SUMMER INTERNSHIP REPORT
On
Implementation of Rural Distribution
Franchisee in the State of Jharkhand
Under the Guidance of
Ms. Vardah Sagir
Senior Fellow (NPTI, Faridabad)
&
Ms.Veena Agarawal
Area Conveyor; Resource, Regulatory and Global Security Division
The Energy and Resource Institute, New Delhi – 110003
At
Submitted by
SRUTHI NAIR
MBA – Power Management
Roll No:
86 ; Batch 2012-14
Affiliated to
MAHARSHI DAYANAND UNIVERSITY, ROHTAK
(A State University established under Haryana Act No. XXV of 1975)
1
CERTIFICATE
2
DECLARATION
I, Sruthi Nair, Roll No. xxxxxxxx, class 2012-14 of the National Power Training Institute,
Faridabad hereby declare that the Summer Training Report entitled “IMPLEMENTATION OF
RURAL DISTRIBUTION FRANCHISEE FOR THE STATE OF JHARKHAND” is an
original work and the same has not been submitted to any other institute for the award of any
other degree.
A seminar presentation of the Training Report was made on 3rd August 2013 and the suggestions
approved by the faculty were duly incorporated.
Presentation In charge
Signature of the Candidate
(Faculty)
(SRUTHI NAIR)
Countersigned
Director/Principal of the Institute
3
ACKNOWLEDGEMENT
I would like to express my sincere gratitude to all the people who had been associated with me in
some way or the other and helped me avail this opportunity for my summer Internship on the
topic “IMPLEMENTATION OF RURAL DISTRIBUTION FRANCHISEE FOR THE STATE
OF JHARKHAND”.
I acknowledge with gratitude and humanity my indebtedness to my Summer Internship guide
Ms.Veena Agarawal, Area Conveyor; Resource, Regulatory and Global Security Division,
TERI for providing me excellent guidance and motivation under whom I completed my summer
internship
I would like to thank my Project In-charge Ms. Vardah Sagir, Assistant Director, NPTI,
Faridabad for his support and guidance throughout the course of summer internship.
A special thanks to Mrs. Indu Maheswari, Dy. Director, NPTI and Dr. Rohit Verma, Dy.
Director, NPTI for their guidance throughout my summer internship.
I would like to thank Mr. S.K. Choudhary, Principal Director (NPTI), Mrs. Manju Mam,
Director, NPTI and all faculty members for arranging my internship at TERI and being a
constant source of motivation and guidance throughout the course of my internship.
Sruthi Nair
Summer Interns
NPTI, Faridabad
4
TABLE OF CONTENTS
PROJECT TITLE …………………………………………………………………………….. 1
CERTIFICATE .......................................................................................................................... 2
DECLARATION ......................................................................................................................... 3
ACKNOWLEDGEMENT ........................................................................................................... 4
TABLE OF CONTENTS ............................................................................................................ 5
LIST OF FIGURES .....................................................................................................................8
LIST OF TABLES………………………………………………………………………………9
ABBREVIATIONS ....................................................................................................................11
CHAPTER 1: INTRODUCTION ............................................................................................12
1.1 Distribution Franchisee- A brief.......................................................................................12
1.2 Problem Statement...........................................................................................................13
1.3 Objective of the Report ...................................................................................................15
CHAPTER 2: LITERATURE REVIEW RESEARCH METHODOLOGY ......................1 6
2.1 Literature Review .............................................................................................................. 16
2.2 Literature Survey …………………………………………………………………………17
CHAPTER 3: FRANCHISEE SYSTEM AN OVERVIEW…………………………………20
3. FRANCHISEE SYSTEM…………………………………………………………………20
3.1 DISTRIBUTION SCENARIO OF POWER SECTOR IN INDIA………………………
3.2 RURAL ELECTRIFICATION CORPORATION (REC)……............................................
3.3 RAJIV GANDHI GRAMEEN VIDYUTIKARAN YOJANA…………………………….
3.4 DISTRIBUTION FRANCHISEE-THE WAY FORWARD………………………………
3.4.1 INTRODUCTION……………………………………………………………………….
3.4.2 TYPES OF DISTRIBUTION FRANCHISEE………………………………………….
3.4.1 MODEL A: COLLECTION REVENUE FRANCHISEE………………………
3.4.2 MODEL B: INPUT BASED REVENUE FRANCHISEE…………………………
3.4.3 MODEL C: INPUT BASED FRANCHISEE…………………………………………
3.4.4 MODEL D: OPERATION & MAINTENANCE FRANCHISEE……………………
5
3.4.5 MODEL E: RURAL ELECTRIC COOPERATIVE SOCIETIES……………………
3.4.6 MODEL F: RURAL ELECTRIC COOPERATIVE SOCIETIES (OPERATIONS
MANAGEMENT THROUGH CONTRACTING)…....................................................................
3.5 REVIEW OF SUCCESSFUL FRANCHISEE MODELS………………………………….
3.5.1 BHIWANDI MODEL…………………………………………………………………..
3.5.2 ORISSA MODEL……………………………………………………………………….
CHAPTER 4: FRANCHISEE INSTITUTIONALISATION
4.1 JSEB: AN INSIGHT………………………………………………………………………..
4.2 RGGVY IN JHARKHAND………………………………………………………………
4.3 PROJECT BACKGROUND………………………………………………………………..
4.4 FRANCHISEE INSTITUTIONALISATION……………………………………………..
4.4.1 AREA SELECTION……………………………………………………………………
4.4.2 AREA DUE DILIGENCE……………………………………………………………
4.4.2.1 CONSUMER DETAILS………………………………………………………………..
4.4.2.2 SALES DETAILS……………………………………………………………………..
4.4.2.3 REVENUE BILLED AND COLLECTED……………………………………………
4.4.2.4 ENERGY AUDIT………………………………………………………………………
4.4.2.6 TECHNICAL DETAILS……………………………………………………………….
4.5 FRANCHISEE SCHEME……………………………………………………………………
4.5.1 COMPENSATION MECHANISM………………………………………………………….
4.5.2 INCENTIVE MECHANISM………………………………………………………………..
4.5.3 PENALTIES APPLICABLE……………………………………………………………….
4.5.4 RESPONSIBILTIES OF UTILITY AND FRANCHISEE………………………………..
4.5.5 TRANSITION METHODOLOGY TO ILRF……………………………………………
4.5.5.1 DETERMINATION OF ARR……………………………………………………
4.5.5.2 DERIVATION OF RATE OF REALIZATION PER UNIT……………………
4.5.5.3 INCENTIVE MECHANISM UNDER ILRF…………………………………..
4.6 DEVOLOPING THE FINANCIAL MODEL……………………………………………..
4.6.1 COMPUTING EXPENSES……………………………………………………………….
4.6.2 DEPRECIATION……………………………………………………………………………
6
4.6.3 FINANCIAL MODEL……………………………………………………………………..
CHAPTER 5 CONCLUSION…………………………………………………………………
CHAPTER 6 REFERENCES………………………………………………………………….
7
LIST OF FIGURES
FIGURE 3.1: FRANCHISEE CONCEPT
FIGURE 3.2: CHARACTERISTICS OF CBDF
FIGURE 3.3: CHARACTERISTICS OF IBRF8
FIGURE 3.4: CHARACTERISTICS OF IBDF
FIGURE 3.5: CHARACTERISTICS OF O&M DF
FIGURE 4.1: METHODOLOGY USED
FIGURE 4.2: PROJECT AREA DIAGRAM
FIGURE 4.3: FRANCHISEE SCHEME
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LIST OT TABLES
1. TABLE 3.1: AT&C LOSS LEVELS IN STATES
2. TABLE 3.2: ADVANTAGES & DISADVANTAGES OF CBDF MODEL
3. TABLE 3.2: ADVANTAGES & DISADVANTAGES OF IBDF MODEL
4. TABLE 3.3: BHIWANDI, STATUS BEFORE & AFTER FRANCHISEE
5. TABLE 3.4: PARAMETERS CONSIDERED FOR AREA SELECTION
6. TABLE 4.1: CONSUMER CATEGORIES IN JSEB
7. TABLE 4.2: RGGVY IMPLEMENTATION STATUS
8. TABLE 4.3: CONSUMER DETAILS FORMAT
9. TABLE 4.4: SALES DETAILS FORMAT
10. TABLE 4.5: REVENUE BILLED & COLLECTED FORMAT
11. TABLE 4.6: METERING STATUS FORMAT
12. TABLE 4.7: SAMPLE ENERGY AUDIT DONE
13. TABLE 4.8: TECHNICAL DETAILS FORMAT
14. TABLE 4.9: RECOMMENDATIONS & FEASIBILITY OF SUGGESTIONS
15. TABLE 4.10: CONSUMER CATEGORIES
16. TABLE 4.11: SALARY OF FRANCHISEE EMPLOYEES
17. TABLE 4.12: COMPENSATION MECHANISM
18. TABLE 4.13: INCENTIVE MECHANISM
19. TABLE 4.14: INCENTIVE MECHANISM FOR IMPROVING COLLECTION
COVERAGE
20. TABLE 4.15: TECHNICAL & COMMERCIAL RESPONSIBILITIES
21. TABLE 4.16: COMPUTATION OF ARR
22. TABLE 4.17: COMPUTATION OF RPU
23. TABLE 4.18: INCENTIVE MECHANISM UNDER ILRF MODEL
24. TABLE 4.19: SAMPLE BASELINE DATA
9
25. TABLE 4.20: EXPENSES INCURRED FOR FRANCHISEE
26. TABLE 4.21: COMPUTATION OF ROI & DEPRECIATION
27. TABLE 4.22: FINANCIAL MODEL
10
ABBREVIATIONS
ARR
Average Revenue Realized
CBDF
Collection Based Distribution Franchisee
CT
Current Transformer
DFA
Distribution Franchisee Agreement
DNF
Do Not Found
HT
High Tension
ILRF
Input Linked Revenue Franchisee
JSEB
Jharkhand State Electricity Board
LT
Low Tension
O&M
Operation & Maintenance
PDC
Permanently Disconnected Consumers
PSS
Power Sub Station
PT
Potential Transformer
RGGVY Rajiv Gandhi Grameen Vidyutikaran Yojana
RPU
Rate per Unit
SLD
Single Line Diagram
T&P
Tools and Plants
UNDP
United Nations Development Program
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CHAPTER-1
INTRODUCTION
1.1. DISTRIBUTION FRANCHISEE
By definition a franchisee is defined as an individual, group or business entity, who is granted a
special right or privilege to conduct a business and especially to exercise the power of another
empowered entity such as to market its goods or services in a particular territory under the
entity‘s trade mark, trade name, or service mark and that, often involves the use of rules and
procedures designed by the parent entity and services and facilities provided by it (parent entity)
in return for fees, royalties or other suitable compensation.
