Centre mulls financial help for pvt role in power distribution

To attract private sector participation in power distribution across the country, the Union power ministry is formulating a plan for providing financial incentives for engaging private companies in distribution.

“The idea is to provide financial support to the distribution companies on the lines of the viability gap funding (VGF) scheme available in other infrastructure sectors,” a senior power ministry official involved in the process told Business Standard.

He added that the ministry was discussing a composite scheme in which it would suggest to distribution companies one or more ways for involving private companies for becoming eligible to avail of the benefits. The Centre was developing a template for improving power distribution, said the official. In a way, this would be an extension of the VGF scheme to power distribution for private sector participation.

After concretisation, the ministry will send the scheme to the Planning Commission and the finance ministry for approval.

The three modes for involving private companies in distribution are: outright privatisation as in the case of Delhi; an input franchisee model like Bhiwandi, Agra and Kanpur and a public-private partnership (PPP) model in which instead of complete privatisation the private company would handle the identified area for a specified period under set parameters of operation.

The official said the ministry might ultimately decide to select either one of these modes or leave it on the distribution companies to select from the three.

He added that in the PPP model, currently under discussion, financial support would be available and the specified area would be given to the private partner for a specified period during which it would hold a licence to operate without being the owner.

The private partner will make the necessary capital investments and will have to fulfil set standards in terms of collection efficiency, system efficiency, loss reduction and customer satisfaction.

“It is expected that with the help of the financial support scheme, many private sector companies could be attracted to the power distribution,” said the official.

In another reform measure, the ministry is also working on an open access in distribution.