[PPT] - Doctor of Philosophy (PhD) Welcome to Open Defense on A Doctoral PowerPoint Presentation

SLIDE 1

Doctor of Philosophy (PhD)

Welcome to Open Defense on A Doctoral Thesis Entitled :

“A CRITICAL EVALUATION OF MANAGEMENT & ADMINISTRATION OF POWER DISTRIBUTION FRANCHISEE – CASE STUDY OF TORRENT POWER LTD. & CROMPTON GREAVES LTD.” (2001-2011) Submitted to the

Rashtra Sant Tukadoji Maharaj Nagpur University, Nagpur

For the Award of Degree of

Doctor of Philosophy (Ph.D.)

In the Faculty of Commerce (Business Administration) Researcher

Murhari Sopanrao Kele

BE (Elect.), MBA (Marketing), FIE, LL.B, DIT, BJ, EA, ACPDM Supervisor

Dr. Pradip D.Ghorpade

M.Com. M.A., M.Phil., Ph.D Head of Department, Shivaji Mahavidyalaya, Gadchiroli.

SLIDE 2

Research Type: Case Study

What is Case study?

– A case study is an intensive analysis of an individual unit (e.g., a person, group, or event) stressing developmental factors in relation to context by one or other method. – Case study is one of the popular research method.

Research is about:

– Success story of Bhiwandi PDF

– Failure of CGL in Nagpur PDF process. – Transformation in Administration & Management. – Analysis, evaluation , Conclusions & Recommendations.

Administration: (Public)

– Universal process of efficiently

rganizing people and resources so

to direct activities toward common goals and objectives. – It is both an art and a science – It is paper work. It is above management. – Administrators are judged ultimately by their performance. – Administration must incorporate both leadership and vision.

Management: (Private)

– Subset of administration. associated with the technical and

rdinary elements within an
rganization's operation.

– Manages employees. – It is how you deal with people.

SLIDE 3

Power Distribution Sector :

–Historical Background –All is not well with this sector –Challenges before MSEDCL –Legal Institutional Framework For Reforms

1

SLIDE 4

Power Distribution: Historical Background

Year Reforms in Power sector in India

1897 First time electricity distribution in Calcutta 1910 Private licenses in Urban areas only 1948 State Electricity Boards set up 1960 Establishment of MSEB 1996 Orissa privatization 1998 Electricity Regulatory Commissions Act 2002 Delhi Privatization 2003 Electricity Act 2003 2007 First Power distribution franchisee in Bhiwandi 2011 Second power distribution franchisee in Nagpur

Features of Electricity:

Electricity cheapest form of energy & easy to

transport for long distance.

Cannot be stored in large quantities .
It can be easily converted to heat, light and

mechanical power, the form in which the consumer actually needs energy.

It can’t be seen, heard, smelt or touched.
Electricity is treated as commodity and it can be

treaded.

Bhiwandi Nagpur

SLIDE 5

Indian Power Sector – “All Is Not Well”

Key areas for focus of attention Availability

Peak Shortage : 12%
Energy Shortage: 9 %
Monitory Losses
No Reserve / Surplus

Financial Performance

Poor generation efficiency
Low PLF & High T&D losses

Technical

Old Plants
High GHG emission

Environment

Rising commercial losses
No service orientation
No accountability

Commercial

No Autonomy
Low Human Productivity
No Specialisation
Lack of Professionalism

Managerial

Performance & Evaluation of Electric Supply Utilities Necessity:

Gauging efficiencies &

ranking their performance.

Establishing goals of

performance

Ensuring cost minimization
Setting target for

improvements

Finalizing resource

allocation strategies

Regulating the sector

especially in incentive regulation & setting rational tariffs

Ensuring sustenance of

utilities & sector in long run.

SLIDE 6

Challenges before MSEDCL MSEDCL

Loss reduc tion CPP

IPP

Open Access

Threat

f

loosing market High power purchas e cost

Consu mer Satisfac tion

Parallel license

Deemed license

Exempt ion of license

MSEDCL:Challenges:

 Loss Reduction: 1% Loss= 200-250 Crs High Power Purchase Cost: Rs.2.84 & Av.cost to serve consumer is 4.55/-  Private Generators: CPP/IPP & Co-generators are having their own use/ sale to third party through Open access provisions.  License: Exemption/Parallel/Deemed license provision will loose consumer base of utilities.  REC Policy: Distribution business by SHGs, local panchayat,, Co-op.societies. Customer satisfaction: By improving services / by rationalized tariff.

SLIDE 7

Legal Institutional Framework For Reforms In PSP & PDF Business

Blue Print by Central MoP recommending the Private Sector Participation

(PSP) in Power Sector.

Aug 2001

Distribution Committee headed by Energy Secretary & then Chairman CERC

Mr., Ashok Basu, recommendation on PSP in distribution business.

March 2002

Enactment of EA-2003:Promoting competition & franchisee business as per

Sec-5 & Sec 14 (7)

June 2003

National Electricity Policy:
Encourages the role of PSP in distribution, need for PPP model & discharge
f responsibility of DF business Clauses-1.5, 5.1.6, 5.4.4, 5.8.6, 5.8.9, 8.3.7

Feb 2005

National Tariff Policy :
It acknowledges the efficiency improvement, which could be brought about

by deployment of Franchisees in rural areas. Clauses- 5.2, 8.3(5)

January 2006

Rural Electrification Policy
REC stressed on mandatory appointment of franchisees in rural areas under

RGGVY schemes, Clauses-7.3,9.5, 9.7

August 2006

Regulator’s views/Advice to state Govt. through papers: Policy advise on

distribution Generation Based Electricity Distribution Franchisee (DGBDF), which promotes distribution Franchisee with the generation Sec-86(2)

August 2007

Suggestion issued by MERC as per advice to Government of Maharashtra

dated Various provisions in process of franchisee, agreement document, roles of stakeholders, transfer of rights, etc, suggestions were given by MERC to MSEDCL.

Sept 2007

First experiment of PDF in India at Bhiwandi by Maharashtra.

January 2007

SLIDE 8

Importance of Study

–Problem Identification –Research Methodology & Design –Rationale of Study –Data Collection & Sampling –Limitations of the study 2

SLIDE 9

Problem Identification & Importance of Study

Problems in Power sector-

– High T&D Loss (nearly 50%). – Imposing a heavy fiscal burden on the state governments . – Deterring much needed investments in the sector – Adversely affecting service delivery to the consumers.

Public Sector: Non-professional & monopolistic

approach.

Private sector: Failure of private sector in power
distribution. e.g. Orissa Model
PPP : To be implemented to increase investment,

improve operational efficiency & service delivery to the consumers.

Distribution Franchisee : It is the latest form of

public-private partnership in the distribution sector.

Why Power Distribution franchisee?

– Use of modern technology, – Investment capability. – Utilization of latest managerial acumen. – Get the efficiencies of the private sector. – Change in business environment. – Avoid whole hog privatization. – Bring in adequate transparency in the system

Locale of Study: Bhiwandi & Nagpur
Importance of Study:
Power Distribution Franchisee was new emerging

subject matter in Power sector.

This concept has opened much business avenue in

this sector.

Bhiwandi was first experiment in India & were

looking to be successful.

Nagpur was second experiment & was not made
perative due to various reasons.
Researcher has worked in Bhiwandi & Nagpur
Experienced actual field work before & after

franchisee.

No any literature/material was available on this

topic.

There is business potential in this area.
Many

areas are in thrust

f

franchisee in Maharashtra state as well as other states in India.

Management & Administration of these cases has

good impact on business module.

Presently majority of states have adopted this

model, such type of case studies gives direction & way forward through experiences.

Critical Evaluation of these cases will be useful &

important for all stakeholders, policy makers, Government & Regulators of Power sector.

SLIDE 10

Research Design & Methodology

Research Methodology

Analytical, Comparative,

Qualitative, Descriptive, & Developmental.

Base year data before

franchisee & after franchisee.

Observations / opinions of the

utility employees, different trade unions, consumer’s representatives, social institutions, opinion maker media, etc. are considered for this study.

Questionnaire was prepared

for above stakeholders.

Research Design

Macro Analysis: Sector

reforms, origin of franchisee & its legal base, PPP models & its design.

Micro Analysis: Comparison of

parameters for 10 yrs. before & after franchisee viz. loss, collection, arrears, infrastructure, etc.

Dependent variables: Loss,

recovery, infrastructure, consumer service.