Distribution Franchisee is not a new concept, anymore. The successes at various places have
shown the potential and the difference that franchisees can bring about in power sector. Also the
Shunglu Committee has recommended the adoption of franchisee system as the panacea for the
financial woes of various state utilities. Now, Jharkhand State Electricity Board envisages to
award franchisees in 12 rural sub divisions of Jharkhand state. The report states the franchisee
scheme that is being envisaged to implement in Jharkhand rural areas. The scheme envisages
collection based distribution franchisee model to be followed for one year later transitioning into
input linked revenue franchisee model depending upon the preparedness of JSEB. The report
also describes the compensation mechanism, incentive mechanism and the roles and
responsibilities of both the utility and franchisee in detail.
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1.2. PROBLEM STATEMENT
The main problem that was to be solved is the linking of energy accounting with the collection
based distribution franchisee model so that the utility may not be manipulated by the franchisee
in terms of the input energy given to the area. Also the designing of the franchisee agreement in
such a way that the franchisee may not run away with fair revenue returns when the utility is not
realizing sufficient revenue from the project area.
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1.3. OBJECTIVE
The purpose of the project was to award 14 rural sub divisions to distribution franchisees in the
state of Jharkhand. This involved the selection of area based upon the area due diligence,
developing the franchise scheme, bidding process and evaluation, selection of franchisee and
handing over the area to the franchisee. The utility plans to franchise almost 200 sub divisions in
the near future. So the implementation and success of these 14 sub divisions will prove vital for
the utility. Utility needs to award the franchisee on input linked revenue model. The present
franchise scheme proposes a step that, if deployed, will help the utility for the betterment of
infrastructure so that they can award the areas in input linked revenue franchisee model.
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1.4. ORGANIZATION PROFILE
TERI-The Energy and Resources Institute was formally established in 1974 with the purpose of
tackling and dealing with the immense and acute problems that mankind is likely to face within
in the years ahead on account of the gradual depletion of the earth's finite energy resources which
are largely non renewable and on account of the existing methods of their use which are
polluting.
Over the years the Institute has developed a wider interpretation of this core purpose and its
application. Consequently, TERI has created an environment that is enabling, dynamic and
inspiring for the development of solutions to global problems in the fields of energy,
environment and current patterns of development, which are largely unsustainable. The Institute
has grown substantially over the years, particularly, since it launched its own research activities
and established a base in New Delhi, its registered headquarters. The central element of TERI’s
philosophy has been its reliance on entrepreneurial skills to create benefits for society through
the development and dissemination of intellectual property. The strength of the Institute lies in
not only identifying and articulating intellectual challenges straddling a number of disciplines of
knowledge but also in mounting research, training and demonstration projects leading to
development of specific problem-based advanced technologies that help carry benefits to society
at large.
The Institute’s growth has been evolutionary, driven by a vision of the future and rooted in
challenges looming today, based on an approach that looks beyond the present and across the
globe. TERI has, therefore, grown to establish a presence not only in different corners and
regions of India but is perhaps the only developing country institution to have established a
presence in North America and Europe and on the Asian continent in Japan, Malaysia and the
Gulf.
In this world of increasing globalization and buoyed by optimism generated by the success of the
Indian economy TERI moves forward to meet the challenges of the future through the pursuit of
excellence embedded in its visionary charter.
15
CHAPTER-2
2. LITERATURE SURVEY AND RESEARCH METHODOLOGY
2.1. LITERATURE SURVEY
Electricity Act, 2003: the provision for distribution franchisee has been provided in the Act itself.
“Franchisee means a person authorized by a distribution licensee to distribute electricity on its
behalf in a particular area within his area of supply.” [Electricity Act 2003: Clause 2
(Definitions): Sub-clause 27].
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 obtain any separate licence from the concerned State Commission and
such distribution licensee shall be responsible for distribution of electricity in his area of supply.
(EA 03- Clause 14)
National Franchisee Training Program of Ministry of Power, Reference Book: The objective of
this course material is to help the participants understand the conceptual framework for various
models of Rural Franchise Agreements, to impart knowledge on the basics of distribution
business covering management, technical, commercial and legal aspects and to help them
understand and apply mechanisms for quick efficiency gains and improved customer service.
The course would also help the participants to understand the business of undertaking the
franchisee work and the process of franchisee appointment. The reading material also describes
the various models in detail, the sample compensation mechanism that can be adopted, the
incentives that can be given to the franchisee and the responsibilities of both the parties.
N. P. Totare (2005) et al mentioned that the distribution franchisee model in public-private
partnership (PPP) initiative has emerged as a solution to the problems affecting the power sector
and has become a means to break the vicious circle of high AT&C loss, low investment, low
consumer satisfaction and in turn low realization. The first input and investment based
distribution franchisee has been implemented in Bhiwandi circle of Maharashtra with exemplary
success. As a result utilities, private sector players and State Government are pursuing this model
aggressively and trying to replicate in several areas. Revenue models with suitable margin can be
16
suitably designed so that the franchisees can invest in the existing infrastructure, reduce loss and
which in turn can recover their investment with appreciable return.
R. Joshi (2007) et al mentioned many sources report that farmers in Uttar Pradesh, as well as
across India more generally, are well-organized and vocal proponents of electricity subsidies.
Nonetheless, not every small interest group wins its preferred policy outcomes against the
majority of admittedly unorganized consumers, and certainly not when these preferred policies
are bankrupting the public sector. He has two hypotheses, in addition to the organizational
capacity of the agricultural sector, that might explain the political influence of farmers who own
electric tubewells, especially why ―when politicians make the decision to raise electricity
prices, they are often voted out of office during the next election cycle‖.First, owners of electric
tubewells often sell water to farmers who are too poor to own their own irrigation equipment.
The subsidy that we have identified as power ―theft‖ is thereby enjoyed by a larger rural
population than merely the owners of electric tubewells. It is possible that without this subsidy,
tubewell owners would raise water rates on their neighbors, perhaps even to a level that strangled
the ability of poorer farmers to purchase adequate water to irrigate their fields.
Ritu Anand (2009) et al stated that the electricity distribution franchisee (DF) arrangement is
based on principles of ‘Public Private Partnership‘ (PPP) wherein specific functions for a
demarcated area within the total licensed area of distribution is franchised out by the distribution
utility to a private sector entity, while the state retains the ownership of assets. In the initial
years, such an arrangement was restricted to outsourcing of functions such as billing, collection
and repair & maintenance (R&M) of transformers. Over time, it evolved into incentive-based
arrangements for the private sector to invest in the distribution network and be responsible for all
functions after receiving energy from the utility right up to collection of revenues from
consumers .The DF arrangement was given formal recognition through the Electricity Act 2003.
The scheme is now being taken up by many states in both rural and urban areas. While the
motivation behind it in rural areas is driven by the need to extend access to electricity, in urban
areas the reason is purely commercial. However, till recently, input based franchising did not
gain much acceptance since states were concerned with the adverse socio-political repercussions
in the event of its failure and the private sector was reluctant to take on risks in the absence of a
well structured offer.
17
Standardization of Distribution Franchisee Model, Forum of Regulators, 2010: Though the
Distribution Franchisee model has scripted success stories in the past both in urban and rural
space, FOR identified the need to standardize the entire process of the Distribution Franchise
Arrangement from the process of awarding a DF contract to the termination policies to be
followed by the utility and the DF. Since most of the Utilities are now in the process of going
through this public private partnership route for bringing in the desired efficiency, a need was
also felt to analyze the role of a Regulator as well in facilitating the DF arrangement. The report
deals with the review of experience of distribution franchisee, identification of issues limiting the
adoption of DF models, identification of regulatory interface in franchise agreement, dialogue
with stakeholders to understand their perspectives and design of framework and model
contractual documents.
Institutionalization of Rural Franchisee in Orissa-Project Overview and Learnings, February,
2012: the report sums up the work scope involved, process adopted, and franchising scheme
designed in the rural distribution franchisees awarded in the rural areas of Orissa. The report also
reveals the institutional process adopted, the performance tracking of the implemented franchisee
area and a stakeholder analysis to come out clearly with recommendations and way forward to
ensure that learnings from the project are used effectively to roll out rural franchisee
institutionalization in a more efficient and sustainable manner. The report found out that rural
power distribution franchisee scheme has benefited all the major stakeholders involved in the
process – Consumer, Franchisee and DISCOM. As envisaged, it has positively impacted the
financial realizations of the DISCOMs and the income of the institutions working as Franchisees.
Owing to the nature of the geographical areas and the revenue size, though it hasn‘t been able to
attract mid-size or larger entrepreneurs, it has opened new avenues of livelihood for local civil
society organizations.
Brijesh Bhatt (2012) et al stated that the distribution sector, the major objectives of the reform
were to restrain the huge distribution losses, improve the technical performance of distribution
networks and increase private participation. His paper describes what impact the reform actually
has and how the performance of the distribution sector is affecting various energy efficiency
18
enhancement programs. An analytical framework based on Institutions of Sustainability and
socio-technical system is presented to analyze the technological change in the distribution sector
with the institutional change. The electricity distribution companies are key factor in the analysis
and factors affecting their decisions regarding the choice of energy efficient technology adoption
in the distribution networks.
