A2Z Group shares thoughts on a proposed new model that would bolster Power Distribution Reforms in the country.

PRELUDE: Edison’s Insight

Thomas Edison grasped the systemic nature of technological transformation a century ago when he introduced the electric light bulb. He realized that the technology he envisioned no matter how innovative, couldn’t by itself sweep aside the kerosene-based lighting industry. So while scores of people worldwide worked on inventing a light bulb, Edison conceived a fully operational system. His technical platform included generators, meters, transmission lines and substation and he mapped out both how they would interact technically and how they would combine in a profitable business.

Indian Distribution Reform has really taken the most appropriate emergent approach. Laudable are the efforts made by the various Government & Government Owned Enterprise Actors for they have really championed the right “intent” and have demonstrated different models of privatization [Orissa Model, Delhi Model, Revenue Based Distribution Franchise (RBDF), Input Based Distribution Franchise (IBDF)]. Instead of focusing on the shortcomings of individual attempt that will blind us to the lessons we can learn from the brilliant pioneering efforts, we believe in borrowing genes from each model and creating a different model for bringing rapid Private Participation in the Distribution Sector.

THE PROPOSED MODEL:

• An Input Based Distribution Franchise (IBDF) that would be an SPV (Special Purpose Vehicle) having 51% Private Player and 49% State Discom [marrying traits of the 51:49 model from Orissa-Delhi and the Input Based Distribution Franchise]. The following would be the SPV-IBDF salience:
• “Input-Based” constituent in the New Model helps focus on driving efficiency [loss reduction],
• “Franchise” constituent ensures DISCOM/Government having recourse if private player underperforms; also franchise constituent obviates the need for “controversial valuation” & “sale” of assets. Additionally “franchise” model ensures adequate redressal of pre-existing employees.
•  “51:49” constituent ensures DISCOM an active player in supervising and also sharing the upside. Also when the loss targets are not met in funded programs [like R-APDRP], the private player in the SPV-IBDF bears the onus of repayment instead of the pre-existing burden of State Governments like in the quadripartite agreements signed under R-APDRP.

Other Characteristics of the model explained elsewhere in the docket.

WHAT HAPPENS to STAKEHOLDERS?

Like Edison’s, our framework for thinking about the new Systemic Model consists of inter-dependent and mutually reinforcing stakeholders as mentioned below:

• Central Government:

Pre-existing: Central Government is compelled to be perpetual “Funder of Last Resort” to State Discoms.

New Model Effect: By the above framework, the Private Player would deploy capital in order to build efficiencies. Such efficiency driven program would substantially reduce the perennial subsidy burden. In fact, the Government can allocate more capital for the targeted-community thereby rightly performing its social & political role.

• State Discoms:

Pre-Existing: In any business, the proverbial “last mile” is the most difficult terrain and indeed State Discoms are currently braving this “last mile” while performing their duties of connecting the end-user. However due to revenue deficits, DISCOMS have to look to Central Subsidy as the “lifeline”. The said “cash strapped” status also inhibits the DISCOM’s investments for better infrastructure and “customer relationship management” which creates angst in the electricity consuming class. It also has negative imagery for the State Government as being “doing too little” for the cause of paying-class.

New Model Effect: Since Private Player would be compelled to perform in order to achieve its incentive, the State Government not only would share the upside [being 49% in SPV], would also benefit from the positive image being created by reducing losses and nailing inefficiencies ad better customer management.

• Electricity Consumers

Double whammy of not being able to get electricity even when they are ready to pay and also indirectly the ones who are tax-payers end up bearing the burden because it is the tax payer’s money that funds even the power subsidies. Also the pre-existing models of private participation in Discoms are being seen by people either as State running away from its role or being seen as “selling nation’s assets” created by tax-payers money.

New Model: Government remains a key partner even after privatization [DISCOM 49% in SPV] hence is seen “not running away” from its role. Also there is no sale of assets to the SPV which means that the DISCOM [Government] preserving the assets. Additionally since DISCOM is part of the SPV, the upside accrues also to the DISCOM [State Government] which is better utilized elsewhere.

• Discom Employees:

Pre-Existing: In earlier models, employees endured long pain of uncertainty, also some real talented persons took voluntary retirement and joined private enterprises.

New Model: Employees are deputed with the SPV and are afforded dual benefits: one of continuing their State Employment Status as also being incentivized for “loss reduction” causing  the conversion of special funds into grants.

Coupling between R-APDRP & Private Participation in DISCOMS:

Systemic Shifts are oft instigated by the emergence of new technologies. The invention of steam engine catalyzed the era of railroad, the creation of microprocessor launched the information age. But the real impact of these technologies was felt only after the systems had evolved around them. In a similar scenario, Indian Electricity Transmission & Distribution sector is embarking on implementation of new technologies [AMR, Softwares, Networking, etc] for reducing T&D losses.

However if it is ensured that the technology-implementation coincides with private participation in Discom, the implementation becomes an automatic responsibility of private player thereby also onus of reduction in losses or demonstration of efficiencies. This would instill deep performance driven orientation and help all the stakeholders achieve their respective objectives.

• Central Government: Central Government can hold the private player for performance under their funded programs instead of their colleagues in the State. Hence instead of becoming a Central Vs State, both Central & State can vet the private player’s performance. Also the Private Player would be responsible for loan repayments [under the GOI funded programs like R-APDRP] which ensure better judicial enforcements.
• DISCOM: Onus of achieving the target loss reduction would transfer to Private Player and State Discom can play the supervisory role while staying in the SPV. Also under pre-existing models when the loss-targets are not achieved under R-APDRP, the State Government bears the Loan repayment. In the SPV-IBDF, the private player would have the onus of loan repayment.
• Electricity Consumer: Better Electricity availability due to cuts in T&D losses. Also Customer Relationship Management is at the core of Private Enterprise which ensures Customer Satisfaction.

SPV-IBDF to us seems to be the panacea for bolstering the power distribution reforms. We would request your goodself to afford us a brief audience so that the said cause can be mobilized in a manner to generate consensus and built into the privatization process.