Independent variables : Tariff,

Conditions in DFA, actual data

SLIDE 11

Rationale of Study

This study aims to critical evaluation of management & administration of power distribution franchisee business with reference to the case study of Torrent Power Ltd. At Bhiwandi & Crompton Greaves Ltd, Nagpur. Objectives: i. To study developmental experiment of power distribution franchise business model adopted in Bhiwandi & Nagpur. ii. To do the case wise critical evaluation of various parameters (pre & post franchisee experience) related to franchisee process, management & business development of M/s Torrent power Ltd at Bhiwandi & M/s Crompton Greaves Ltd at Nagpur. iii. To make SWOT analysis of various existing models of power distribution franchise in view of technical, financial, administrative and managerial aspects & suggest more better models of franchise for improvement & enhancing replicability. iv. To discuss problems & issues faced by PDF in implementation of concept & need of PPP based franchisee models. v. To record perception of stakeholders & discuss whether Distribution Franchisee is precursor to full privatization? vi. To make suggestions/ recommendations to all related policy makers for betterment of business in power distribution sector.

Hypothesis:

H1: The proper management & business administration of PDF business will lead to

win-win situation for all the stakeholders i.e. consumer, utility and Franchise.

H2: Power Distribution Franchise business concept i.e. Public Private Partnership in

Power sector in India is needed for proper functioning of overall performance of Power Distribution Utility to enhance consumers satisfaction.

SLIDE 12

Data Collection & Sampling

Primary Data:

– Questionnaires for

Consumers
Employees
TPL Management
CGL Management
Union representatives
Different media persons

– Actual Work in that area. – Actual Field visits – Discussions – Observations

Secondary Data:

– IT centers of MSEDCL – MIS of TPL – Franchisee RFP & DFA – Bid Evaluation reports – Court / MERC orders – Training manuals – Various related reports – Journals/ Magazines – News papers – Various Websites

Sample Size for survey through questionnaire:

Superintending Engineer 2 Residential Consumers 40 Executive Engineer 6 Commercial consumers 25 Dy.Ex. Engineer 10 Industrial Consumers 10 Junior Engineer 25 Media persons 10 Account Cadre 20 Trade union leaders 15 HR Department 12 Consumer’s representative 10 Technicians 50 Private Co. representative 15 Total 125 Total 125

SLIDE 13

Limitations of the study

This case study is limited to TPL in Bhiwandi & CGL in Nagpur only.
The strategies studied, discussed and suggested in this study is more of universal in nature rather

than individualistic from the point of view of power distribution franchisee.

The researcher heavily relied on the secondary data provided by MSEDCL, TPL, and CGL &

documents available in various offices for reaching at a conclusion.

As Power Distribution Franchisee is new concept in power sector, books/literature are not available
n this topic. This research work is actually based on field experience basis.
The study of Bhiwandi was concentrated on pre & post franchisee experience & for Nagpur it is

concentrated three years pre & post agreement period along with current position.

In some cases biasness & lack of knowledge of the stakeholders may have lead to unrealistic

analysis.

This study is having comparative data of ten years from 2001-2011

Literary review:

Books /Manuals Documents Technical reports Websites/MIS reports

The Electricity Act-2003
National Tariff Policy
National Electricity policy
Rural Electrification policy
Training manual- MoP
Guidelines of FoR
RFP
DFA
Bid Evaluation

reports

Court orders
MERC orders
CRISIL
PRAYAS
World Bank report
White paper
Magazines
Journals
Min of Power
CEA/PFC/MERC
TPL/CGL/MSEDCL
Google/Wikipedia
Power line
IEEMA

SLIDE 14

Franchisee:

– What Is Franchisee? Difference Between Retail & Power Dist. Franchisee – Reform Process, PSP Implementation In India – Selection of A Model & Key Activities In DF Models – Input Based Distribution Franchising – Key Franchisee Process Activities – Co-existence & Future of DF-- Issues & Concerns – Role/Responsibility, Concerns & Incentives Of Stakeholders – Stakeholders Within Utility-views – Flow Chart For Franchisee Selection Process – Summary of Risk & Responsibility Matrix

3

SLIDE 15

Franchisee

Use:

 Brand Name  Technical Skills  Assets

Pay:  Royalty

 Usages Charges  Any Other Financial Consideration

What Is Franchisee?

The term ‘franchisee’ derives its origin from old English word ‘franchir’ , which means to ‘free’. “Franchisee” means a person authorized by a distribution licensee to distribute electricity on its behalf in a particular area within his area of supply.” --- EA 2003

Section 14 (7) of Electricity Act, says that , “Provided also that in a case where a distribution licensee proposes to undertake distribution of electricity for a specified area within his area of supply through another person, that person shall not be required to

btain any separate license from the concerned State Commission”

SLIDE 16

Franchising Electricity Distribution

Awarding franchisee rights to an entity which undertakes distribution and supply
f electricity in a designated area, which can be at the sub-division/ division/ circle

level

Distribution Franchisee

Has exclusive sale rights in the designated area

Uses existing network, facilities and deputed employees

Acts as an intermediary between the distribution company and customers Is solely responsible for maintaining distribution and collection in the Franchise Area

Distribution franchisee concept is synonymous with management contracts used in electricity, water and sewerage industries

SLIDE 17

Point Retail Franchise Electricity Distribution Franchisee

Purpose/ Genesis Enhance the business growth & Reach the product. Need to cut unsustainable losses & to curb the inefficiencies in the system. Starts Business With brand name already build up by the parent company With a loss making organization & unsatisfied consumer and hence has to perform better than the parent

rganization.

Consumer Base No defined consumer base for franchised area. Franchisee gets business from consumers drawn by the franchiser’s brand name Franchisee gets the consumer base of the franchiser within the franchised area Franchiser’s risk There is no such obligation towards consumers or the society on the part of the franchiser Non performance of the franchisee is practically the same as to non performance

f the franchiser

Franchisee’s risk Such a criterion does not apply to the franchise agreement Has to perform better than the franchiser in the franchised area to be able to break even Example M/S Bata India Ltd. M/S Torrent Power Limited, Spanco, GTL, franchisees of MSEDCL

Difference Between Retail & Power Dist. Franchisee

SLIDE 18

Reform process

Reform Process Slow Fast Political Acceptance Low High

Privatization Dist Franchise SEB Driven Reforms

Right Mix of Progress and Acceptability

Allocation of responsibilities Management Contract Distribution Franchisee Licensee Asset ownership Public Public Private Operation & Maintenance Private Private Private Capital investment Public Private Private Commercial risk Public Private Private Duration 3-5 years 15-25 Years Indefinite

Franchise

SLIDE 19

PSP implementation in India

19

Distribution Model Nature of Activities Illustration - States

Licensee Route Parallel Licensee Distribution Licensee Obligation (sec 14) Maharashtra – TATA / REL Jamshedpur – JSEB / JUSCO SEZ - now deemed licensee Distribution Licensee Obligation M.P. Audyogik Kendra Vikas Nigam (MPAKVN) and Torrent - Dahej SEZ (also allowed parallel license) DGBD Distribution Licensee Obligation and Generation (Sec 13) Rural Franchisee for a rural area. Captive Power Plant Generation and supply of power to captive consumers Franchisee Route (sec.14) Billing Agent Meter reading and consumer bill distribution Assam, Bihar, Chhattisgarh, Haryana, Karnataka, Uttar Pradesh, Uttaranchal, West Bengal, Madhya Pradesh, Andhra Pradesh Collection Franchisee Billing, Collection as per billing/ Interface, Depositing collections O&M Contracts O&M activities - Feeder based or area based Input Based Franchisee MBC as well as purchase and sell of energy for the consumers as well as O&M Maharashtra - Bhiwandi Uttar Pradesh - Kanpur Single Point Connections Distribution Licensee Obligation, Bulk Supply Tariff - to be recovered by Licensee Airport, Mall, etc Interim Franchisee Only for the purpose of power arrangement to mitigate the Load shedding Maharashtra – Pune, Baramati, Thane, Vashi, etc Privatization Private Distribution Distribution Licensee Obligation by a private sector Delhi – NDPL, BRPL, BYPL Orissa – DISCOM by Reliance

SLIDE 20

Selection of a Model

Sr. no Distribution Franchisee

ptions

Factors Period

I

Through Competitive Bidding Process a) Billing Agent Implemented Feeder basis 6-24 months a) Collection Franchisee Implemented Feeder basis 6-24 months a) Input Based Franchisee Implemented area basis to curb down loss and bring efficiency 5-15 years

II

Distribution Licensee U/s. 13 and 14 - Rural Area Local area distribution activity 1 year - 25 years

III

Through Open Access route To source power from other source to meet demand 1month - 25 years