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CHAPTER-3
3. FRANCHISEE SYSTEM: AN OVERVIEW
3.1 CONTEMPORARY DISTRIBUTION SCENARIO OF INDIAN POWER
SECTOR
“India’s power sector is a leaking bucket, the holes deliberately crafted and the leaks carefully
collected as economic rents by various stakeholders that control the system. The logical thing to
do would be to fix the bucket rather than to persistently emphasize shortages of power and
forever make exaggerated estimates of future demands for power. Most initiatives in the power
sector (IPPs and UMPPs) are nothing but ways of pouring more water into the bucket so that the
consistency and quantity of leaks are assured…”
Deepak S. Parekh, Chairman, Infrastructure Development Finance Corporation
With installed capacity of 202.98GW (May 2012), India is world‘s fifth largest producer of
electricity. Captive power plants generate an additional 31.5GW. International Energy Agency
estimates India will add 600GW to 1200 GW of additional new power generation capacity before
2015. Albeit in such a strong situation the average annual power consumption per capita is a
meager 778KWh when compared to the world average of 2600KWh. It is estimated that a
whopping 300million Indian citizens are yet to light their houses. A cause of concern is the high
AT&C loss level of 27% in India which means almost 30% of what we produce is lost /
uncharged. A reduction by 1% in T&D loss level means the saving of a capacity addition by
800MW. The transmission side always deals with the technical losses such as core loss, copper
loss, I2R loss which cannot be mitigated to a greater extent. Thus, it envisages the role of
distribution side, in mitigating the loss levels & rejuvenating the power scenario, pretty
important. The EA 2003 calls for unbundling of all SEBs envisaging that the clutter of activities,
if SEB‘s are to generate, transmit & distribute, will be resolved to an extent if they have separate
divisions for the above said. At present there is a combined consumer base of 200 million people
in the country distribution segment altogether. With 400GW approximate load, 73 distribution
utilities, 17 private companies, 40 corporate discoms & 3 SEBs are currently functioning.
To evaluate the financial position of utilities, a high level panel with Shri V.K Shunglu (former
CAG) at the helm was constituted. The study was made on 15 states that accounted for 91% of
total power consumption in the country. The report elicited the financial condition of SEB‘s as
poor. The committee estimates a staggering loss of 82,000 Cr for the last 5 years. The
distribution side is in the vicious circle of infrequent revision of tariffs, variations in estimated
20
and actual revenue, variations in actual and estimated values of expenditure etc. The Shunglu
Committee suggested the implementation of Franchisee System as a panacea for the exacerbating
worries of the distribution sector.
TABLE 3.1: AT&C LOSS LEVELS IN STATES.
Region
State
Utility
Bihar
Bihar State Electricity Board
Jharkhand State Electricity Board
Jamshedpur Utilities & Services Co. Ltd
Damdar Valley Corporation
Central Electricity Supply Utility(CESU)
Northern Electricity Supply
Company(NESCO)
Southern Electricity Supply
Company(SOUTHCO)
Western Electricity Supply
Company(WESCO)
Sikkim PD
West Bengal State Electricity Distribution Co.
Ltd
CESC Ltd
DPSC Ltd
Durgapur Projects Ltd
Arunachal PD
CAEDCL
LAEDCL
UAEDCL
Manipur PD
MeSEB
Mizoram PD
Nagaland PD
Tripura PD
North Delhi Power Limited
BSES Rajdhani Power Limited
BSES Yamuna Power Limited
NDMC
Dakshin Haryana Bijli Vitran Nigam
Uttar Haryana Bijli Vitran Nigam
Himachal Pradesh State Electricity Board
Jharkhand
Orissa
Eastern
Sikkim
West Bengal
Arunachal Pradesh
Assam
North Eastern
Manipur
Meghalaya
Mizoram
Nagaland
Tripura
Delhi
Northern
Haryana
Himachal Pradesh
21
Loss
Level
48%
53%
3%
9%
45%
39%
51%
37%
DNF
26%
14%
4%
10%
DNF
DNF
DNF
DNF
83%
32%
59%
DNF
35%
19%
21%
24%
DNF
27%
33%
23%
Jammu & Kashmir
Punjab
Rajasthan
Uttar Pradesh
Uttarakhand
Andhra Pradesh
Southern
Karnataka
Kerala
Pondicherry
Tamil Nadu
Chattisgarh
Goa
Gujarat
Western
Madhya Pradesh
Maharashtra
J&K PDD
Punjab State Electricity Board
Ajmer Vidut Vitran Nigam Ltd
Jodhpur Vidut Vitran Nigam Ltd
Jaipur Vidut Vitran Nigam Ltd
DVVN
MVVn
Paschi.VVN
Poorv VVn
KESCO
Noida Power Company Limited
Uttarakhand Power Corporation Limited
Central Power Distribution Co of AP Ltd
Eastern Power Distribution Co of AP Ltd
Northern Power Distribution Co Ltd
Southern Power Distribution Co Ltd
Bangalore Electricity Supply Co
Chamundeswari Electricity Supply Co
Gulbarga Electricity Supply Co
Hubli Electricity Supply Co Ltd
The Hukeri Rural Electric Co-Operative
Society Ltd
Mangalore Electricity Supply Co Ltd
Kerala State Electricity Board
Rubber Park Ltd
Technopark Ltd
Pondicherry PD
Tamil Nadu Electricity Board
Chattisgarh State Electricity Board
Goa PD
Daksin Gujarat Vij Co Ltd
Madhya Gujarat Vij Co Ltd
Paschim Gujarat Vij Co Ltd
Uttar Gujarat Vij Co Ltd
Torrent Power Ltd(Ahmedabad)
Torrent Power Ltd(Surat)
MP Madhya Kshetra Vidyut Vitaran Co Ltd
MP Paschim Kshetra Vidyut Vitaran Co Ltd
MP Poorv Kshetra Vidyut Vitaran Co Ltd
Maharashtra State Electricity Distribution Co
Ltd
The Tata Power Co Ltd
22
73%
20%
30%
30%
28%
35%
32%
DNF
DNF
43%
9%
33%
17%
9%
15%
14%
18%
26%
42%
33%
38%
DNF
22%
3%
14%
DNF
19%
38%
DNF
15%
12%
30%
11%
14%
10%
40%
35%
41%
24%
0%
BEST
Reliance Infrastructure Ltd
The Mula-Pravara Electric Co-Operative
Society Ltd
23
14%
16%
43%
3.2 RURAL ELECTRIFICATION CORPORATION LIMITED (REC)
Rural Electrification Corporation Limited (REC) is a leading public Infrastructure Finance
Company in India‘s power sector. The company finances and promotes rural electrification
projects across India, operating through a network of 13 Project Offices and 5 Zonal Offices,
headquartered in New Delhi. It provides financial assistance to State Electricity Boards, State
Government Departments and Rural Electric Cooperatives for rural electrification projects as are
sponsored by them. REC provides loan assistance to SEBs/State Power Utilities for investments
in rural electrification schemes through its Corporate Office located at New Delhi and 17 field
units (Project Offices), which are located in most of the States. The Project Offices in the States
coordinate the programs of REC‘s financing with the concerned SEBs/State Power Utilities and
facilitate in formulation of schemes, loan sanction and disbursement and implementation of
schemes by the concerned SEBs/State Power Utilities.
Since 2005, REC has been appointed nodal agency by Ministry of Power for Government of
India scheme Rajiv Gandhi Grameen Vidyutikaran Yojana aimed at building rural electricity
infrastructure and household electrification towards the National Common Minimum Program
goal of access to electricity for all. Under the scheme, 90% capital subsidy is provided by
Government of India for overall cost of projects. Cumulatively till FY10, works in 190,858
villages have been completed and free connections to over 10 million below poverty line (BPL)
households have been released.
3.3 RAJIV GANDHI GRAMEEN VIDYUTIKARAN YO YOJANA
Central Government launched ―Rajiv Gandhi Grameen Vidyutikaran Yojana‖ on 4th April,
2005 for attaining the National Common Minimum Program (NCMP) goal of providing access
to electricity to all households in the country in five years. The scheme aims at electrification of
over 1 lakh un-electrified villages and providing electricity connections to 2.34 crore rural
households. The estimated cost of the scheme is approximately Rs. 51,000 crore. Under the
scheme, Central Government provides 90% Capital subsidy for construction of Rural
Distribution Backbone (REDB), Creation of Village Electrification Infrastructure (VEI), and
Decentralized Distributed Generation (DDG). Below Poverty Line (BPL) households will be
provided free electricity connections with 100% capital subsidy amounting Rs.2200/- per
24
household in all rural habitations. APL (Above poverty line) households will obtain connections
according to procedure prescribed by State utilities. 10% of the project cost will be provided by
Rural Electrification Corporation (REC) as soft loan.
25
3.4 DISTRIBUTION FRANCHISEE- THE WAY FORWARD
3.4.1 INTRODUCTION
“Franchisee means a person authorized by a distribution licensee to distribute electricity on its
behalf in a particular area within his area of supply.” [Electricity Act 2003: Clause 2
(Definitions): Sub-clause 27]
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 obtain any separate licence from the concerned State Commission and
such distribution licensee shall be responsible for distribution of electricity in his area of supply.
(EA 03- Clause 14)
For revenue sustainability, management of rural distribution through franchisee is prerequisite
under Rajiv Gandhi Grameen Vidyutkaran Yojana.
A close examination of financial status of state EB‘s by the Shunglu Committee has revealed the
ever exacerbating condition of state electricity boards. The main problems found out by the
committee were that of non revision of electricity tariffs for years and alarming average rate of
realization by the EB‘s. Shunglu Committee recommended the appointment of franchisees in the
distribution side for rejuvenating the financial condition of state EB‘s. Franchisees aren‘t
licensed parties, in lieu; they are authorized by the licensee to the work for them. The scope of
work varies from metering, billing and collection to energy purchase and overall monitoring of
the whole area depending upon the franchisee model chosen. Franchisees are authorized to work
instead of utility for various activities. The compensation to the franchisee includes fixed
payment (that may include the sharing of operational expenditure, depreciation and investments
done by franchisee), penalties for under achievement and incentives for over achievement.
Franchisees can be broadly classified into urban and rural franchisees.
26
An appropriate mechanism that will ensure revenue sustainability has led to the idea of
developing rural electricity franchisees. Indeed it has been made a cornerstone of rural
electrification program under RGGVY scheme. The sustainability of the program hinges on
successful deployment of franchisees. Franchisees, besides opening up new employment
opportunities to rural population, will also instill a sense of ownership among the rural people for
efficient utilization of electricity. The management of rural distribution will be through
franchisees, who can be individual entrepreneur, NGOs, women self-help group, Users
‘Association, Co-operatives etc. The Panchayati Raj institutions will have an important role of
overseeing, in the advisory capacity, the delivery of services by franchisees.
The urban electricity franchisee is supposed to do almost all the work of a distribution licensee
whereas the roles of rural franchisees are limited mainly to metering, billing & collection. Urban
franchise model may attract the big guns like corporate to bid for the franchisee while the rural
franchisees may attract mainly NGO‘s, PRI‘s and SHG‘s. The responsibility and scope of work
are huge. The scope of work may include major operation & maintenance, billing, metering,
collection, investment in infrastructure, power purchase from the licensee etc.
The figure below depicts the concept and the franchisee framework.
