of customer dissatisfaction on billing rates and failure in recovering arrears remains a serious concern. As per the Prayas survey, a few consumers do not have confidence in TPL’s metering and billing systems. High bills and fast-moving meters were common complaints voiced by consumers during the survey.

As per the report, TPL has collected less than Rs10 crore towards accumulated arrears till date. The claimed total arrears amounted to Rs1,000 crore, according to the NGO.

The franchisee agreement stipulates certain processes and timeline (quarterly and annual) for undertaking audits of average billing rates, subsidy claims, metering & billing systems and customer databases. In case of the Bhiwandi franchisee model, even after two years after signing of the deal, none of these audits had been completed by the franchisee and independent auditors assigned for such exercises.
Some lacunae in the bidding process for such franchisee models have also been reported in the study. In case of the Bhiwandi model, major changes in the franchisee terms were affected after completion of the bidding process. The request for proposal (RFP) circulated to all prospective bidders contained only principles of the franchisee agreement, and the actual franchisee agreement was prepared after awarding letter of intent to the winning bidder.

In Nagpur, where a similar model was implemented, there was a major improvement over the Bhiwandi bidding process. The RFP contained a full-fledged franchisee agreement and not just principles of agreement. But here the shortcoming was in the bid evaluation process. A three-tired entity comprising MSEDCL, the High Court and the Maharashtra Electricity Regulatory Commission (MERC) failed to point out un-viability of the winning bid. These two instances, of major shortcomings in the process of awarding franchisee contracts in Bhiwandi and Nagpur highlight the underlying dangers and weakness in the ability of State-run utilities to conduct a transparent and rational bidding process, stated the report.

- Amritha Pillay [email protected]

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    Messaging power abuse by mobile operators

    Under severe pressure arising from the tariff war, many mobile operators are trying to push more and more value-added services (VASs) by using their so-called 'power' gained from a huge subscriber base

    Recently, I found out many mobile operators are sending a communication to their subscribers for using value added services (VASs), like short message service (SMS), multi-media message service (MMS), mobile instant messaging (MIM) ringtones, caller tunes, music, games and last but not least, general packet radio service or GPRS.

    The 'pay-per-call' and 'pay-per-second' initiative by Tata Teleservices has forced almost all players, including Bharti Airtel, Vodafone Essar, Reliance Communications (RCom) and Idea Cellular, to join the tariff war. The aggressive launch and lower tariff plans from new entrants are not only snatching customers but are also hurting the top and bottom line of incumbent mobile service providers (MSPs). On one hand the MSPs are losing out on the call services front with decline in average revenues per user (ARPU) and minutes of usage (MOU), on the other hand, there is a big scope to earn good money through VAS.
    According to the global research firm Gartner the Indian telecom sector will maintain its growth trajectory and is expected to generate revenues of more than $30 billion by 2013. Voice tariffs will continue to fall in the future as new operators make their way into the industry and increase competition. Although the major proportion of revenue for telecom players stems from voice services, data services will witness fast growth in the future, Gartner said.

    Another research firm, RNCOS, said it expects Indian MSP's revenues from mobile VAS to reach over Rs16,500 crore in 2010 from Rs1,675 crore in 2009, driven by the launch of 3G services and mobile number portability (MNP).
    This is one of the reasons why almost all incumbent MSPs are trying very hard to push more and more VASs. But in that process, a number of complaints are emerging against MSPs and the method used by them for pushing VASs. Accordingly, many users feel, their MSP is using their subscriber base as a power to abuse an average user. For example, Bharti Airtel, the country's largest telecom operator has been trying hard to 'push' more and more VASs and in the process is depleting money, without the consent and knowledge of the subscriber.
    Here is one complaint from one of our readers, who says that he had kept his Airtel pre-paid connection only for use in emergencies and hardly uses it. However from time to time he is being subscribed automatically to a number of VASs and the service gets deactivated only when he complains.

    Another reader said, he had been having a long interaction with Airtel on behalf of his father who is 76 years old. Over the past eight weeks, he (the father) has been 'subscribed to' a number of VASs (matrimonial, bikinirichalert, cricket score, etc) which Airtel claims is based on a 'request from the subscriber'. SMS-driven and much publicised STOP and START services of Airtel are not easy to use or reliable. The most troublesome part is that even if the system tells you that you are not subscribed to any service, you will still lose money from VASs. Either the company does not have a good handle on such systems or has deliberately designed them to make it complex for users, to increase revenue, the reader added.

    Moneylife came across many such complaints against Airtel and decided to take up the matter with the concerned officials. Although, they still have not replied to my e-mail, I got a call from someone claiming to be from customer services and here is what he said, "We are looking into the matter. Meanwhile we have reverted the amount deducted from your account.”

    When I asked, why someone like Airtel (the largest MSP in India) is pushing hard these kind of VASs?, I got a reply that Airtel has given the access to their subscriber numbers to VAS providers like Mauj, who in turn are sending such messages, but Airtel is “seriously” looking into the matter.

    For addressing the concerns of the mobile industry while protecting the interests of consumers with regard to explicit consent and for preventing accidental subscription to VAS, the Telecom Regulatory Authority of India (TRAI) issued a direction in April. According to it, the MSP has to provide the subscribers an option to use a procedure of double confirmation instead of the single one. For example, if a subscriber wants to copy a hello tune, then he should press * (star) and '9', instead of just *, as is the practice.

    TRAI has also made it mandatory for all MSPs to intimate the subscriber, at least three days before the due date of renewal of a subscribed VAS, the due date for renewal, the charges for renewal and the toll-free telephone number for un-subscribing of such VASs. I have yet to come across a single mobile user who has received such communication from his/her MSP.

    Another question is, when a subscriber had registered his/her mobile number in the National Do Not Call (NDNC) registry, how can the MSP send any commercial communication, prohibited by the registry, to even their own subscribers? Again, how can the MSP share the subscriber number with their VAS vendors? This not only puts a question mark over the power of authorities but also highlights the plight of end-users. Is there any solution for this mess?
    -Yogesh Sapkale [email protected]

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    Easy Cash
    Customer convenience in the use of plastic money is imperative and in a move to significantly enhance this, the Reserve Bank of India (RBI) has now allowed cash withdrawal from point of sale (PoS) terminals across the country. All customers using debit cards issued in India can withdraw up to Rs1,000 per day from PoS terminals. “The facility is available irrespective of whether the card-holder...
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