V

Distribution Licensee U/s. 14 Parallel Licensee Long Term

VI Developer as a Distribution

Franchisee based on MOU route Distribution Infrastructure developed by Developer 5 years - 15 years

20

SLIDE 21

Key Activities in DF Models

21

Billing Agent Collection Franchisee Input Based Franchisee PSP Model

SLIDE 22

Input based Distribution Franchising

Meter Reading Revenue Collection

 All obligations of DISCOMs  Total O & M of the network  Capital expenditure  Revenue assurance and vigilance  Day to Day business operations  Medium to long term contract with performance benchmarking

Generation Transmission Distribution

End-to-end distribution operation as deemed licensee in Franchise Area

Energy Input Metering O&M Fault Restoration Customer Care Planning Capex

SLIDE 23

Key Franchisee Process Activities

U T I L I T Y

Board meeting, Selection of area, Selection of model, Qualification criteria Bid doc. preparation Publishing RFP Sale of RFP Prebid meeting, Amendments if any, Bid submission Bid opening, Bid evaluation, Issue of LOI Acceptance of BG & LC DFA execution, Joint audit, Handing over Monitoring with audit & other etc. Purchase of RFP, Study of RFP Field survey of area, Collection of Data Queries Submission of queries Rollout plan for CAPEX Preparation of financial model Submission of bid Optimistic approach If not satisfied, legal help Submission of BG & LC Identification of staff & resources Prebid Meeting Resolution of queries Signing of DFA Joint Audit Asset verification Selection of employees Billing Data transfer Transfer of employees Handing over process Joint meter reading at i/p points Timely audit & monitoring

B I D D E R J O I N T

SLIDE 24

Co-existence & Future Of DF-- Issues & Concerns

Handing Over Process:

Joint Audit of Asset
Building – rent & Taxes
Equipments – Age, Quality &

Depreciation

Billing Data / Record - M IS
Material at site & store – scrap

etc.

Joint meter reading at i/p points

Technical:

Monitoring of quality of work
Regular Asset verification
Roll out plan of CAPEX
Repetition of work
Recurring expenditure on

same work

Coordination with EHV / STU
Schemes - Ongoing & New

Commercial:

Billing & Metering
Old arrears, Compound charges,

Subsidy,RGPPL charges,

MIS: Data sharing, Record of

Govt.dues-Electricity duty, TOSE, Theft cases

Open Access & Load Shedding

Issues Legal:

Acts & Regulations: RTI act,

CGRF & all regulations

Audits: Timely audit of ABR,

subsidy, asset, Duty, etc.

Accidents: Human value
Critical & Non Critical events
Any incidental charges levied by

state regulatory Social:

Public Interest Litigations
Acceptability of Private

Company’s Culture

Fear of hike in Tariff
Fear of installing fast meters
Political interference

End of Franchisee Tenure:

Handing Over to utility
Joint Audit
Arrears, Billing, Metering
Breach of Agreement
Extension of Agreement Period
Demand of Licensee by

Franchisee

Future: If above issues are resolved then & then only there will be co-existence & future for DF business.

SLIDE 25

Role/Responsibility, Concerns & Incentives Of Stakeholders

Role:

Customer Magt &

services

Metering, Billing,

Collection, enforcement, Energy Audit

Infrastructure

development

O&M of s/s, lines,& DTCs
No power complaints
connections &

disconnections

DSM activities-reactive

power management.

Plan capital investment
Meeting all the
bligations of MSEDCL

Role:

To obtain & get regular connection
Timely payment of dues
Not resort to meter

tampering/theft

Cooperating in process of

franchising

Franchisee

Concerns:

Surety / confidence about

business at starting.

Domain knowledge
Employees of utility
Political & local

environment

Incentives:

Increases creditability in

market.

No direct monitoring by

regulator

Can get access of

consumers for 10-15 years

Financial turnaround of

DF

Role:

Providing

information/Data

Supply of power at

input points

Monitoring of works

& its quality

Awareness amongst

consumers

Support to franchisee
Handover of assets

& willing employees

Past Arrears

settlement

Utility

Concerns:

Proper monitoring on

business

Quality check on works &

material

Timely audit
Transfer of employees
Loosing identity as utility

Incentives:

Single point control
Reduction in AT&C losses.
No any O&M, Admin. cost &

capital cost

Higher recovery of power

purchase cost.

Monthly fixed revenue/

profit

Concerns:

Fea of tariff increase,
No human face
Monopolistic approach
Precursor to privatisation
Harsh treatment by DF

Incentives:

Reduction in tariff
Transparency in getting connection
Will avoid delay in every work,
Reduction in load shedding
Good consumers services
24x7 call center & quality power supply

Consumers

SLIDE 26

Role:

Regulate working of utilities
Safeguard long term interest of power sector
Performance of franchisee Regarding cons

complaints

SOP regulations

Concerns:

No direct control over franchisee
No standard bidding documents
Treat franchisee as secondary

Role:

Creating policy framework.
Timely payment of subsidy.
Setting up of special police stations & special courts.
To prepare policies for betterment of power sector.
Phasing out subsidy.

Concerns:

Utility as a separate entity
Political interference
Social obligations.

Incentives:

Will increase Govt. income through electricity duty
n billed units.
May reduce financial support to utility
Reduce dependence of utility on Govt.

Incentives:

No separate tariff determination.
Can ask to implement best practices of best

utility. Role:

Providing timely help to

franchisee

Creative conductive

environment

Treating franchisee as a

partner rather than contractor. Concerns:

Transfers
Promotion channel
Reservation
Lack of Professionalism
Fear of privatisation
Secondary treatment to

utility employees. Incentives:

Will get more salary
Acquaintance modern technology
Will learn best practices of each
ther
Will get opportunity in new area
Performance based opportunities.

Employees Regulator State Govt. Contd…

SLIDE 27

Stakeholders Within Utility-views

Top management:

Implementation of Govt.

policies,

Reforms in power sector.
Utility performance,
As funding agencies also think

about P&L accounts of utilities today,

Loss reduction is main target,

so PPP model is preferred .

Middle management:

They are having dual mind
It is to be implemented as

companies requirement,

No firm opinion, just

implementation,

Sandwich position between

management & trade unions

Lower management:

Generally resisting such

decisions as a orders of union

Some young blood thinks

about reforms.

They want to join reforms
They are of dual mind &

conflicts about future

Fear of privatization.

Consumers:

No human face of utility,
Fear of tariff increase & hike in

bills,

Also happy about prompt

services,

Easily get new connections,

They doesn’t know franchisee process

Lower Technical staff:

Full resistance to such

decisions based on issues of transfer, Removal on the basis of inefficiency,

No job security,
Skill problem,
Lacking in advance

technology

Non-technical staff:

Resistance to process,

Computer awareness,

Working culture,
Transfers
Loose self existence
Precursor to privatisation

SLIDE 28

FLOW CHART FOR FRANCHISEE SELECTION PROCESS

No Steps & Period For franchisee Process Period 1 Commencement of Sale of Bid Document Day = 0 2 Last date for sale of the Bid Document D+20 3 Pre- Bid Conference D+30 4 Last date of sub of Technical and financial bids D+45 5 Opening of Technical Proposal/Bids D+45 6 Opening of Financial Proposal/Bids To be notified 7 Completion of Bid Evaluation and Issue of LoI D+90 8 Acceptance of LoI and sub of BG by successful bidder D+105 9 Signing of DFA D+120 10 Conditions precedents to be satisfied/ parallel

peration

D+210 11 Effective Date D+211 12 Conditions subsequent to be satisfied D+301

SLIDE 29

Summary of Risk & Responsibility Matrix

29

Sr. no

Distribution Franchisee options Determination of Franchisee Tariff Regulatory Risk CAPEX Responsibility O&M Responsibility MBC Responsibility Regulation of MERC Power Purchase Obligation