FIGURE 3.1:FRANCHISEE CONCEPT
3.4.2 TYPES OF DISTRIBUTION FRANCHISEE
27
Distribution Franchisees are differentiated on the basis of area of operation into urban and rural
franchisees. They are
3.4.2.1 MODEL A: COLLECTION BASED REVENUE FRANCHISEE
The role of franchisee under this model is limited to billing, revenue collection, and complaint
redressal, facilitating release of new service connection and keeping vigil on the distribution
network in the franchised area for providing appropriate feedback to the utility. Such collection
franchisees would be appointed for an area and be given a target for revenue collection every
month (which depends on the baseline collection in the area). The scope of work may include
minor operation & maintenance like transformer oil replacement, metering of consumers, LT
fuse replacement etc.
The remuneration methodology involves:
i) Paying the franchisee margins (which will be a percentage of collections) on achievement of
the target,
ii) Levy of penalty for not achieving the target
iii) Incentives for performance
Primary duty of the franchisee is revenue collection as the incentives are based on the revenue
which he collects on behalf of the utility. In this model the franchisee only acts as a facilitator
cum enabler in increasing the revenue collection through his efforts towards reaching more
consumers and motivating them to pay their dues in time. The franchisee can help to make the
consumers aware of the collection procedures and provide them with convenient payment
options, so that the incidences of defaults in payments are reduced. The utility needs to specify
the targets that are required to be achieved during the course of operation of the franchisee so
that there is clear understanding between the parties about the targets and the responsibility to
achieve them. The franchisee would be required to achieve these targets as early as possible as
the incentives are given once he crosses the set targets by the utility. In the process of revenue
collection the franchisee has no rights or responsibilities towards system improvement or loss
reduction.
28
FIGURE 3.2:CHARACTERISTICS OF CBDF
Collection Based DF
Type
Rural
Scope of Work
Compensation
Fixed
Payment
Meterin
g
Drawbacks
Franchisee
not a
partner in
loss
reduction
+
Bidders
Advantages
Billing
Incentive
Open
To All
_
Collectio
n
Revenue
realization
increased
Penalty
Minor
O&M
TABLE 3.2:ADVANTAGES AND DISADVANTAGES OF CBDF
Advantages
One of the simplest models for
implementation.
Franchise focuses on increasing the revenue
realized.
Area to be covered will be less
No complexity of feeders feeding to outside
project area
No need for feeder metering by franchisee
Initial capital expenditure needed for O&M
will be less.
More parties will be interested with lesser
Disadvantages
The project area may consume more energy
sans billing for it.
Franchise may form cartels with consumers
for under billing if they can pay
instantaneously.
Franchisee may indulge in manipulative
practices such as billing less and realizing
more thereby increasing the collection
efficiency.
Energy Accounting will not be there
29
area & lower initial cash outflow
Best feasible model for rural areas where you
may not expect corporate to bid for.
3.4.2.2 MODEL B: INPUT BASED REVENUE FRANCHISEE
In case of the input based franchisee, the input energy into the area covered by the franchisee is
measured by the utility and the targets set for revenue collection area based on the collections
made as a percentage of the input energy supplied to the consumers beyond the point of metering
by the utility. The operations and remuneration methodology of the input based franchisee is
similar to that of the collection franchisee. The basic difference is in the target setting mechanism
by the utility.
The input based franchisee‘s area may be decided based on:
i) Energy supplied by the utility through 11 kV feeder(s) at a point/ location of measurement of
energy supplied to franchisee and will need a metering unit in the individual 11 kV feeders.
ii) Above system can also be distribution transformer wise located in the villages having smaller
area of franchisee operation.
The advantage of the Input Based Revenue Franchisee Model (model B) over the Collection
Based Franchisee Model (Model A) is that the franchisee also becomes a partner in loss
reduction and tries to reduce theft in the system. The franchisee‘s primary duties and
responsibilities are greater than in the previous models detailed above. This is due to the linkage
of the incentives with the T&D losses in the franchised area. The incentives for attaining
collection efficiency targets which are linked to T&D loss level would be higher when the T&D
loss level is less and vice versa. In this way the franchisee becomes a direct beneficiary of loss
reduction. The utility fixes the targets according to the existing loss levels in the area. The utility
monitors the targets and the achievements at regular intervals to assess the performance of the
franchisee.
TABLE 3.2:ADVANTAGES AND DISADVANTAAGES OF IBDF
Advantages
Over consumption & Under Billing is
Disadvantages
O&M Cost may increase.
30
prevented.
Franchisee will not be able to bill less and
collect more thereby increasing the collection
efficiency.
Energy Accounting will be possible in the
franchised area.
Initial lump sum deposit in the form of
security money may be colossal thus
discouraging greater participation.
May prove cumbersome for parties like SHG,
PRI, NGO etc who may not be well
sophisticated to handle big areas, if any.
FIGURE 3.3: CHARACTERISTICS OF IBRDF
Input Based Revenue DF
Type
Scope of Work
Metering
Rural
Billing
Compensation
Fixed
Payme
nt
Advantages
Energy
Accounting
is Possible
+
Bidders
Open to
All
Collecti
on
Incentive
Revenue
realization
increased
_
Minor
O&M
Penalty
Energy
Purchase
Franchisee
partner in
loss
reduction
*3.4.2.3 MODEL C: INPUT BASED FRANCHISEE
In this model the franchisee buys electricity from the utility at defined input point(s), which may
be any voltage level and pay electricity charges to it at a pre-determined rate. The price at which
the franchisee wishes to buy electricity from the utility is termed as ―Bulk Supply Tariff‖. The
electricity supplied/purchased is metered regularly at weekly or monthly intervals. The
franchisee collects revenue from the consumers by raising bills at the tariff decided by the
appropriate electricity regulatory commission and pays to the utility as per the contracted BST
for the electricity measured at the input point(s).
31
Once a franchisee signs an input based franchise agreement, he has to pay the utility for all the
energy he receives at an agreed bulk supply tariff. . After collecting revenue from consumers, he
keeps with him the surplus left after paying the utility for the energy received. More efficient he
is in reducing losses and making collection and recoveries, more profits he earns. The franchiser,
on the other hand, is insulated from any losses arising from the working of the franchisee in the
area. The franchisee naturally has full powers to control pilferage of energy and improve billing
and collection in the area. The tariff is determined keeping in mind various costs that would be
borne by the franchisee in order to carry out the duties in the franchisee area. The level of
investments and expenses that the franchisee anticipates are incorporated in the Bulk Supply
Tariff.
The earnings of the franchisee are directly affected by the quantum of energy that is billed. A
franchisee needs to pay for the amount of energy which is fed in the area and thus it is his goal to
reduce the losses and bridge the gap between the energy input and the energy billed. This ensures
a higher potential for the franchisee collections. As the collection from the consumers would be
the earnings of the franchisee, the collection would not be shared with the Utility. The electricity
duty however belongs to the government and is to be transferred to the government through the
Utility only.
The franchisee would be required to attend to the complaints of consumers and take corrective
action which would otherwise have been done by the utility. The consumers need to be billed by
the franchisee at the tariffs as approved by the appropriate regulatory commission. The
franchisee needs to facilitate the consumers in getting their problems solved relating to the
billings, connections, disconnections etc so as to improve his services in the franchised area.
Franchisee can set up collection cum customer care offices to make sure that that no complaints
are left unattended or inadequately attended.
FIGURE 3.4: CHARACTERISTICS OF IBDF
32
Input Based DF
Scope of Work
Type
Rural
Bidders
Open To
All
Payment to
Utility
Advantages
BST as
quoted
Unregula
ted
Metering
Billing
Investm
ents in
N/W
Collecti
on
O&M
during
bidding to
be paid to
utility
Gain to
Franchisee
Realization
from the
Area
–
Payment to
Utility
Revenue
realization
increased
Franchisee
partner in
loss
reduction
Energy
Purchase
3.4.2.4 MODEL D: OPERATION & MAINTENANCE FRANCHISEE
In this model, in addition to the franchisee operation indicated above in Model C, the utility may
also hand over the O&M (operation and maintenance) of the network. In other words, this model
covers the entire gamut of activities under franchisee framework and is applicable for both rural
and urban areas. In this franchisee model he needs to purchase electricity at a predefined BST, he
needs to reduce the T&D losses and improve the collection efficiency in order to have higher
gains. The input rate is dependent on the anticipated cost of operation and maintenance of the 11
kV and LT networks in the franchised area. These costs must be considered while calculating the
BST by the franchisee. In addition, following points may be noted:

Consumer complaints need to be attended by franchisee and necessary action is to be
taken by him for complaint redressal.
33

The income is dependent on the level of billing & collection which are the areas of prime
focus of the franchisee

The billing and billing system could be involved in his scope
This is a model where the franchisee is required to make investments for improvement and set up
the system himself with minimal interventions from the utility.
For the franchisee models involving O & M (Model C & D) in the scope of work the following
activities is included;

All material required for new connections/reconnections, as per the norms of utility, shall
be arranged by the franchisee at its own cost in the first instance meeting the
specifications prescribed there for by utility and through utility‘s approved vendors of the
same, if any.

In case it is agreed that the cost is to be borne by the utility in the terms and conditions
agreed franchisee may claim for the material the costs incurred by him from the utility.

The franchisee shall submit within a prescribed timeline a claim with utility towards the
material provided for connections released by them during the month. The claim
submitted by the franchisee can be scrutinized by utility within next few days and
payment due to the franchisee towards the material used for release of connections
including meter, as per the norms fixed by utility, shall be made on the basis of the
material issue rates of utility in respect of items for which such rates are available and in
respect of other items, as per the rates claimed by the franchisee.

The norms are required to be followed in procuring the materials so that the set standards
by the utility are not diluted by the franchisee and the system remains in line with the
Utilities systems network thereby delivering similar operating conditions in the
franchisee area of operation.
FIGURE 3.5:CHARACTERISTICS OF O&M DF
34
Operation & Maintenance Based DF
Scope of Work
Payment to
Utility
Type
BST as
quoted
during
bidding to
be paid to
utility
Collection
Urban
O&M
Bidders
Open To
All
Gain to
Franchisee
Energy
Purchase
Realization
from the
Area
–
Payment to
Utility
Major
O&M
Drawbacks
Metering
&Billing
to be
Done by
Utility
Advantages
Revenue
realization
increased
Franchisee
partner in
loss
reduction
3.4.2.5 MODEL E: RURAL ELECTRIC COOPERATIVE SOCIETIES
This approach calls for the state to authorize the creation of traditional electric cooperative
society that is organized, owned and operated by its members. The society owns the distribution
utility assets and is responsible for all utility functions including operations and maintenance,
metering, billing and collections, accounting and finance, procurement, stores and system
planning and expansion.
