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Home News Power Sector News PPP model in power distribution opposed

PPP model in power distribution opposed

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PrivatisationPower distribution utilities of three States including Maharashtra have objected to the proposed suggestions by a sub-group of the Task Force on Private Participation in the Power Sector of the Planning Commission. They feel the proposals could go against existing franchisee norms in the States and skew the tariff. The sub-group had been pushing for Public-Private-Partnership (PPP) in the distribution of electricity as the way forward. The concessionaire selected by competitive bidding would be responsible for maintenance, operation and upgrading of the distribution network. It has also suggested providing the requisite flexibility to the concessionaire to procure bulk power from the market at competitive prices.

Official sources said Karnataka and Andhra Pradesh were also unhappy with the report submitted in October 2011.

The Task Force was formed on November 9, 2010 under B.K. Chaturvedi, member, Planning Commission, which in turn formed two sub-groups to examine and evolve the framework for the franchisee and PPP models.

Maharashtra has voiced strong objections as it pioneered the franchisee model, starting with the power loom town of Bhiwandi, near Mumbai, where theft was rampant and losses were huge.

After a franchisee was appointed to recover the outstanding amounts from consumers - many of them illegally tapping power - the model was adopted in three other areas, Nagpur, Jalgaon and Aurangabad.

However, the sub-group felt that essentially the franchisee was handling the operation and maintenance (O and M) obligations of distribution companies and they were not regulated by the State Electricity Regulatory Commission (SERC).The model did not address significant issues such as the need for capital investments, ensuring quantity and quality of supply, financial sustainability, competition and open access.

The sub-group felt neither the privatisation model as in Delhi nor the franchisee model would deliver the desired outcomes and pitched for a well formulated PPP which would be consistent with the Electricity Act.

In Delhi, despite 10 years of reform, the mandatory provisions of open access have not been operationalised and the average power purchase cost has increased 49 per cent in the last two years, the report by the sub-group said.

Mahavitaran's counter

Maharashtra's power distribution utility, Mahavitaran, has submitted a response to the proposals and countered the charge that a franchisee cannot distribute electricity in urban areas unless it had a distribution licence.

Mahavitaran contends that the franchisee model was in consonance with section 14 of the Electricity Act. The legality of appointing distribution franchisees in urban areas was challenged in the Nagpur Bench of the Bombay High Court, which upheld the allotment of distribution franchisees in urban areas in its 2008 order.

Backing the franchisee model, Mahavitaran said in Bhiwandi, which was given to a franchisee, Torrent, in January 2007, aggregate technical and commercial losses reduced from 58 per cent to 18 per cent. Improvement in collection efficiency rose to 100 per cent from 68 per cent and financial gains in the first three years of operation touched Rs. 419 crore, besides a saving of Rs. 30 crore a year on human resource and operation and maintenance costs.

The Maharashtra Electricity Regulatory Commission in a case of 2007 analysed the franchisee model of Mahavitaran and observed that appointing a franchisee in three divisions of Nagpur would result in net benefits.

Even the Power Ministers' conference held on July 13, 2011 unanimously resolved that States would initiate steps to appoint distribution franchisees in urban areas. Mahavitaran officials also raised the issue of tariffs, among other things.

In the PPP model proposed, the operator would seek and secure periodic tariff increase and this would lead to different tariffs for different areas within a State. On the other hand, the franchisee is not allowed to seek a tariff increase independently.

Source- Hindu


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