I Through Competitive Bidding Process a - Billing Agent Fees on the basis of per bill generated and distributed in the area. NIL NIL NIL Only Metering and billing N.A. N.A. b - Collection Franchisee The remuneration can be the franchisee margins

n

achievement of target, levy of penalty for not achieving the target and incentives for exceeding the target. NIL NIL NIL On Franchisee N.A. N.A. c - Input Based Franchisee Franchisee to bid for the power purchase cost from the licensee based on the base data. Moderate – depends on Tariff Revision On Licensee as well as Franchisee On Franchisee On Franchisee Applicable to Franchisee as an agent Franchisee is allow to purchase power from licensee and

ther sources

II Distribution Licensee U/s. 13 Cost Plus Tariff regulated by SERC. High – as Distribution Licensee On Licensee On Licensee On Licensee All regulation of MERC applicable Responsibility

f

Licensee to arrange power for the specified area III Through Open Access route Mutual agreement between generator and consumer and

nly
pen

access charges payable as determined by SERC. Minimum – revision of open access charges On Open Access User On Open Access User On Open Access User Only related to Open Access Responsibility

f

user to arrange power. IV MSEDCL taking responsibility of distributing electricity Cost Plus Tariff regulated by SERC + cost

f

additional power purchase to mitigate load shedding High – as Distribution Licensee On MSEDCL On MSEDCL On MSEDCL All regulation of MERC applicable Responsibility

f

Licensee to arrange power for the specified area VI Distribution Licensee U/s. 14 (Rural Area & Parallel Licensee) Cost Plus Tariff regulated by SERC. High – as Distribution Licensee On Licensee On Licensee On Licensee All regulation of MERC applicable Responsibility

f

Licensee to arrange power for the specified area V Developer as a Distribution Franchisee based on MOU route Based on Bulk Supply Tariff as identified by Licensee and mutually agreed by Developer and Licensee. Moderate – depends on Tariff Revision On Developer On Developer On Developer Applicable to Developer (Franchisee) as an agent Developer is allow to purchase power from licensee and

ther sources

SLIDE 30

Design of Franchisee Model

–Evaluation Of The Prospective Franchisee Parameters –Bidding & Billing Parameters –Preparation of Weekly Invoice –Risk & Sensitivity Analysis 4

SLIDE 31

Evaluation Of The Prospective Franchisee Parameters

Parameters Value Rationale

No. of Consumers

High More the number of consumers more the revenue and hence can attractiveness for the franchiseee Connected Load High High connected load means high consumption and hence high revenue Revenue Assessment High More the assessment revenue more is the scope of realisation Revenue Realisation Low Collection Efficiency Low T&D Losses High AT&C Losses High Transformer Capacity & failure rate. High High transformer capacity shall provide redundancy in the system and hence can support enhancement in load immediately Planned Investment High Makes the area more attractive to the franchisee To serve the key objective and the basic problem and to provide franchisee scope for improvement

SLIDE 32

Bidding & Billing Parameters

Bidding Parameters:
Min. Benchmark Rate is calculated
n the basis of following data

pertaining to base year.

– Input & Sale in Mus & Loss level – Demand in Rs & Collection efficiency – ARR=(Total Collection/Input units) – TIR=Current Month ABR/Base yr ABR – Trajectory of loss reduction & collection efficiency – Expenses (Employee Cost + O&M +A&G)

MBR= ( Collection-Expenses)

Input units

Year wise MBR are calculated for

franchisee term

Bidders to quote year wise per unit

rates equal or above MBR

Financial evaluation on the basis of

NPV/Levelised input.

Billing Mechanism:

– DF shall charge the tariff to its consumers as determined by MERC – Sharing of incremental tariff component is captured by Tariff Indexation Ratio (TIR) – TIR= ABR of the present month/ ABR

f the base year

– Average Billing Rate (ABR) of franchisee area for base year – ABR= (Total Demand+Subsidy)- (ED +TOSE+Any other taxes payable to Govt) / (Total Billed Units) – Payment to MSEDCL= Input MUs X Pre determined Rate xTIR – Gain to MSEDCL= (Quoted rate per unit by bidder- MBR) – DF benefits financially on reduction

f losses over & above the trajectory

& on achievement of higher collection efficiency.

SLIDE 33

Preparation Of Weekly Invoice

MI (Monthly Invoice) = (RIMM + WCM + EDRM + TOSEM + P) – (SM + CAPDRM + CACLRM)
RIMM (Revenue for Input Energy as per Joint Measurement) = EIM + AIRN + TIRN
WCM (Wheeling Charges) = 0.07 * EPOMM*AIRN* TIRN
EI (Energy Input) = ( RIMF + WCF + EDRF + TOSEF + P ) - ( SF + CAPDRF + CACLRF)
TIRN (Tariff Indexing Ratio) = Average tariff for billing period as applicable to all MSEDCL consumers /

Average tariff as applicable to all MSEDCL consumers in FY 2005-06

AIR means ANNUALIZED INPUT RATE applicable for year.

Year 1 2 3 4 5 6 7 8 9 10 AIR 1.80 1.81 1.88 1.95 2.02 2.09 2.18 2.27 2.35 2.45

SLIDE 34

Monthly Invoice

MI

Monthly Invoice =(RIMM + WCM + EDRM + TOSEM + P) – (SM + CAPDRM + CACLRM)

RIMM

Revenue for Input Energy as per Joint Measurement = EIM + AIRN + TIRN

WCM

Wheeling Charges = 0.07 * EPOMM*AIRN* TIRN

EIM

Energy Input =( RIMF + WCF + EDRF + TOSEF + P ) - ( SF + CAPDRF + CACLRF)

TIRN

Tariff Indexing Ratio = (Average tariff for billing period as applicable to all MSEDCL consumers / Average tariff as applicable to all MSEDCL consumers in FY 2005-06)

AIR

AIR means ANNUALIZED INPUT RATE applicable for year.

EDRM

Electricity Duty realized during the period and for which the information has been received.

TOSEM

Tax on Sale of Electricity leviable as per applicable Law during the billing period.

P

Penalty leviable on the Distribution Franchisee for delay on account of previous payments and shall be computed @ 18 % per annum quarterly compounded on the outstanding amount.

SM

Subsidy provided to subsidized Consumers in the Franchisee area for which energy bills have been raised to consumers during the billing period.

CAPDRM

Credit available to the Distribution Franchisee for incentive on account of arrears from the permanently disconnected consumers collected and remitted to MSEDCL during the billing cycle and is computed as 0.2 * ARPDM

ARPDM

Amount of arrears on account of permanently disconnected consumers prior to the effective date collected and remitted by Distribution Franchisee to MSEDCL during the billing cycle.

CACLRM

Credit available to the Distribution Franchisee for incentive on account of arrears from the Current Live consumers collected and remitted to MSEDCL during the billing cycle and is computed as 0.1 * ARCLM

ARCLM

Amount of arrears on account of Current Live consumers accrued three months prior to the effective date collected and remitted by Distribution Franchisee to MSEDCL during the billing cycle.

EIM

Energy Input in the Franchisee Area during the month which shall be the energy input by MSEDCL less energy sourced by Distribution Franchisee from other sources.

EPOMM

Energy procured over and above the quantity supplied by MSEDCL.

SLIDE 35

Risk Type Sensiti vity Primary Risk Bearer

Comments

OPERATIONS RISK

Power Procurement risk

High Shared MSEDCL is obligated to supply the agreed quantum of power in absolute terms and at the agreed input rate payable by distribution franchisee. The distribution franchisee may procure power from other sources for any shortfall.

Tariff Risk

High Shared The tariff charged to the consumer is regulated. At the same time, the input rate i.e. the cost of power purchase is indexed to the changes in the consumer tariff. Thus in case of an increase /decrease in tariff, the input cost for the franchisee will also increase / decrease in line with the formula prescribed in the DFA. However, on a net basis, there will be some impact on the cash flows of the franchisee.

Market Risk

High Distribution franchisee The market risk in terms of power consumption, consumption growth, and consumer mix in the Franchise Area is borne by the Franchisee. Since the input rate bid by the franchisee is based on projections with consumer mix and consumption growth assumptions, non-achievement of the same can adversely impact the franchisee cash

flows. However, the distribution franchisee is the exclusive franchise in the franchisee area and hence is not

subject to any competition.

Financial Risk / Receivables risk

High Distribution franchisee The onus of collection efficiency during the applicability of the DFA is on the distribution franchisee. For arrears from current consumers, up to 3 months prior to the effective date, the distribution franchisee is responsible for ensuring 65% collection efficiency. For past arrears, pending more than 3 months prior to the effective date, the franchisee is provided an incentive @ 10 % of collections. The same is @20% of collections for disconnected consumers.

OTHER RISKS

Erroneous baseline data

Medium Distribution Franchisee The findings of the joint audit conducted post-selection of franchisee may differ from the baseline data provided by MSEDCL. DF was allowed to conduct a due diligence of its own in the franchise area.

Socio-political risk

Medium Distribution franchisee Since the distribution franchisee becomes the point of contact for consumers, any dissatisfaction on account of action / inaction by the franchisee can lead to instances of opposition or resistance and political pressures. For example, load shedding can lead to discontent among the consumers. In such a scenario there may pressure from the state to ensure regular supply. As a result the franchisee may have to purchase expensive traded power from the market.