The operations of the co-operative society include:

Organizing the community and recruiting the members.

Owning the distribution system and carrying any debt on the assets.

Responsibility for all facets of managing and operating the utility.

Purchasing power from the state power utility
35
This model is applicable only for rural areas as the community based success is seen to work in
areas where collective social groups exist with support from the government and social bonds
between among the people is strong. However there is nothing that should come in the way of its
adoption in urban areas if cooperative societies having the kind of social cohesion and structure
that panchayats have were to come up in urban areas too.
3.4.2.6 MODEL F: RURAL ELECTRIC COOPERATIVE SOCIETIES (OPERATIONS
MANAGEMENT THROUGH CONTRACTING)
This is a variant of Model E, where the cooperative society may decide to run its operations
through an external experienced agency/organization with suitable fee structure. This can be
achieved through an appropriate 'operations contract' with built-in performance criteria. This
model is also applicable only in rural areas. The important features of this kind of model are;
o The Co-operative society may take the help of outsourcing of the activities to other
agency/organization through operation contracts.
 The Society shall carry all the activities of the Input Based Franchisee by itself or through
its agency; however the sole responsibility still remains on the franchisee towards the
franchiser.
 Input rate predetermined for the Franchisee as in other models based on the expenses and
the revenues envisaged.
 Cooperative carries out all the roles similar to other Models of the Franchisee.
The revenue and system related activities will also be the part of the scope of work of the
franchisee as in case of other Input based models. However if the franchiser feels the need of any
deviation in the roles and responsibility it can be agreed by both the parties before the designing
of terms and conditions of the model.
36
3.5 REVIEW OF A SUCCESSFUL FRANCHISEE MODELS
3.5.1 Bhiwandi Model
The textile hub of Maharashtra, Bhiwandi accounts for one-third of the country‘s power looms.
The township covers an area of 721 square km and has a population of around 1 million with a
customer base of 160,000. The annual consumption of electricity is about 2500 MUs. The town
had high aggregate technical and commercial (AT&C) losses of 58-60 percent in 2006.
Collection efficiency was only about 68 percent. Revenue collection had stagnated at Rs 2.4
billion between 2002 and 2006, though the sale of power had increased from 859 MUs to 1225
MUs during this period. It suffered from various technical shortcomings such as an ageing
transmission and distribution network with no investment in system up gradation in the past,
suboptimal maintenance and lack of standardization.
The township was also plagued by several other problems like inadequate metering, high theft
and pilferage, and incongruent billing process. The subsidy provided by the state government for
the supply of power to the loom owners had increased.
The Bhiwandi franchise is based on an input-based distribution franchise agreement with
Maharashtra State Electricity Distribution Company Limited (MSEDCL) for a period of 10
years. Under the agreement, the franchisee receives power from MSEDCL by paying an annual
rate for it and keeps the revenue collected from the consumer. The franchisee is responsible for
metering, billing, collection, new connections and capital expenditure.
TPL was appointed MSEDCL‘s exclusive agent in the franchise area on the basis of levellised
values of a yearly input rate of Rs 2.04 per unit for 10 years. To measure the performance
improvements, the opening data was finalized jointly by the franchisee and MSEDCL staff.
A midway option between full privatization and no privatization, the franchisee model is less
risky and more pliable than complete privatization, which may not be acceptable to the discom‘s
employees or the consumers. The franchisee model attracts more players as this does not require
the private entities to make large investments in buying discom assets.
37
TABLE
3.3:BHIWANDI
STATUS
BEFORE
AND
AFTER
FRANCHISEE
IMPLEMENTATION
AT&C Losses & Distribution Infrastructure before and after Franchisee Operations
Parameter
2006-07
2010-11
AT&C loss
58%
18.5%
No. of Transformers
2,254
2611
DTC Failure Rate
42%
3.05%
Accurate Metering
23%
98%
58.91%
99.16%
Reactive Power Management
Nil
160 MVA
Modernization of Power System
Nil
SCADA, AMR
No. of Feeders
46
86
EHV Capacity
550
1000
Customer Care
Nil
Enhanced Customer Services
174,000
235,000
Collection Efficiency
Consumers
3.5.2 ORISSA MODEL
A hybrid model was adopted in Orissa drawing from the experiences of various models of
franchising in different states, and after deliberations with stakeholders i.e. MoP, DISCOMS,
UNDP and State Regulator,. These were Collection based Model (Model A1) and Input based
Model (Model C). For collection based model the incentive mechanism was based on the
collection coverage efficiency (CCE) scheme whereas for input based model the incentive
mechanism was based upon collection efficiency (CE). The franchisee institutionalization
procedure included area selection, area due diligence, franchise scheme, bid process & selection,
area hand over and monitoring. An area was selected on the basis of short listing by a scientific
and rational score sheet. Consumer mix, connected load, revenue assessment, collection
efficiency and AT&C losses were evaluated for selecting the area. After the areas were finalized
the baseline data were collected for the respective areas. The salient features of the franchising
38
scheme were the formulation of Hybrid Model – Collection for first 9 months and thereafter
Input
based
model,
area-wise
Incentive
Structure
based
on
Coverage
Collection
Efficiency/Collection Efficiency ,the possibility of including spot billing in the scope of work of
franchisee and innovative Micro Financing support for meeting working capital requirements of
the franchisee, foreseeing the nature of organizations that may get selected.
TABLE 3.4:PARAMETERS CONSIDERED FOR AREA SELECTION
Parameters
No. of Consumers/ Consumer
Mix
Ideal Value
Rationale
Higher the number of consumers,
High
higher the revenue and hence
more attractive to the franchisee
Higher connected load indicates
Connected Load/ Load Mix
High
high consumption and hence
higher revenue
Higher assessed revenue
Revenue Assessment
High
indicates higher potential for
realization
Collection Efficiency
AT&C Losses
Low
Lower collection efficiency and
higher AT&C Losses indicate
High
potential for improvements.
Final selection was based on predefined criteria namely the institutional vibrancy, work
experience, financial position, local area presence, technical knowhow etc. Also a franchisee cell
was constituted in Orissa to facilitate, hand hold and monitor the franchisee operations.
39
CHAPTER-4
4 FRANCHISEE INSTITUTIONALIZATION
4.1 JHARKHAND STATE ELECTRICITY BOARD: AN INSIGHT
On 15th Nov, 2000 the Land of Lord Birsa Munda emerged as a new State which was named as
Jharkhand. Since independence, the people of Jharkhand who are residing in remote places had
not seen the light of civilization which actually comes through the new Carrier "Electricity".
Immediately after the new state was constituted on 10th Jan, 2001 the state of Jharkhand
announced constitution of Jharkhand State Electricity Board to take up all activities for
electrification of the whole state. On 16th Mar, 2001 the Government of Jharkhand appointed the
Chairman and member of Jharkhand State
Electricity Board and the first Board took up its
work with great enthusiasm.
On 22.03.2001 the Ministry of Power,
Government of India permitted the new Board
to be functional w.e.f. 01.04.2001. Since this
new Board was carved out from existing Bihar
State Electricity Board, Ministry of Power
Government of India allowed its officers and
employees who were working in the territorial jurisdiction of Jharkhand to be the employees and
officers of Jharkhand State Electricity Board as is where basis.. The new Board inherited the age
old thermal generation Power Station at Patratu which had already outlived its life and another
generating station at Sikidiri known as Swarnrekha Hydel Project.. The demand in the Ranchi
town in the year 2000 was 80 MW which has now grown up to 200 MW in the year 2008 and so
is the status of demand in the whole state which is 800 MW today as compared to 200 MW in the
year 2000.
JSEB receives power from DVC in their command area covering 7 districts of the state. In the
command area of DVC, the total demand is around 650 MW. The JSEB has at present a total of
530 MW allocation from the Central sector in which the thermal and the hydel is in the ratio of
60:40 respectively. The total demand outside the command area of DVC is around 925 MW
during Peak hrs & that of 750 MW in Off-peak hrs.
40
JSEB purchases power at an average rate of Rs. 3.26 per unit (fig. 2011-12), whereas the
realization is around Rs. 1.95 per unit. The Board is carrying 32.27% T&D losses and 40.60%
AT&C losses (fig. 2011-12). The tariff petition for the F.Y. 2012-13 has been filed before the
Honorable JSERC on 29th Dec. 2011. Business Plan for generation for the F.Y. 2012-13 to
2015-16 (Multi Year Tariff) has also been submitted to the Honorable State Commission. The
Board at the existing tariff rates is able to make out an assessment of Rs. 200 crore per month,
against which the collection is around Rs. 184 crore per month.
The consumer categories in Jharkhand are summed up as follows.
TABLE 4.1:CONSUMER CATEGORIES IN JSEB
Consumer Categories
Domestic II
Non Domestic I, Unmetered
Domestic III
Non Domestic II
Domestic I(B), Unmetered
Domestic High Tension
Low Tension Industries
Domestic I(B), Metered
Non Domestic I, Metered
Irrigation & Agriculture
Domestic I(A), Kutir Jyoti
(Unmetered)
Domestic I(A), Kutir Jyoti
(Metered)
Service(IAS) –I, Metered
IAS – I, Unmetered
IAS-II, Metered
IAS-II, Unmetered
High Tension Service
High Tension Special
Railway Traction Service
Service
Street Light Service-I
Street Light Service-II
Military Engineering Service
4.2 RGGVY in Jharkhand
As of August 2012, 22 districts in Jharkhand have projects under the RGGVY scheme. DVC,
NTPC and JSEB are the implementation agencies. Of 28,210 villages targeted for electrification
23,262 villages have been electrified in Jharkhand as part of RGGVY. Under the scheme, 22
projects covering release of electricity connections to 16, 91,797 Below Poverty Line (BPL)
households have been sanctioned at the cost of Rs. 2662.61 crore for the state.
41
TABLE 4.3 RGGVY IMPLEMENTATION STATUS FOR JHARKHAND AS OF JUNE,
2013
Rajiv Gandhi Gramin Vidutikaran Yojna
Comparative achievement by Implementing Agencies
Implementing
Agency
15.06.12
Plan
Total
Target as
per
survey
Ach.
% Ach.
Energised
%
Energise
d w.r.t.
Ach.
BPL target
Ach.
