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

The government is planning to replicate the PPP (public-private-partnership) model in the electricity

distribution sector, after having successfully implemented it in works related to roads, flyovers, airports

and ports. Planning Commission member B K Chaturvedi is heading a sub-group to proceed with the

proposal that aims to ensure zero power cuts, reduce aggregate technical and distribution losses andmake distribution tariffs affordable.

The body observed that a PPP model would enable limited recourse financing by financial institutions

and viability gap funding support from the Union government in order to mobilise the requisite volumes

of investment. It would also provide the requisite flexibility to the concessionaire to procure bulk power

from the market at competitive prices.

The sub-group has recommended 25 years of concession period, separate tariff for regulated and open-

access consumers and a billing and payment mechanism besides a pre-determined system of incentives

and penalties on the key performance indicators to ensure quality and reliability of supply by the

concessionaire.

According to the sub-group, neither privatisation (Delhi model) nor the Franchisee model would deliver

the desired outcome. Instead, a well-formulated PPP model could be the way forward.

Moreover, the model would be consistent with the Electricity Act, 2003, which requires distribution to

be a licensed business under the regulatory oversight of the state electricity regulatory commission

(SERC) for ensuring consumer protection.

The sub-group has recommended 25 years of concession period in accordance with the provisions of the

Electricity Act. The concession agreement may also provide for extension of the concession agreement

for a further 10 years on the terms specified in the concession agreement and subject to the approval of

the SERC.

The concessionaire would be given the exclusive use of the distribution assets, but the ownership of the

assets would remain with the government. The nature and extent of the use of distribution assets shall

be regulated in accordance with the concession agreement and the applicable laws.

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

advisor to Deputy Chairman, Planning Commission.

Not all are optimistic about the move, though. Former power secretary R V Shahi says the PPP model

will not work in the power sector. The Delhi model has vindicated itself; so also the Bhiwandi model of

franchisee. If the government is serious on distribution reforms, states need to be persuaded to have

privatisation in large cities and franchisee in all such towns where their AT&C losses are more than 20

per cent, he told Business Standard.

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