Force majeure

Medium MSEDCL In case of force majeure event, no party is liable for performance of obligations under the agreement. However, in case of prolonged force majeure, the agreement may be terminated by either party, whereby assets would be transferred to MSEDCL against an expiry payment from MSEDCL.

SLIDE 36

Parameters Decision Points

Franchise Area Area with consumer mix. Information sharing How much & what information is to be given. In bidding document Cost of bidding document It can be linked to the revenue size of the area Pre-Qualification Criteria Should it be restricted only to power sector/distribution sector companies Consortium/ JV Can they be allowed or not? Capital Investment Utility to specify the minimum capital investment or can be left to the franchisee. Evaluation Criteria Methodology to compute the levelised input energy rate or Bulk Sale Tariff (BST): Separate HT and LT input rate or energy growth be considered during BST computation. Contract Period Very short or excessively long, based on investment utilization Baseline Parameters Whether average billing rate to be treated as frozen or open to revision post award Performance Benchmarks Year on Year loss reduction to be specified or lump sum target over a period of time Supply of Energy Minimum supply to be assured or not, basis of fixing minimum supply, Energy Procurement Regulatory approvals , quantum of energy, involvement of Utility Billing & Payment Mechanism Periodicity of Billing and payment by Franchisee, adjustment of dues from either party, etc Treatment of ED & TOSE Input Rate to be inclusive or exclusive, retention by utility/franchisee Treatment of Employees Deputation Vs Redeployment Treatment of Existing Contracts Whether DF can cancel or not especially Capital Expenditure Handing over of offices and

ther assets

All or some, rent & property tax, etc Audits and Inspection Whose authority, Circumstances or Periodical, Process of appointment of agency, fee, etc Penalties Late payment and Non-conformance penalty Incentive on Collection of arrears What incentive should the franchisee be entitled for collecting arrears of the Utility’s period? Termination of Contract Grounds, whose authority, settlement of account, etc

SLIDE 37

Bhiw

Bhiw andi P andi Pow er distribution F r distribution Franc anchising hising

– Bhiwandi Profile: Consumers Vs Sale – Challenges In Bhiwandi – SWOT Analysis of Bhiwandi Circle – Management Of TPL, Bhiwandi – LT Line Revamping & Network Improvement – New Service Connections & Meter Management – Reactive Power & Transformer Management – Customer Care Initiatives – Community & Consumer Management Activities – Key Learning From Bhiwandi Franchisee Experiment – Bhiwandi PDF- WIN-WIN Situation To All Stakeholders – Critical Success Factors – Bhiwandi : Before & After Franchisee

5

SLIDE 38

Bhiw Bhiw andi distribution F andi distribution Franc anchising: hising:

an interim solution for distribution reforms Parameters Base Yr: 2005-06 Energy Input (Mus) 2427 MUs Energy Sales (Mus) 1346 Mus T&D Losses % 44.50 % Billing ( Crs) 321 Crs Collection (Crs) 219 Crs T/F Failure rate % 42.00 %

Year History of Bhiwandi : Electricity Voyage

1927 First power loom on Electricity in Bhiwandi (Manchester of India) 1930 Amalgamated Electricity Co. Ltd started power supply in Bhiwandi as license. 1960 Establishment of MSEB as per the Electricity (Supply)Act 1948 1978 Bhiwandi license (AECL) area is taken over by MSEB 2006 Unbundling of MSEB & formation of MSEDCL as separate distribution Co. 2007 MSEDCL handed over area of Bhiwandi circle to M/s Torrent power ltd.

26th Jan- 07

First ever Power Distribution franchisee started in Maharashtra.

SLIDE 39

Bhiwandi Profile: Consumers Vs sale

Challenges in Bhiwandi
Highest AT&C Loss making Circle
Rampant theft of energy
95 % meter tampered.
Low collection efficiency (68%)
Huge live & PD arrears (1000 Crs)
Deteriorated & Loaded

infrastructure

High T/F failure rate (42%)
Inadequate EHV capacity.
Load shedding, tripping &

breakdowns

Less billing due to MERC order
Demoralized employees.
Corruption at all levels.
Unsatisfied consumers.

0% Resi. 5% Comm. 6% Ind. 8% 0% Power loom 55% 0% HT &

thers

8% PWW, St.Lt. 18% PD 0%

% Sale

0% Resi. 48% Comm. 10% Ind. 2% 0% Power loom 24% 0% HT & others 1% PWW, St.Lt. 0% PD 15%

No. of Cons.

SLIDE 40

SWOT Analysis – Bhiwandi Circle

Strengths:

Highly concentrated / Industrial load in minimum area. Highest T&D losses & less collection efficiency Highest T/F failure rate & faulty meters Major quantm of subsidised consumersEHV & HT consumers load profile Near to Mumbai & corporate office

Opportunities:

Getting more profit by replacing meters immediately DF can get experienced staff with domain knowledge in less salary May reduce load shedding by reducing losses No major efforts to collect bills from EHV & HT consumers Professionalism of Pvt Company

Weaknesses

Old, deteriorated infrastructure Requires huge investment Major load shedding problems New area of work & no experienced with domain knowledge

Threats:

Native & active centre of prominent unions. Reluctance of employees for getting transfer. Poverty & Hooks prone illegal area. Lack of help from Police during theft drives. L k f I d t i l D l t

SWOT

SLIDE 41

Management of TPL, Bhiwandi

Management /Planning Implementation/Result

Organizational Magt. Structure Vertical (Pyramid) to Horizontal (Portfolio type) magt. Network Up gradation Management HT/LT/DTC Replacement, Renovation & revamping Revenue Management including reduction in AT&C Losses Massive theft detection, Disconnection drive, Ujjawal Bhiwandi Abhiyan, Mass Meter Replacement Scheme Customer Management CFC, Call center, On line bill payment, Mobile Van,etc Management Information System Efficient IT dept, strong billing software,etc Social management Ganpati, Dahi-Handi festival, Iftar party Human Resources Management Mix of self employees, deputationalists, Contractors. Infrastructure capex -Rollout plan Submitted 10 yrs capex plan & implemented Materials Management Excellent store & material management Complaint Organization Magt. 24x7 Call center & Control Room, separate batches. Strategic Management Managing Public, politics, Police, Press Reactive Power Management Installation of capacitors at S/Stn, feeders & on DTCs Meter Management for NSC Installation of new ‘Secure’ make meters with boxes New Service Connection Magt On Line connections with fast & transparent manner

SLIDE 42

LT Line Revamping

Before After Before After Before After

SLIDE 43

Network Improvement

Methodical approach to bring down Losses & Improve System

SLIDE 44

Metering

SLIDE 45

New Service Connections & Meter Management

New Service Connections:

Ujjawal Bhiwandi Abhiyan was implemented for releasing new

service connections in theft/hook prone area.

New connections were released by arranging area wise camps.
Connections system was on line, no human interface was there, no

harassment to consumers.

Hassel free service connection to any type of consumers.
Mass Meter Replacement Program
MMRS programme was implemented .
95 % of the meter population replaced new
ne brand ‘secure’ make electronic meters.
Approx. 1.5 Lacks meters were replaced by

making load wise ABC analysis

While meter replacement program, meters

were taken outside with underground cable service connection.

Securitization of the Metering Assets.

SLIDE 46

Reactive Power Management

Installation of Capacitors at Sub- stn,

line & Transformers

Improvement of PF, decreased
verloading, Additional enhanced KVA

capacity with quality & reliable power supply.

Additional new DTC, Augmentation
f DTC, Revamping of transformer

has reduced failure rate drastically.

Fencing, protection & maintenance
f Xmer with installation of

capacitors saved equipments, cable with enhancement in safety.

Transformer Management

SLIDE 47

Customer Care Initiatives

Customer centric approach through innovation

SLIDE 48

Community & Consumer Management Activities

Becoming a part of the social fabric with participation in their festivals

Programmes like Ganesh Utsav, Dahi

Handi, Iftar Party were arranged for social involvements.

24 x 7 Call Center
Consumer Facilitation Center
Display Boards for Consumer’s Info.
Immediate Complaint Redressal

System

Improved & Quality Services
Mobile Cash Collection Centers
Immediate new Connections
Customer Advisory Committee
Good Repo with Consumers

SLIDE 49

Key Learning from Bhiwandi Franchisee Experiment:

– Right PPP model is Key to PDF success – Extensive deliberations on the selection of the PPP model and its structure at inception – Joint audit of opening levels of key parameters – Transparent and objective bid process creates trust – Special attention for transition phase – Need for prior capacity building – HR Issues-Rehabilitation of MSEDCL’s Staff, Accidents – Independent audit of base year ABR – Compatibility of IT system – Inadequate power supply – Large scale efficiency gain through private sector participation – Emergence of alternative distribution reform model to privatization in the Indian context

SLIDE 50

Bhiwandi PDF- WIN-WIN Situation to All Stakeholders

Franchiser/MSEDCL

MSEDCL gained by

reduction in T&D losses and improvement of collection efficiency.