%
Energised
JSEB
10th
4594
3797
82.7%
3492
92.0%
571697
322893
56.5%
261010
10th
1760
1726
98.1%
1521
88.1%
216527
191718
88.5%
150780
11th
3469
3169
91.4%
2396
75.6%
281335
224257
79.7%
183948
Total
5229
4895
93.6%
3917
80.0%
497862
415975
83.6%
334728
10th
2092
2092
100.0%
2092
100.0%
69533
69533
100.0%
56103
11th
6806
6796
99.9%
5582
82.1%
472368
472368
100.0%
221832
Total
8898
8888
99.9%
7674
86.3%
541901
541901
100.0%
277935
18721
17580
93.9%
15083
85.8%
1611460
1280769
79.5%
873673
DVC
NTPC
Village electrification
Grand Total
BPL H/Hs
42
4.3 PROJECT BACKGROUND
Jharkhand State Electricity Board is implementing Rajiv Gandhi Grameen Vidyutikaran Yojana
(RGGVY) that aims to electrify all villages and habitations, provide access to electricity to all
rural households in the State and improve rural electricity infrastructure. Under the scheme, 90%
capital subsidy is provided towards overall cost of the projects, excluding the amount of state or
local taxes which are to be borne by the concerned State/State Utility. Remaining 10% of the
project cost is to be contributed by the States through their own resources/loan from financial
institutions. As per the RGGVY program guidelines and Rural Electrification Policy 2006,
deployment of franchisees for management of local distribution in rural areas has been
considered a necessary prerequisite in order to ensure revenue sustainability and improve
services to the consumers. Franchisee arrangement is not a revenue model per se but is envisaged
as a mechanism to ensure that the commercial losses reduce, energy supplied is billed and the
revenue that has been billed is collected. Franchisees can be individuals, firms,
users‘associations, co-operative societies, non-governmental organizations or Panchayati Raj
Institutions. For conversion of loans obtained under the RGGVY scheme into grant, deployment
franchisee is a mandatory condition.
Feedback Infrastructure Services Private Ltd. is appointed as consultant to design the franchisee
scheme and implement it in 12 rural electricity supply sub-divisions under JSEB.
4.4 FRANCHISEE INSTITUTIONALIZATION
JSEB has envisaged appointment of distribution franchisee across 12 rural sub divisions in
Jharkhand complying with the RGGVY scheme.
FIGURE 4.1:METHODOLOGY USED
43
The figure shows the methodology which can be adopted to appoint the franchisee
4.4.1 AREA SELECTION
As per the mandate, the client is required to appoint 12 franchisees across the rural sub divisions.
The client, in co-ordination with JSEB validated the data for 18 sub divisions which are of
interest to JSEB and where there is potential for appointment of franchisee. After validation, the
client can finalize 14 areas out of 18 which are at present being processed by JSEB for the
appointment of franchisee.
4.4.2 AREA DUE DILIGENCE
18 sub divisions which were provisionally shortlisted were analyzed rationally. All the technical
and commercial data for the areas concerned were collected and the areas were evaluated on the
potential for getting franchised. Data for the last two financial years were collected. The
commercial data that were asked for are.
44
4.4.2.1 CONSUMER DETAILS
TABLE 4.3: DETAILS OF CONSUMER FORMAT
Consumer Category
Month wise Number of Month Wise Number of
Consumer Billed
Consumer Paid
The consumer details data helped to work out the consumer coverage in the concerned area. It
also facilitated in understanding the peak paying month trends in the sub division and consumer
category wise standards of payment.
4.4.2.2 SALES DETAILS
TABLE 4.4: DETAILS OF SALES FORMAT
Consumer Category
Month wise Units Consumed & Billed
The sales details helped us to know the consumption pattern of the area month wise and
consumer category wise. This is also required to determine the distribution loss in the system.
However, in the absence of proper metering in the sub-division, it is not possible to derive the
distribution loss in the system at the sub-divisional level.
4.4.2.3 REVENUE BILLED & COLLECTED
TABLE 4.5: REVENUE BILLED & COLLECTED FORMAT
45
Consumer Category
Monthly Revenue Billed
Monthly
Revenue
Collected
The revenue billed helped us to get the average billing (revenue assessed in the area) and revenue
collected helped us to get the average revenue realized in the area. Also the peak paying month
trends were revealed.
4.4.2.4 METERING STATUS
TABLE 4.6: METERING STATUS FORMAT
Consumer
Single Phase Sans
Category
Meters
Meter
CT With CT/PT Total
Meter
Meters
Defective
Meters
The metering status helped us to estimate roughly the multitude of metering to be
done by the franchisee after hand over of the place.
4.4.2.5 ENERGY AUDIT
Once the data were received the various details were summed up and the energy
audit was prepared. The energy audit was done from the commercial data that were
received. Energy audit helped to calculate the average billing rate per unit, average
revenue realized per unit, the collection efficiency of the area and the consumer
coverage. Audit was prepared for one fiscal year that was taken as the base year.
The areas were finalized on the basis of energy audit.
46
TABLE 4.7: SAMPLE ENERGY AUDIT DONE
April
April’11
May
May’11
June’11
July’11
No. of consumers billed
5415
5410
4983
4983
No. of consumers paid
1255
1067
651
1145
Units Received
1000000
1000000
1000000
1000000
Units Consumed and Billed
806327
731625
649142
661521
Revenue Billed (Rs.)
840005
812779
677840
697290
Revenue Realized (Rs.)
715356
505402
709959
554173
85%
62%
105%
79%
9426651
9589417
Particulars
Collection Efficiency (%)
Outstanding Arrears of live connected
consumers during the month (In Rs)
16029546 16405741
Outstanding Arrears of PDC during the
month (In Rs)
12265026 12196208 19143178 19123530
Average Billing Rate (Rs per unit)
1.04
1.11
1.04
1.05
Average Revenue Realization (In Rs per
0.72
0.51
0.71
unit)
The above table shows the sample format of energy audit done for any area.
0.55
4.4.2.6 TECHNICAL DETAILS
TABLE 4.8: TECHNICAL DETAILS FORMAT
Number of Sections
Number of Sub Stations
Number of 11 KV feeders Outgoing
Length of 11 KV feeders(km)
33 KV input Feeder
The technical details that were collected found usage in estimating the monthly operational
expenditure that the franchisee may incur. Also schematic diagram of the sub division concerned
47
with the power sub stations. 33KV inputs,
11 KV outgoing feeders were made so that
the project area is meticulously defined.
FIGURE
4.2:
SAMPLE
PROJECT
AREA DIAGRAM
Sample
Schematic
Diagram defining the
Project Area
4.5 FRANCHISEE
SCHEME
The scheme envisages
franchising the project
area under CBDF model initially for a period of 1 yr and then transitioning into ILRF based on
the preparedness of JSEB. ILRF tenure will be 1 year and extendable subject to review at the end
of each year to ensure satisfactory performance by the Franchisee. In case JSEB is not prepared
to award area on ILRF model and franchisee‘s performance is found satisfactory, then this
Collection Based Franchisee Model shall be extended on the revised baseline data and same
terms and conditions subject to review at the
Figure 4.3 FRANCHISEE SCHEME
end of each year to ensure satisfactory
performance by the Franchisee. DFA also defines the project area in terms of consumer
48
categories to cover. The incentive mechanisms that will spur the franchisee to perform well to
achieve more are detailed here. The security deposits needed, the events of default for both
parties, the minimum number of employees that the franchisee should engage, qualification of
employees required and minimum compensation to be given are given in detail in the DFA.
The input energy supplied to the project area is to be monitored at the 33kV feeder level in order
to stop the franchisee walking away with an advantage of manipulating the input energy, in case
of metering not done by JSEB as per the franchisee agreement. To account for this, if the input to
the project area, in any case, increases more than 5% compared to the corresponding month of
base year at the 33kV level then the collected revenue of the Metered Consumers for the
corresponding base year month shall be adjusted by such increase in the input energy and will be
added to the revenue collection of Unmetered Fixed Charge Paying consumers of the same base
year month to derive the apparent monthly baseline collection for that base year month.
Apparent Monthly Baseline Collection for any Month of Base year
= Actual Collection of Unmetered Fixed Charge Paying Consumers during Base Month
+ (Actual Collection of Metered Consumers during Base Month
∗
Energy Input at the 33kV Level for the Current Month)
/ Energy Input at the 33kV level for the Corresponding Month of the Base year.
Before finalizing the franchise agreement several discussions were made with the utility so that
utility will be saved from being manipulated by the franchisee in terms of the input energy
supplied to the project area. The main points that were suggested forward and their drawbacks
and the final mechanism adopted are summarized as follows
Figure 4.9 RECOMMENDATIONS AND FEASIBILITY OF STUDY
Parameter
Energy
Accounting
Proposed solutions and its acceptability
1. In order to account for the energy input, it was proposed to derive the
average realization rate per unit of energy input for the base year and to
devise a compensation mechanism for improvement in the average
realization per unit of energy input during any month of franchisee
49
operation.
Acceptability: The proposal was discussed in depth. However, it was
not acceptable because of the current lack of infrastructure of JSEB
and cross-over of feeders across sub-divisional level. It was observed
that energy recording at the 33/11kV substation is not taking place
because of absence of meters. Thus, there was no sure mechanism to
ascertain the energy input at the sub-divisional level and thus the
proposal was discarded
2. Another mechanism proposed was to base the energy input on the basis
of hours of supply to the sub-division. Based on the increased hours of
supply one would be able to clearly specify that the energy input to the
area has increased and thus the franchisee may not be able to get undue
benefit due to increased energy input
Acceptability: The proposal was again discussed with the committee
and it was found that the method also has its limitations considering
that there is no any guarantee that the consumption pattern will
increase pro rata to the increased hours of supply and since billing and
realization are dependent on the consumption, thus, it will be unfair to
the franchisee to consider the increased hours of supply as the basis.
Also, it was observed that the consumer base consists of broadly two
types of legal consumers of JSEB, one is metered consumers and the
other one is unmetered fixed charge paying consumers. For unmetered
fixed charge paying category consumer, irrespective of energy
consumed, the consumer will be charged a fixed amount only.
