You are here: Home » Economy & Policy » News
Business Standard

Power distribution: Plan panel suggests PPP model

Sanjay Jog  |  Mumbai 

It aims zero power cuts, reduction in technical losses & easy distribution tariffs.

The government is planning to replicate the PPP (public-private-partnership) model in the electricity distribution sector, after having successfully implemented it in works related to roads, flyovers, airports and ports. Planning Commission member B K Chaturvedi is heading a sub-group to proceed with the proposal that aims to ensure zero power cuts, reduce aggregate technical and distribution losses and make distribution tariffs affordable.

The body observed that a PPP model would enable limited recourse financing by financial institutions and viability gap funding support from the Union government in order to mobilise the requisite volumes of investment. It would also provide the requisite flexibility to the concessionaire to procure bulk power from the market at competitive prices.

The sub-group has recommended 25 years of concession period, separate tariff for regulated and open-access consumers and a billing and payment mechanism besides a pre-determined system of incentives and penalties on the key performance indicators to ensure quality and reliability of supply by the concessionaire.

According to the sub-group, neither privatisation (Delhi model) nor the Franchisee model would deliver the desired outcome. Instead, a well-formulated PPP model could be the way forward.

Moreover, the model would be consistent with the Electricity Act, 2003, which requires distribution to be a licensed business under the regulatory oversight of the state electricity regulatory commission (SERC) for ensuring consumer protection.

The sub-group has recommended 25 years of concession period in accordance with the provisions of the Electricity Act. The concession agreement may also provide for extension of the concession agreement for a further 10 years on the terms specified in the concession agreement and subject to the approval of the SERC.

The concessionaire would be given the exclusive use of the distribution assets, but the ownership of the assets would remain with the government. The nature and extent of the use of distribution assets shall be regulated in accordance with the concession agreement and the applicable laws.

The sub-group has submitted its report to the Planning Commission, according to Gajendra Haldea, advisor to Deputy Chairman, Planning Commission.

Not all are optimistic about the move, though. Former power secretary R V Shahi says the PPP model will not work in the power sector. “The Delhi model has vindicated itself; so also the Bhiwandi model of franchisee. If the government is serious on distribution reforms, states need to be persuaded to have privatisation in large cities and franchisee in all such towns where their AT&C losses are more than 20 per cent,” he told Business Standard.

These alone can take the distribution sector out of the major difficulties they have gone into, according to Shahi. “The very decision to do so, and selective implementation in a progressive manner can raise the level of confidence of financial sector which has reached the rock bottom in last one year,” he adds.

On the other hand, TN Thakur, chairman and managing director, PTC India, opines that the PPP model can work only if the management is given a free hand. “There is no micro management efforts from the government or anybody else. However, the management should be selected carefully,” he adds.

However, Ashok Khurana, director-general of the Association of Power Producers, notes that it is “very clear” that PPP is a better model than franchisee and privatisation of distribution. “The problem/controversy in Orissa and Delhi privatisation came up on the basis of valuation of assets and tariff increases,” he recalls.

To Khurana, PPP tries to meet these shortcomings as the model permits bids to be based on wire charges. Thus, the licensee, he points out, will be responsible only for activities under his control: T&D losses and efficiency in carrying current from substation to consumer, billing and collecting the energy sold.

According to the sub-group, the concession agreement will specify the existing power purchase agreements (PPAs) which will be transferred to the concessionaire for the supply of electricity to the regulated consumers.

The concessionaire would also be free to procure additional power by entering into new PPAs or making other arrangements with the approval of the SERC insofar as supplies to the regulated consumers are concerned. Further, the tariff to be charged by a distribution licencee from all regulated consumers (including all consumers other than open access consumers) would consist of the tariff for supply of electricity and a fixed charge reflecting the wheeling/distribution charge.

In the case of open-access consumers, the supply tariff would have to be determined bilaterally between the suppliers and the consumers in accordance with section 49 of the Electricity Act. However, the wheeling charge for open-access consumers would be at par with the wheeling/ distribution charge payable by regulated consumers in accordance with the provisions of the concession agreement.

On his part, an official with MahaVitaran, the Maharashtra government company engaged in power distribution, says the PPP model may not work.

“In Maharashtra, the franchisee model in Bhiwandi has been a success. It will not be viable to have difference tariffs in the state as proposed by the sub-group,” he maintains.

“There cannot be a multiple tariff; instead, the franchisee needs to follow the MahaVitaran tariff,” he adds. “Besides, valuation of assets is not a simple, but a complicated exercise. If the transfer of these assets take place based on market value, then the tariff shock is inevitable.”

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, December 22 2011. 01:38 IST