It reduces financial burden
n utility & get extra gain

from this arrangement.

This model can be used to

reduce the overall tariff in Maharashtra.

MSEDCL expects to gain

about Rs 740 crores over a period of 10 years by awarding the contract to TPL.

This gain reduces yearly

ARR requirements of MSEDCL thus reducing retail tariff.

Franchisee/TPL

Financial returns from

performance turnaround.

Access to consumer base of

Bhiwandi for 10 years

Increased creditability in

market with increase in business turnover.

TPL get experience to handle

worst circle/consumer in state

f Maharashtra i.e. out of

Gujarat.

The Distribution Franchisee will

be able to provide improved service to its consumers at reduced tariff and maintain cordial relations due to closer and better access and contact.

This arrangement also provides

business opportunity for distribution company employees.

There is contribution from

franchisee in terms of distribution business management of franchisee expertise & it has ability to make investments

Consumers

They get quality of power

supply with lesser interruptions & proper voltage.

It gives improvement in

SAIFI, SAIDI and CAIDI data.

They enjoy better services

in terms of complaint handing and bill payments.

TPL has a 24x7-voice

interactive call centre in Bhiwandi to handle consumer complaints.

Load shedding in

Bhiwandi has reduced from six hours daily to about three hours due to reduction in losses.

Consumers in other areas
f MSEDCL may gain

through reduction in retail

SLIDE 51

Bhiwandi PDF- WIN-WIN Situation to All Stakeholders Employees

Employees from utility will

have an option to opt for deputation to distribution franchisee.

Utility shall be the principal

employer of such employee during the period of deputation & thereafter till retirement.

Employees all benefits &

services seniority will be protected & no employee will be terminated.

Utility employees of

designated area will be absorbed preferably within same or adjacent circle or zone.

Recognition of performance &

more financial rewarding based on performance for employees on deputation

Government

Government may have

reduced overall financial support to MSEDCL.

As per the analysis of TPL

bid based on internal benchmarks of MSEDCL, Bhiwandi may contribute additional revenue of Rs 740 crores in span of 10 years.

This helps in reducing

deficit of MSEDCL and in turn dependence on Government of Maharashtra.

Income of Government

also increased by increase in electricity duty of increased billed units.

SLIDE 52

Input based distribution franchising has a huge potential to

provide the necessary fillip to the distribution reforms in the country.

Concentrated area with more than 70 % industrial/Power

loom load.

High T&D losses, low coll. efficiency & high T/F failure rate.
Chance for investment for development of infrastructure.
Meter replacement & release of new connections.
There was no confidence for making business in Bhiwandi.
Rates decided & quoted were very marginal & on safe side.
Term of the agreement should be a minimum of 20 years.
Adequate support from Government, State Utilities and

Public in general Critical Factors in Success of Bhiwandi

SLIDE 53

Consumers Satisfaction Survey

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Good Opinion

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Bad Opinion

SLIDE 54

BHIWANDI : BEFORE & AFTER FRANCHISEE

Parameter On 26th

Jan. 2007

March-2011 AT&C Losses 58 % 18 .00%

No. of T/F

2254 2631 T/F Failure Rate 42 % 2.62 % Accurate Metering 23 % 98 % Collection Efficiency 58.91% 99.38% Reactive Power Magt Nil 160 MVAr Loading 150 % Balanced

No. of Feeders

46 86 EHV Capacity 550 MVA 1000 MVA ARR (Rs/kWh) 1.63 2.39 ABR (Rs/kWh) 0.90 2.47 Consumers 1.74 Lacs 2.35 Lacs Customer Care Nil Call center, CFC, Information KIOSK Modernization of Power System Nil Auto Reclosures, EFPS, RMUs, SCADA , AMR

Key Observations in Bhiwandi Experiment:

Flexible approach to bring in PSP Mgt.
Expertise to improve performance
Mutually beneficial process & sharing
f responsibilities
Valuable learning for best practices &

replication in other areas

Attrition rate of employees is high
Needs close monitoring on quality of

work & various audits as per schedule.

As this is a risk and responsibility

sharing arrangement, structuring a right balance is critical.

Periodical Audit may avoid disputes

like subsidy & incidental charges

Increase in Accidents is serious concern
First successful experiment in India.
Bhiwandi Franchisee is not proven

model.

SLIDE 55

.

Bhiwandi Success Story tells us

that, power distribution franchisee Business is win-win

situation to all stakeholders.

Same can be repeated with better change in management by framing favorable policies, & if appropriate business models are designed and the right areas are offered as franchise.

SLIDE 56

Nagpur: Power Distribution Franchisee

– Historical Background – Nagpur Profile: Consumers Vs % Sale – SWOT Analysis - Nagpur Urban Circle – Stage wise transformation in Nagpur & CGL 1st Phase – Reasons For Withdrawal Of CGL from Nagpur PDF – Best Practices Implemented In Nagpur – Nagpur - Snap Shots of Theft & Best Practices Adopted – Spanco Ltd: PDF-2nd Phase – Nagpur DF – Second Thought – Key Learning From Nagpur Franchisee Process – Key Concerns Of Distribution Licensee – Franchisee- Yes/No ? – Nagpur : 2005-06 & 2010-11 – Way Forward To Spanco as a Nagpur Franchisee

6

SLIDE 57

Nagpur: Historical Background

Parameters 2005-06 2008-09 Input units (MUs)

1027.86

Billed Units ( Mus)

573.00

T&D Losses %

43.89%

Billing (Crs) 226.37 Collection (Crs) 226.39 T/F failure rate %

Year Historical Events : Nagpur Electricity

1905 A license was granted to Crompton & Co.

Ltd. for the supply of electricity in Nagpur

1913 Handed over to Nagpur Electric Light and Power Company Ltd. 1960 Establishment of Maharashtra State Electricity Board. 1972 NELP Co. has handed over Nagpur license area to MSEB 2006 CGL has entered in Power Distribution Sector as a second PDF business in Nagpur. 2009 MSEDCL terminated agreement with M/S CGL as power distribution franchisee. 2010 Again process started & now winning bidder is M/S SPANCO 2011 MSEDCL has handed over part of Nagpur to M/S Spanco ltd

SLIDE 58

Nagpur Profile: Consumers vs % Sale

R 46% C 12% I 7% PL 0% PWW 0% Ag 0% StLt 2% HT 33%

Sale in %

R 87% C 12% I 1% PL 0% PWW 0% Ag 0% StLt 0% HT 0%

% of Cons

Challenges in Nagpur

Consumer profile & Non

directional working of SEBs

Employees & work culture
Direct hooking culture in

unauthorized layouts:

Inadequate Infrastructure
High input, high loss as

compared with other area

Load shedding in summer

season

Unbundling of MSEB &

Formation of Nagpur Urban Circle

Footstep towards Franchisee in

Nagpur

SLIDE 59

SWOT Analysis - Nagpur Urban Circle

Strengths

Good Collection Efficiency & Min. T/F Failure

Rate

Concentrated Load in 400 sq. mtr. Area.
Feeded from 8 EHV substations with 781 MVA

cap.

City of Communal Harmony.
No major political interference
Second Capital of Maharashtra & Centre of

India

Opportunities

Vast scope to reduce loss & increase in

revenue.

Advancement of system like HVDS, AMR,

MMR,RMR

May award micro franchisee in loss making

pockets.

Incentive based model through dept.

employees.

Installation of quality meters with boxes.