Thus because of the above two reasons, the proposal was not
acceptable
3. The client finally proposed to base the energy accounting criteria on
the proportional increase in the input energy at the grid level. The
consultant proposed that a clause be included stating “If, in any
particular month, the energy supplied to the franchise area increases
more than 5% compared to the corresponding month of the previous
year as measured at the 33kV feeder feeding the project area, then the
collected revenue of the Metered Consumers for the corresponding
base year month shall be adjusted by such increase in the input energy
and will be added to the revenue collection of Unmetered Fixed Charge
Paying consumers of the same base year month to derive the apparent
50
monthly baseline collection for that base year month”
Acceptability: The above point was discussed with the committee and
it was found that such an inclusion will protect the interest of JSEB and
also will not be unfair to the franchisee. Thus, finally it was decided to
include the clause in the Collection Based Franchisee document and
that the compensations should be accordingly decided.
Compensation
Mechanism
1. The consultant re-worked on the compensation mechanism and
proposed that the total compensation will be divided into four
components –
a) Compensation for the O&M expenses of the franchisee which will
be dependent on the proportion of collection done by the franchisee
as compared to the baseline
b) Compensation for the depreciation value of the assets put in place
by the franchisee
c) Incentives to the franchisee on the incremental revenue as against
the baseline and for improving the collection coverage
d) Payments against other services rendered by franchisee to JSEB
Acceptability: The revised compensation mechanism was found to be
beneficial to the franchisee without affecting the interest of JSEB and
thus was acceptable
4.5.1 OBJECTIVE AND SCOPE OF THE PROJECT
Through the implementation of CBDF model, JSEB aims to improve the collection efficiency,
revenue collection, billing efficiency, metering status and the response time to redress consumer
grievance. The scope of work includes meter reading, bill generation, bill distribution, revenue
collection and minor operation and maintenance activities by the franchisee. Franchisee shall
deposit revenue to JSEB latest by the next day of collection and they will raise an invoice
claiming the O&M expenses, depreciation value of assets, incentives and payments against the
service rendered.
Following consumer categories falls under the control of franchisee.
51
Figure 4.10 CONSUMER CATEGORIES
Consumer Categories
Domestic I (A), Kutirjyoti
Non-Domestic – II
Domestic I(B)
Public Lighting
Domestic – II
Public Water works
Domestic – III
Irrigation
Domestic HT
Industrial LT
Non-Domestic – I
Industrial HT
Centrally Paying Govt. utilities
Any new consumer belonging to the category not mentioned above will be intimated to the
franchisee and that consumer category also falls under the scope of franchise.
4.5.2 COMPENSATION MECHANISM
O&M cost for any month will be calculated by the utility as follows.
Figure 4.11 SALARY AND NUMBER REQUIRED OF FRANCHISEE EMPLYOEES
1.
Franchisee will appoint a minimum of 1 Project Manager @ Rs. 6720/- per
month for the overall responsibility
2. Franchisee will appoint a minimum of 1 Accountant @ Rs. 5340/- per month
for overseeing the accounting responsibilities
3. Franchisee will appoint a minimum of 1 Team Leader for each sections of the
sub-divisions @ Rs. 5340/- per month for the area responsibility
4. Franchisee will appoint a minimum of 1 Billing and Revenue collection staff
per 1500 consumers in the sub-division @ Rs. 4140/- per month.
5. Franchisee will appoint a minimum of 1 Technical staff per 20km of 11kV
feeder length in the project area @ Rs. 4800/- per month
6. Franchisee will appoint a minimum of 2 helpers for each technical staff to
assist them @ Rs. 4140/- per month
7. Franchisee will appoint a minimum of 1 computer operator @ Rs. 4980/- per
month
8. Franchisee will appoint a minimum of 1 customer care operative @ Rs. 4140/per month
9. Travelling and other expenses will be compensated @ Rs.7/- per consumer for
each month
10. In addition to above, JSEB has considered that franchisee may rent a space for
using as office @ Rs. 5000/- per month
52
Note: Salary to be given was computed from the daily labor charges as fixed by JSEB. The
salary structure will strictly follow the amendments brought to the labor charges in future by
JSEB.
The O&M cost for any month incurred by the franchisee will be compensated by the utility as
follows.
Revenue Collected During the current month (in Rs.) – RCM Apparent Revenue
Collection during the corresponding month of the base year (in Rs.) – RCB
Figure 4.12 COMPENSATION MECHANISM
Slabs
Percentage of O&M cost to be compensated
as fixed payment
0 < RCM < RCB
20% * O&M
RCB < RCM ≤(RCB + O&M)
50% * O&M * [1+{(RCM – RCB)/(O&M)}]
RCM > (RCB + O&M)
100% * O&M
Note: Franchisee will also be compensated each month for the depreciation of the value of assets
deployed for creating the IT Infrastructure and other assets such as furniture and fixture,
cameras, etc. For this purpose, it is assumed that franchisee will be installing at least an asset of
Rs. 1,45,000/- ( Rupees One Lakh and Forty Five Thousand only) and the assets shall be
assumed to depreciate 90% in 60 months. At the end of 60 months, if franchisee further
continues to operate, then franchisee shall have to renovate and upgrade the infrastructure and
the compensation for depreciation shall be revised accordingly. If the franchisee succeeds to
operate for 60 months, then, at the end of 60 months the assets deployed by the franchisee for
which depreciation amount has been recovered will be returned to JSEB prior to claiming
security deposit. However, if franchisee is terminated within 60 months then property will be
recovered by JSEB and JSEB will compensate the franchisee for the salvage value of the asset at
the time of takeover of asset.
4.5.3 INCENTIVE MECHANISM

Franchisee shall be paid performance based incentive only when the monthly revenue
realization (in Rs.) is more than the corresponding monthly revenue realization (in Rs.) of
the base year. The incentive slabs shall be dependent on the Collection amount.
53
Figure 4.13 INCENTIVE MECHANISM
Incentive (in %)
Incentive (in Rs.)
10% * (RDM – RRB)
Revenue deposited during
100% * RRB <
10% of the incremental
any month (RDM)
RDM < 150% *
revenue for that month
RRB
Corresponding month
revenue realized during
RDM > 150% *
15% of the incremental
RRB
revenue for that month
15% * (RDM – RRB)
base year 2011-12 (RRB)
Franchisee shall also be given incentive for improving the collection coverage in the project area
as per the slabs mentioned below. However, no incentive shall be given for the collection
coverage of any new consumer added during the tenure of the franchisee and the number of such
consumers shall be accordingly adjusted for the estimation of collection coverage during the
franchisee tenure–
Percent
Collection
Coverage
during the
month
CCM% =
(No. of consumers - No. of new
paid
consumers added)
* 100
(No. of consumers - No. of new
billed
consumers added)
Figure 4.13 INCENTIVE MECHANISM IMPROVING COLLECTION COVERAGE
Collection Coverage
slab
CCM < 50%
50% < CCM < 70%
70% < CCM < 80%
Incentive
No Incentive
Incentive for a minimum of 1
employee and maximum of 2
employee on pro-rata basis @ Rs.
4140 per employee
Incentive for a minimum of 2
employee and maximum of 3
employee on pro-rata basis @ Rs.
54
Incentive in Rs.
4140 + {(CCM - 50%)/(70%
- 50%) }* 4140
(2 * 4140) + {(CCM –
70)/(80% - 70%)} * 4140
80% < CCM < 100%
4140 per employee
Incentive for a minimum of 3
employee and maximum of 4
employee on pro-rata basis @ Rs.
4140 per employee
(3 * 4140) + {(CCM –
80%)/(100% - 80%)} * 4140
The Franchisee shall also be given following payments against the services rendered by them
a)
Incentive at rate of 25% on the collection of arrears from PDC
b)
On replacement and installation of defective/new meters Franchisee will be paid
as per JSEB norms.
c)
Incentive on facilitation of new connection
d)
Incentive of Rs. 150 on identifying and reporting an un-authorized consumer as
per requirements of Electricity Act 2003. Franchisee shall also be given an
incentive of 10% of the amount collected by way of Assessment under Section
126 of the Electricity Act, 2003 for such unauthorized use of electricity.
4.5.4 PENALTIES APPLICABLE
 In case of non-remittance of revenue collected from consumers to JSEB within the
stipulated time or delay in submission of monthly data, a penal charge of 1.5% per month
on the defaulted amount would be charged to the Franchisee for the days of delay.
 If the franchisee fails to show improvement in the Project Area for three consecutive
months from the corresponding monthly performance of previous year then the
franchisee shall be reviewed for termination. This penalty clause shall not be applicable
for the first 2 months of the franchisee operation
 For defaults in consumers meter readings, incomplete or wrong meter readings, bills
distribution or deficiency in any other service except cash collection, the franchisee will
be liable for a penalty, on each such default, at the rates as may be decided by the
monitoring committee to be constituted by the JSEB for franchisee monitoring.
55
4.5.5 RESPONSIBILITIES OF UTILITY & FRANCHISEE
Technical
Figure 1.13 TECHNICAL AND COMMERCIALL RESPONSIBILITIES
Utility
Franchisee
Daily Power Supply, Quality of Power
Supply, Augmentation of Transformer &
PSS Capacity.
Installation of Meters for Input Energy
Measurement within 3 months of Franchisee
Operation
Major Repair & Maintenance
Providing Franchisee the SLD of the Project
Area
Familiarization of the Project Area to the
Franchisee for the first 2 Months of
Operation.
Category wise Load Survey Report to be
done Half Yearly
Inform the Consumers about transfer of
Services to Franchisee
Provide the Soft and Hard Copy of Detailed
Consumer Ledgers to Franchisee
Pre printed Bill Book, Money Receipt or
MR books given to Franchisee
Meter Reading, Bill Preparation, Bill
Distribution, Revenue Collection
All consumer meters will be
photographed by 2 months
Franchisee shall abide by the tariff fixed
by JSERC for different Consumer
Categories
Identification of Un-authorized
Consumers
Submission of Revenue Collected Latest
by the Next Day of Collection
Shall raise the Monthly Invoice along
with the Submission of Monthly
Progress Report along with Financial
Details, Signed Copy of Revenue Receipt
Book
Detailed Survey of Consumers
Commercial
Providing Spot Billing Machines
Providing required Software tools and
Applications
Approve and Process New Service
Connections/Meters and Provide all Support
& Guidance to Franchisee
Formation of a Committee to Monitor the
Performance of the Franchisee
Labor, Carriage, T&P, Manpower to
execute the work.
Consumer Indexing
Complying with the Supply Code
Minor Repair & Maintenance on HT/LT
Lines.
New Connection, Disconnection, ReConnection
Reception of Consumer Complaints
56
Maintain all Books of Accounts,
Consumer Ledgers, and Registers.
