Author: pmanifold@admin

Ease of doing Distribution Franchisee business – PESU Local Intelligence

Apart from technical & financial parameters it is important for the bidders to evaluate the local intelligence for its operation & ease of setting up a business. pManifold has developed a process to research on the local intelligence through its network & secondary research to provide bidders with glimpse of the region on Demographics – Social & Economical, Political stability & activities & enable them making right decisions. Below is the quick snapshot from the local intelligence report from pManifold on Ease of Operationalizing Distribution Franchisee.

Patna is the capital city of Bihar state. It is located on the south bank of the Ganges River. The city is approximately 35 km long and 16 km to 18 km wide. The table below shows the quick facts about the region

	Patna
Municipal Corporation	Patna Municipal Corporation (cc
No. of Household	726,364 (Census 2001)
Male population	3,051,117
Female population	2,721,687
Total population	5,772,804
Density(peoples/sq.km)	1,803
Slum households	15163
Slum population	63.5% (Census 2001)
Literacy Rate	72.47%

• Growth Rate: On the basis of, assumed average annual growth, Patna has been ranked as 21st fastest growing city in the world and 5th fastest growing city in India by City Mayors Foundation. Patna registered average annual growth of 3.72%, for the period of 2006-2010. As of 2010, the per capita income of Patna was ?. 37,737.
• On the radar of Experts:  World Bank ranked Patna in second place in India, after Delhi, in terms of the ease of starting a business.
• Transportation: Patna is well connected to other cities via
  • Airways:  Patna has got a Lok Nayak Jayaprakash Airport or Airport Patna with connectivity to major Indian cities. The nearest International Airport is at Gaya which is 96 km from Patna. The new Airport is expected to built at Bihta.
  • Railways: Patna is located on the main line of East Central Railway hence connected with important cities of India.
  • Roadways: The city has major road highways and state highways.
  • Local Transportation: The local transportation in this area are Buses, Auto rickshaws and Local Trains. The Planning Commission of India has given nod to Patna Metro recently. Ground survey for Metro has been started.
• Industrial Area: Patna has Industrial Area Development Authority with an objective to promote and develop. State government is mulling an IT hub at Bihta. For this the Tata Consultancy Services (TCS) has already been assigned with the responsibility of developing a main data centre which will provide IT link to all government departments.
• Government Offices:  Patna has got many Government offices like High court, Secretariat, District Rural Development Agency (DRDA) Administration, Bihar Vidhan Bhawan etc.
• Talent profile: Apart from various schools & colleges Patna has some of the well known institutions like IIT, NIT, BIT & AIIMS.
• Crime Rate: According to sources, the state capital seems to lead in crime in Bihar, despite the 12 per cent fall in crime figures claimed by DGP.
• Cost of Living:  3 BHK flat can be purchased at the rate of Rs. 25+ Lakhs, rented at 10K+ per month & a shop can be rented starting from 8K depending on size & locality
• Entertainment: Patna has got many malls and multiplexes, restaurants, parks & also playgrounds including International Stadiums.
• State Governing Party: The current government is governed by NDA comprising of JDU & BJP in the leadership of Chief Minister Nitish Kumar.
• Local Municipal: The Patna Municipal Corporation is governed under the leadership of Municipal Commissioner  Pankaj Kumar Pal & city Mayor Afzal Imam.
• Political Activities: ‘Mehangi Bijli Virodhi Sangharsh Manch’ has planned a statewide protest on November 19 2012 against the hike in electricity tariff in Bihar.
•  Power Distribution:  The PESU region of Bihar for the power distribution is divided into two
  •  PESU East area has five subdivisions which are Rajendra Nagar, Bakipur, Kankarbagh, Gulzarbagh and Patna city.
  • PESU West area also has five subdivisions which are Patliputra, New Capital, Dakbunglow, Danapur and Gardani Bagh.

A complete report on Local Intelligence on PESU region is available. To get this report contact rahul.bagdia@pManifold.com

Gaya is located at 24.78°N 85.0°E. Gaya is the second largest city of Bihar. Gaya is 100 kilometers south of Patna, the capital city of Bihar. Situated on the banks of Phalgu. It is surrounded by small rocky hills by three sides and the river flowing on the fourth (eastern) side.

Region	Gaya
Municipal Corporation	Gaya Municipal Corporation
No. of Household	510,968(2001)
Male population	2,266,865
Female population	2,112,518
Total population	4,379,383
Density(peoples/sq.km)	880
Slum population	26620(2011)