Weaknesses

Loss making three divisions.
Illegal expansion of hutments in outskirt area.
No professionalism, Stagnation of Staff.
No planning of anticipated load.
No major HT support.
No infrastructure as per city growth

Threats:

Native & active centre of prominent unions.
Reluctance of employees for getting transfer.
Poverty & Hooks prone illegal area.
Lack of help from Police during theft drives.
Lack of Industrial Development

SWOT

SLIDE 60

Nagpur- Power Distribution transformation Phases- 2001-2011

2001-05 MSEB period in hands of Chief Engineer Nagpur 2006-08 MSEDCL-First Franchisee Bidding process periods with CGL 2008-10 Post First unsuccessful Franchisee engagement & fresh Re-bidding process 2010-11 Second Bidding process For Nagpur & Winning of Spanco Bid Valuation Report of Nagpur DF (Old)- M/s CGL was winning Bidder (Base Yr 2005-06)

BIDDER NAME Payment to MSEDCL NPV Excess over benchmark NPV % Hike Rank Minimum Benchmark Rates 4300.29 1811.02 0.00

Crompton Greaves Limited 6399.32 2655.10 844.08 46.61% 1

Madhucon Projects Limited 4660.88 2012.21 201.19 11.11% 2 Kalpataru Power Transmission Ltd 4648.83 1991.08 180.06 09.94% 3 The Tata Power Company Limited 4430.63 1849.71 38.69 02.13% 4 Torrent Power Limited 4367.08 1834.14 23.12 01.27% 5

CGL: 1st Phase Distribution franchisee

SLIDE 61

Reasons for withdrawal of CGL

 Disputed Points-Which helps CGL to withdraw from franchisee operation  Court Cases:

– WP No. 3701 of 2007- Challenged process of appointment of DF – WP No. 3712 of 2007- Challenged process of bidding for appointing DF – WP No. 5100 of 2007 – On issue of Appointment of DF – WP No. 5855 of 2007- For quashing of the DF Agreement – MERC Case No.98/2007- Examine the case along with recommendations

 Disputed points :

– Aggressive Bidding by CGL (46.60 % above) – Change of base year from FY 2006-07 to FY 2005-06 – Differences in calculation of ABR & ARR – Stipulations in Agreement regarding sales & service component – Change in discounting Factor – Consumer Services in franchisee area. – MSEDCL Employee related issues – Distribution Franchisee for Nagpur: Scenario for No Loss reduction

SLIDE 62

Chronology: CGL & SPANCO

N O Description Nagpur-I Nagpur-II 1 Board’s approval for giving franchisee 08/02/2007 01/12/2009 2 Issue of notice for inviting bids for appointing DF 06/04/2007 15/12/2009 3 Last Date of Sale of Revised RFP 26/07/2007 07/04/2010 4 Opening of Technical Proposal 27/08/2007 28/04/2010 5 Opening of Financial Proposal 08/09/2007 28.04.2010 6 Report on evaluation of financial bid 10/09/2007 21/11/2010 7 Issue of Letter of Intent to Successful Bidder 19/09/2007 08.11.2010 8 Acceptance of Letter of Intent 24/09/2007 23.11.2010 9 Board Approval & Signing of DF Agreement 26/10/2007 23.02.2011 10 Commencement of operation Not Started 01.05.2011 11 MSEDCL has served notice of termination of Agreement 10/09/2009

SLIDE 63

Best Practices Implemented in Nagpur (2008-10)

– Implementation of DTC based Micro Franchisee (MF) concept – Streamlining Billing Procedures using Spot Photo Billing. – HVDS programme in some pockets. – Painstaking theft detection drive- Highest in State. – IT initiatives Viz. SCADA/AMR/Call center/CFC. – Formation of Female Employees Flying squad for theft detection there after Damini Squad. – Reduction in trans. failure & use of Power on Wheel concept – Concentration on High value HT Consumers. – Release of new connections by arranging camps. – Recovery of arrears & increase in collection efficiency. – Implementation of Zero load shedding concept.

SLIDE 64

Snap Shots of Nagpur : Best Practices Adopted Nagpur – Infrastructure & Theft through hooking

SLIDE 65

Spanco Ltd: PDF-2nd Phase

Bid Valuation Report of Nagpur DF (New)- Spanco

BIDDER NAME Payment to MSEDCL NPV Excess over benchmark NPV % Hike Rank Minimum Benchmark Rates 7122.12 4674.55 0.00

SPANCO Limited (Revised) 8258.83 5350.16 675.61 14.45% 1

GTL limited 8115.88 5265.27 590.72 12.64% 2 Tata Power Limited 7975.29 5194.05 519.15 11.11% 3 CESC Limited 7949.05 5167.33 492.78 10.54% 4 Crompton Greaves Limited 7702.44 5006.39 331.84 7.10% 5 Indiabulls Financial services Ltd 7728.80 4993.98 319.43 6.83% 6 Indu Projects Limited 7122.12 4674.55 318.26 6.81% 7 Reliance infrastructures Ltd 7708.01 4986.80 312.25 6.68% 8 SMS Limited 7506.56 4875.34 200.79 4.30% 9 Vijai Electricals Limited 7347.61 4797.05 122.50 2.62% 10

SLIDE 66

Nagpur DF – Second Thought

Division Cons LT Loss in 2005-06 LT Loss in 2009-10 % Decrease in loss wrt 2005-06 CLDN 126322 54.39 36.92 17.47 GBDN 88792 52.40 38.90 13.50 MHDN 168542 45.49 30.53 14.96 Total 383656 50.61 34.88 15.73 Sub Division Cons LT Loss in 2005-06 LT Loss in 2009-10 % Decrease in loss wrt 2005-06 L’bagh

53861

68.67 48.78 19.89 Itwari

26255

52.47 42.37 10.10 Binaki

28126

70.56 49.49 21.07 Nand’wan

83982

50.71 34.42 16.29 Total

222224

61.86 45.03 16.83

There was second thought

to have franchisee of presently loss making sub divisions.

Loss reduction is as per

trajectory defined in DFA i.e.15-16%

Total area in the three

divisions in proposed DFA is not loss making while most parts posses good consumer base.

Infrastructure

development in these area is the major bottle neck.

Illegal expansion of

hutments in outskirt area.

SLIDE 67

Key Learning & Reasons of Failure of CGL

Key Learning from Nagpur

Franchisee Process :

– Baseline data should be correct. – Delay in process causes

bstacles in process

– Transparency in process: Avoids misunderstanding – No any scheme was sanctioned for proposed DFA. – Investment in infrastructure could have cancelled franchisee – Partial DF of three divisions - One of option for franchisees – Rent / property tax should be paid by franchisee

Reasons of Failure of CGL in

Nagpur:

– Aggressive bidding by CGL – Lack of experience in Power distribution sector. – Mistake of consultant to judge business. – Disputes cases filed by NGOs in various courts/MERC – Dispute raised by CGL in r/o base year & ABR – Missing datagaps by MSEDCL.

SLIDE 68

Key Concerns Of Distribution Licensee

Data used for Baseline Estimation: Accuracy of the baseline data is of

crucial importance on which it will evaluate the performance of the

Franchisee. Errors and inaccuracies in data is a concern, and must be

addressed appropriately for ultimate success of proposed scheme.

Service

to consumers: Often the service to consumers deteriorates when margins of a Franchisee come under pressure. The Licensee can institute an appropriate monitoring process to address these aspects.

Ability to generate adequate revenue to sustain operations:

Otherwise operations suffer in the long run as it becomes unsustainable due to negative growth in business.

The incremental cost for capital expenditure, power generation and/or

power purchase needs to be compensated to the franchisee by way of a reliability surcharge in a manner approved by the regulator.

Infrastructure development: Due to various reasons IP scheme was not

sanctioned resulting in slow reduction of losses.

Delay in DF process: Even though first experiment of DF was

implemented in 2007, system has not set second franchisee in MS

Public utility: Being public utility there are some bindings/restrictions

while taking decisions.

SLIDE 69

FRANCHISEE- Y/N ?

Franchisee – Why Not?

No social responsibilities will be
bserved & may behave with

monopolistic behavior.

There may be harsh treatment/

exploitation BY FRANCHISE to poor consumers while providing services.

Utility can reduce losses with proper

delegations of power for strengthening infrastructure/replacement of old meters with new quality meters & selection of proper resourceful employees.

Utility can implement micro franchise

concept for improvement.

Introducing incentive /Disincentive

scheme to Utility employees based on profit.

Employees on deputation feels

secondary treatment by Franchisee.

Consumers are more comfortable with

public utility as compared with private utilities.

Bhiwandi model is not proven model

even though it is successful.

Franchisee – Why?

Win-Win situation to all stakeholders.
Consumer will get quality & reliable

power supply with improved services.

Tariff reduces due to reduction of

losses.

A significant portion of the technical

and non-technical(billing) risk is transferred to the Franchisee.

Reduced

capital and

perating

expenses with a part of its activities

utsourced.
Single point control of license to gain

profit.

Franchise earns profit by giving best

services & strengthening infrastructures.

This arrangement also provides

business opportunity for distribution company employees.

May increase healthy competition in
ther areas.
May avoid direct political interference.