Assist JSEB in Court Cases on Revenue
Matters
Shall pay levies & taxes
4.5.6 TRANSITION METHODOLOGY TO ILRF
In accordance with the CBDF DFA, metering has to be done within the first 3 months of
franchisee operation. With the meters installed, JSEB will be able to measure the input energy to
the project area. Average revenue realized for the next 9 months will be found out by using the
average revenue billed and average collection efficiency for the same 9 months. With the ARR
and energy input to the area in hand, we will be able to find out the ARR per unit. The franchisee
will be working upon this RPU as the base. For betterment of the franchisee they need to
increase the RPU realized. The incentive mechanism for the franchisee will be based upon the
RPU realized. If the incumbent franchisee under CBDF model agrees to continue with the ILRF,
provided that utility is prepared for transition and the performance of the franchisee is
satisfactory then the same franchisee can continue in the area for another year.
4.5.6.1 DETERMINATION OF ARR
Average monthly revenue realization shall be computed from the average revenue billing and
average collection efficiency during the 9 months after the installation of meters. The average
revenue realization will be determined from the actual average collection efficiency and actual
average billing of 9 months, when the average collection efficiency is greater than 80% else the
average realization shall be computed as follows
Figure 4.16 COMPUTATION OF AVERAGE REVENUE REALIZATION
Average Revenue Billing (in Rs.) – A
Average
Collection
Efficiency (C) slab
0 < C < 80%
57
Average Revenue
Realization (R)
R = 80% of A
Figure 4.17 COMPUTATION OF REALIZATION PER UNIT
Average Revenue realization as obtained from clause Error!
Reference source not found. for base line
Average energy input in the project area
Average Energy consumed by the state and central utilities
which are outside the franchisee’s collection purview since
such consumers collection is directly deposited/adjusted at
government level
Net apparent energy to be considered as input
Average revenue realization per unit of energy input to
project area
A
B
C
D=B–C
ARR = A / D
4.5.6.3 INCENTIVE MECHANISM UNDER ILRF MODEL
Incentive at rate of twenty-five percent (25%) on the collection of arrears from PDC will be
given. Also incentives on replacement and installation of defective/new meters and on
facilitation of new connection and on identifying and reporting an un-authorized consumer as per
requirements of Electricity Act 2003 are to be given. Franchisee shall also be given an incentive
of 10% of the amount collected by way of Assessment under Section 126 of the Electricity Act,
2003 for such unauthorized use of electricity.
Figure 4.18 INCENTIVE MECHANISM UNDER ILRF MODEL
Event
On achieving revenue
realization per unit of
energy input up to
150% of the base line
revenue realization per
unit of energy input
On achieving revenue
realization per unit of
energy input more than
150% of the base line
revenue realization per
unit of energy input
Incentive
(%)
15% of the
incremental
revenue
amount
will be paid
to
franchisee
Computation explained
Baseline revenue realization per unit of energy
input as derived in clause Error! Reference source
not found. - (R1)
Revenue realized per unit of energy input that
franchisee has achieved during the month and has
deposited – R2 (Say R2 is less than or equal to
150% of R1 and more than R1)
Incentive to franchisee will be15% *[(Energy input during the month)*(R2-R1)]
20% of the Baseline revenue realization per unit of energy
incremental input as derived in clause Error! Reference source
revenue
not found. - (R1)
amount
Revenue realized per unit of energy input that
will be paid franchisee has achieved during the month and has
to
deposited – R3 (Say R3 is more than 150% of R1
franchisee
Incentive to franchisee will be20% *[(Energy input during the month)*(R3-R1)]
58
59
4.6 DEVELOPING THE FINANCIAL MODEL
4.6.1 COMPUTING THE FRANCHISEE EXPENSES
Franchisee expenses were computed to approximate the expenses that the franchisee may incur
during the tenure of operation. The number of staff required was calculated based on the length
of 11kV feeder and the number of consumers in the sub division. The values here used are just
for calculation purpose
Figure 4.19 SAMPLE BASELINE DATA
Consumers (As on 31st March
10645
2012)………….A
11 KV Length
400
Baseline
(km)…………………………………………B
No. of Section
2
Average Monthly Revenue Billed (in Rs.)
1577613
Average Monthly Revenue Collected (Rs.) 2011-
1145632
12
Franchisee expenses are calculated as per the following table. As per the Franchise Agreement
there should be at least one project manager, one accountant, one computer operator and one
customer care executive. One team leader is assigned per one section of the sub division. One
technical staff is assigned per 20KM of 11kV feeder length. Two helpers are assigned for one
technical staff. Also, one billing and revenue collection staff is assigned for every 1500 consumers.
The franchisee expenses as calculated here envisage the approximate minimum expense that will
be incurred to franchisee.
60
Figure 4.20 EXPENSES INCURRED FOR FRANCHISEE
Franchisee Expenses
Project Manager
Accountant
Team Leader
Billing and Revenue Collection Staff
Technical Staff
Helpers to Technical Staff
Computer operator
Customer care executive
Office rent
Travelling and other Expenses (Printer
cartridge cost, petrol, etc)
Monthly OPEX
Comments
Count Rate per staff Amount
One for Project
Minimum One
One per Section
1
1
2
6720
5340
5340
6,720
5,340
10,680
One per 1500
Consumers
8
4140
33,120
20
4800
96,000
40
4140
165,600
1
1
1
4980
4140
5000
4,980
4,140
5,000
One per 20km of
11kV line length
Two per One
Technical staff
Minimum One
Minimum One
Optional
Rs 7 per
Consumer
7
74,515
406,095
61
4.6.2 DEPRECIATION
The minimum investment to be done is taken as Rs.1, 45,000. It is also assumed that the
investment will be depreciated by 90% over a time period of 5 years.
Figure 4.21 COMPUTATION OF RoI & DEPRECIATION
IT Investment in offices (Computer + Printer)
1
A
45,000
Office infra
such as chairs,
tables, fans, etc
B
100,000
Total investments
C=A+B
145,000
Monthly Depreciation to be compensated by
JSEB (Considering asset value will depreciate by
90% in 60 months
C*0.9/12
2175
Other investments
Security Deposit (50% of Base year's average
assessed monthly revenue)
788,807
Total monthly payout to franchisee
2175
4.6.3 FINANCIAL MODEL
A financial model was prepared in order to envisage the financial requirements of both JSEB and
the franchisee. The model helped to understand the minimum threshold operating level
performance to be performed by franchisee so that both the utility and the franchisee will not
incur loss. The model helped to understand and analyze the capital inflow and outflow from the
utility according to the revenue collection as raised by the franchisee.
NOTE: VALUES ARE ROUGH ASSUMPTIONS
4.7 FRANCHISEE SELECTION AND EVALUATION
Applications are invited from Cooperative/ Registered Company/ Partnership firm/ Individual
Entrepreneur/ Trusts. Preference is given for those organizations with more than 2 years of
experience in Jharkhand, preferably in the power sector.
The selection criteria will be based upon the following parameters namely
62
o Institutional Vibrancy: The institutional vibrancy parameter will be used for checking the
viability of the organization structure, manpower committed and the physical infrastructure
(owned/rented) as mentioned by the applicant in the Franchise Application Form and the
supporting documents attached with the same. The organization structure will be evaluated upon
whether the applicant is individual/ individual entrepreneur or NGO/Cooperative etc. the
educational qualification of the applicant will be evaluated. As far as manpower committed
organization will be analyzed whether they have recruited minimum employees as per the
utility‘s requirement. Also the physical infrastructure whether they have sufficient computer,
printer, vehicles etc will be evaluated.
o Work Experience: The work experience parameter is evaluated on the basis of experience in
the energy sector and number of projects executed by the applicant in last three years as
mentioned in the application form and the supporting documents attached with the same. The
minimum work experience needed is 1 year and preference will be given to the number of years
and energy sector experience.
o Financial Position: The financial position of the applicants will be evaluated on the basis of
the net-worth of the applicant and working capital adequacy. Applicants are asked to declare the
amount of cash at their disposal which can be spared/ arranged and used for day to day operation
as a franchisee. They are requested to submit a photocopy of the documents supporting their
capability for working capital adequacy. The applicant will be screened on the financial
capability to at least meet the working capital requirement to sustain for at least 2 months.
o Interview/Presentation: On clearing the above parameters, top two or three applicants may be
invited for the interaction with management of JSEB. The interaction will assess the quality of
past experience, level of preparedness for operating as franchisee, vigilance & monitoring
initiatives, coordination capability with the JSEB officials as well as the local consumers and
level of technical knowledge of the applicants. A small write up about the organization is
required upon which they will be evaluated.
63
CHAPTER-5
CONCLUSION
The project helped to design the best possible franchisee agreement that protects the interest of
both JSEB and potential prospects. The agreement was drafted in such a way to safeguard the
interest of the licensee to not be manipulated by the franchisee by means of input consumption.
The incentive mechanism and compensation mechanism was designed in such a way that for
every percent increase (above the defined baseline) that they bring in absolute revenue terms,
they will be benefitted proportionally.
The baseline data collection helped to find out the feeder metering status in the concerned sub
divisions and licensee became aware of the need to meter the outgoing 11kV feeders if they are
to give the subdivision on input based franchisee model. The present franchisee agreement has a
unique advantage of incorporating and linking the notion of ILRF model, with the CBDF model.
Also it‘s envisaged that the utility will run into profits within the first year of franchisee
operation and all those areas where revenue collection was minimal earlier will now realize good
revenue collection once those areas are awarded under franchisee scheme. The utility has plans
to grant almost 200 sub divisions under the franchisee scheme. The success of the proposed
model will consolidate the notion of franchisee system as the panacea for the financial worries of
the various SEB‘s. Also the implementation of the proposed model will spur the utility to do the
11kV feeder metering so that they can award all the sub divisions in input based model from the
second year onwards thus making the infrastructure of the utility more sophisticated.
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REFERENCE
1. www.wikipedia.com accessed on 26th July, 2012
2. www.jseb.in accessed on 3rd Aug, 2012
3. www.jserc.org accessed on 2nd Aug, 2012
4. www.forumofregulators.gov.in accessed on 4th Aug, 2012
5. www.recindia.nic.in accessed on 26th July 2012
6. www.rggvy.gov.in accessed on 27th July 2012
7. Power Line Magazine, February,2012
8. Institutionalization of Rural Franchisee in Orissa- Project Overview and Learnings,
February,2012
9. National Franchisee training Program of Ministry of Power, Reference Book, Rural
Electrification corporation Ltd.
10. Standardization of Distribution Franchisee Model , Forum of Regulators, September 2010.
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