SLIDE 70

Sample Surveys: Employees & Consumers

This sample survey was done through questionnaire to Employees & consumers. a) Graph gives reasons of employees to join franchisee. b) Customer satisfaction survey in Nagpur before handing over this area to franchisee.

SLIDE 71

NAGPUR : 2005-06 & 2010-11

Parameter 2005-06 2010-11 AT&C Losses 43.89% 30.00% DTC Failure Rate CL 15.12 % 4.12 % MHL 11.57 % 1.05 % GB 8.20 % 5.49 % Load Shedding 5.30 Hrs. Zero Reactive Power Management 12 MVAr 41 MVAr EHV Capacity 647kVA 847 kVA Customer Care Nil CFC,CC

Max. Demand

337 MW 390 MW Input in MUs 1027.86 1331.20 Billed Units (MUs) 573.00 931.81 Demand in Cr. 226.37 550.80 Collection Effici. 100% 100.8 % ARR (Rs/kWh) 2.28 4.16 ABR (Rs/kWh) 3.95 5.90 Company CGL SPANCO Best Practices at Nagpur

Implementation of MF concept for DTCs
Spot Photo Billing – Improved Billing
Painstaking theft detection drive –Highest
Female Employees Flying squad & Damini

squad for theft detection

HVDS programme in some pockets.
IT initiatives Viz. SCADA/AMR/Call Center/CFC
Power on Wheel concept for supply reliability
Concentration on High value HT Consumers
Release of new connections in camps
Recovery of arrears & rise in collection effici.
Implementation of Zero load shedding concept

Obstacles in Implementation of Nagpur DF

Back out of CGL for various reasons –

Aggressive bidding, ABR calculation, Court Cases & Time Killing approach.

Meanwhile improvement in all parameters
Rebidding & dispute at initial stage
Legal problems while awarding DF to SPANCO
Fresh PIL & resistance from trade unions.

SLIDE 72

Spanco Ltd: New franchisee in Nagpur

Present Situation:
Spanco-IT Company.
Inexperienced player in power

distribution sector.

Not good start.
Failure of power T/F & huge

breakdowns.

No investment on infrastructure.
Not able to create good public

relations.

No experienced employees had
pted to join Spanco.
Mounting of arrears on Spanco
Not able to win confidence of

stakeholders.

Increased AT&C losses.
Dilly-dallying to open escrow

account.

Facts about Spanco
Changed its name as SNDF
Mounting arrears of MSEDCL to

the tune of 200 Crs

Decreased shares prices of

Spanco

Using collected money to

elsewhere.

MSEDCL has given notice for

termination of agreement by defaulter & having critical event

Considering past record, there is

confidence about Spanco.

By same principle, Aurangabad

franchisee has also increased arrears.

It has given major setback to

franchisee process in rest of Maharashtra.

SLIDE 73

Recommendations

7

SLIDE 74

FRANCHISEE – BHIWANDI & NAGPUR AT A GLANCE

Parameters Bhiwandi-TPL Nagpur-CGL & SPANCO

Company Profile TPL, Mehta Gr. in pharma, cable & power

gen. dist. business with Rs. 4000 Cr. having

Lowest T&D losses in the country @ 10% without load shedding in their area. 1.CGL, Thapar Gr. In manufacturing business having 20,000 employees in 8 countries and a Turnover of USD 3 billion.

2. SPANCO-IT based company, now in BPO,

telecom & Power sector Area allotted Div-1 & 2 , Cons-1,74,000 MHL,GB,CL Div, Cons- 3.7 Lacs Agreement Period Ten Years Fifteen Years Base Year 2005-06 2005-06 for CGL & 2008-09 for Spanco Input base Single input rate payable to MSEDCL CGL- Separate HT & LT rate payable to MSEDCL. SPANCO- Single input rate payable to utility. Bidding Criteria Consortium of bidders are allowed Bidders to individual capacity was only allowed Investment/capex Rs.60 Crs was committed by MSEDCL within five years CGL-No such commitment was in previous RFP but SPANCO- Rs.60 Crs were committed in RFP Achievements

ATC Loss---------------58% to 19%
DTC Failure------------42% to 3%
Accurate Metering--- 23% to 98%
Load shedding----- 8 hrs to 3.30 hrs
Cancellation of Agreement of CGL
Reprocess of franchisee .
Winning of second bid by SPANCO

SLIDE 75

Franchisee – Bhiwandi & Nagpur At A Glance

Parameters Bhiwandi-TPL Nagpur-CGL

Indexation of tariff Indexation of Tariffs is based on average tariff applicable to all MSEDCL consumers. Indexation of Tariffs is based on average tariff applicable to all consumers in the Franchise Area Input Rate No specification in this regard. It was stated in the DFA that 90% of Input rate payable by Franchisee was for purchase/sale of power and 10% for services, such as right to use network. Reading Meter reading was made the responsibility

f the Franchisee

CGL- HT Meter reading jointly by DF and MSEDCL SPANCO- No such provision Service quality Failure of the Franchisee to maintain minimum service quality due to inadequate network investments was not specified to be a Critical Event of Default for the Franchisee. Failure of the Franchisee to maintain minimum service quality due to inadequate network investments has been included as a Critical Event of Default for the Franchisee. Arrears For arrears the Franchisee is required to remit at least 65% of arrears from Current Live Consumers for three months prior to Effective date. For arrears the Franchisee is required to remit at least 100% of arrears from Current Live Consumers for three months prior to Effective date. New Connection Such provision was not provided in case of Bhiwandi. CGL- The Distribution Franchisee shall grant new connections with a connected load equal to or more than 1.5 MVA only after obtaining approval of MSEDCL. SPANCO-Such condition is deleted.

SLIDE 76

Recommendations (1/2)

i. Regulatory review of bidding process & Public Hearing of franchisee Process ii. Large Company Participation required with power sector experience iii. Improved quality of base line data iv. Term of the franchisee should not be more than 10 years v. Capital investments after 5 years should be regulated vi. Stringent Monitoring on Post-franchisee Performance & Quality of work: vii. Need for third party monitoring of metering and billing practices: viii. Input base model is best one as compared with other models: ix. EHV consumers in franchisee area should treat separately x. Qualification criteria should favour capable players xi. There should be better change management & performance monitoring xii. There should be win-win situation of all stakeholders xiii. Timely audit of each component xiv. Provisions regarding Theft of Energy should Clear & included in MIS xv. Provision of Rent & property tax of offices in DF area. xvi. Applicability of MERC regulations & RTI Act xvii. A cordial relation between employees of Utility & franchisee management is need of hour

xviii. Successful implementation of the franchisee model requires immediate

interventions at institutional, financial and operational levels:

SLIDE 77

Recommendations (2/2)

i. Formula for ABR should be clearer ii. Billing Software of franchisee should be same for franchisor iii. PD recovery benefit should be equally distributed iv. Subsidy amount should also equally distribute v. Franchisee option emerged and got accepted as a precursor to privatizations vi. There should be some provisions in RFP about ongoing projects vii. There should be provision in DFA to recover any regulatory charges & additional taxes viii. Inclusion of Metro/ Extended area in franchisee: ix. Capable Management will lead to success: x. Selection process should be transparent: xi. Agreement & Contract Design: xii. Electrical Accidents should be controlled xiii. Infrastructure Assessment: xiv. Capacity Building: xv. Trademark/Brand/Symbol of franchisor should be prominent: xvi. Implementation of ‘5-P’ management Concept: xvii. Training to New franchisee: xviii. Consultancy by MSEDCL on franchisee business: xix. Payment Mechanism through ESCROW account

SLIDE 78

Thus….. Franchisee is…..

“In

a successful franchisee business model, the trademark is clear, owned and identified by the franchisor. This ensures that franchisee is buying an exclusive business, which must also be easily duplicated and easily learned. Proven and successful format and a definable

perating system are two of the most

important elements to make a franchisee

successful. In addition, a passion for

hard work, a vision for success and willingness to follow the system are necessary conditions for making good money from franchisee business. Also a good model should be profitable for both parties and the most important aspect of this model is that it gets business for the franchisee from the day one.”

Brian Duckett, MD, Howarth Franchising, UK, The Franchise India 2008 at New Delhi

SLIDE 79

“One can not resist an idea whose time has come” ……..Victor Hugo

“

“A Consumer is the most important person ever on our premises. He is not dependent on us; we are dependent on him. He is not an interruption of our work; he is the purpose of it. He is not an outsider of our business; he is a part of it. We are not doing him a favour by serving him; He is doing us a favour by giving us an opportunity to do us.”

-------- Mahatma Gandhi