• Literacy Rate: Average literacy rate of Gaya in 2011 were 66.35. Gaya District has 2,399,682 literates, of which male and female were 1,427,447 and 972,235 respectively.
• Transportation: Gaya is well connected with other cities in India via
  • Airways: Gaya Airport is the only international airport in Bihar and Jharkhand.
  • Railways:Gaya Junction is the second most important railway station in Bihar. Grand Chord rail-line that connects Howrah and New Delhi passes through Gaya junction.
  • Roadways: The National Highway 2 Grand Trunk Road from Kolkata to Delhi passes about 30 km from Gaya. Plans have been made to construct a four lane road from Gaya to Patna.
  • Local Transportation: City bus, taxis, tongas, auto rickshaw, cycle rickshaws ply across the city and for Bodhgaya.
• On the radar of Experts: The Ministry of Panchayati Raj named Gaya one of the country’s 250 most backward districts (out of a total of 640). It is one of the 36 districts in Bihar currently receiving funds from the Backward Regions Grant Fund Program (BRGF).
• Talent Profile: Gaya has many schools and colleges. Magadh (Gaya) University has 460 Acres of campus area is among the largest Universities of Bihar. It has 44 constituent and 105 affiliated colleges.
• Cost Of Living: A house with 3 bedrooms can be purchased at the rate of 20 Lakhs.
• Entertainment: Gaya has many historical places like Bodhgaya, Ghats and temples, it is a place sanctified by the Hindu, the Buddhist and the Jain religions. It also has many multiplexes and Malls like APR Mall, Prathima Multiplex, Gautam Buddha Cinema, Kiran cinema etc. for entertainment.
• Local Governance: Gaya Municipal Corporation known as Gaya Nagar Nigam under the leadership of Mayor Vibha Devi who belongs to state Youth Congress.
• Power Distribution: There are total three Division/Sub-Division present across Gaya town and its Adjoining areas
  • Division Gaya (Urban).
  • Sub-Division Bodhgaya.
  • Sub-Division Manpur.

A complete report on Local Intelligence on Gaya region is available. To get this report contact rahul.bagdia@pManifold.com

Muzaffarpur located at  26°07?N 85°24?E. The district occupies an area of 3173 km. Muzaffarpur lies between the Burhi Gandak River and Furdoo nallah. Muzaffarpur is one of the many gateways to Nepal.

Region	Muzaffarpur
Municipal Corporation	Muzaffarpur Municipal Corporation
No. of Household	650,882(2001)
Male population	2,517,500
Female population	2,261,110
Total population	4,778,610
Density(peoples/sq.km)	1,506
Slum population	77456 (2011)

• Literacy Rate: Average literacy rate of Muzaffarpur in 2011 were 65.68. Total literate in Muzaffarpur District are 2,601,665 of which male and female were 1,539,154 and 1,062,511 respectively.
• Talent Profile: Muzaffarpur is the 2nd leading center of education in Bihar after Patna. It has a medical and an engineering college, and is seat of one of the oldest universities of Bihar. It has many Schools and Colleges as well.
• Transportation:
  • Airways: The airport, Patahi Aerodrome, had regular flights to some cities but does not operate any commercial flights now.
  • Railways: Muzaffarpur Railway Station is a main railway junction, with two suburban stations, Ram Dayalu Nagar and Narayanpur.
  • Roadways: The National Highways which passes through Muzaffarpur are NH 57, NH 57A, NH 102. Local and inter-state buses start from Bairiya and Imli Chatti Bus Station.
• Local Transportation: City bus, taxis, auto rickshaw and cycle rickshaws are available for local transportation across the city.
• Utility
  • Power: Muzaffarpur has Thermal Power Generation plant of N.T.P.C which is run by the central government has the capacity of 110 Megawatts.
  • Water: The water supply of the town is based on ground water since the water quality of the River Burhi Gandak and Furdoo Nallah are not potable.
• Industries: Bela Industrial Estate has many industries which is present in Muzaffarpur region. Muzaffarpur is the main Industrial hub of the Mithila region. It has many industries ranging from small to big.
• Local Municipal: Muzaffarpur has Municipal Corporation which is known as Nagar Nigam operates under the leadership of Mayor Varsha Singh.
• Residential Area: In Muzaffarpur Abdul Razzaque colony, Lakshmi Narayan Nagar, Brahmapura, Mehdi Hassan Chowk, Moti Jheel, Chaata chowk, Lenin chowk are key residential area.
• Cost Of Living: A house with 2/3 bedrooms can be purchased at the rate starting from INR 10 Lakhs. A house can be rented starting from INR 5000. A shop can also be rented starting from INR 5000.
• Entertainment: Muzaffarpur has many malls and multiplexes like Dwarika City Center, Amrapali mall, Amar cinema, Jyoti Talkies, Sanjay Talkies, Jawahar Cinemas, Krishna Talkies, etc for entertainment.
• Agriculture: The litchi crop, is mainly cultivated in the districts of Muzaffarpur and surrounding districts, in an area of about 25,800 hectare producing about 3 Lakh tonnes every year.
• Power Distribution: There are total four Division/Sub-Division across Muzaffarpur town and adjoining areas.
  • Division Muzaffarpur(Urban)
  • Sub-Division Muzaffarpur(East)
  • Sub-Division S.K.M.C.H
  • Sub-Division Muzaffarpur(West)

A complete report on Local Intelligence on Muzaffarpur region is available. To get this report contact rahul.bagdia@pManifold.com

About the Client

CEO of an Environment management company with 10 business verticals

Client Problem

CEO wanted to execute a structured exercise for the company’s long term strategic planning involving 10 business unit heads to align individual business unit goals with organizational goals, structure and policies.

The Solution

• Understand the CEOs priorities and perform SWOT on individual business unit areas through executive interviews.
• Shadow quarterly review session and conduct team workshop on portfolio analysis and drive a consensus building exercise to narrow down on the strategic plan with policies and priorities.

pManifold Proposition

• SWOT
• Portfolio Analysis
• Strategic Planning
• Leadership Workshops

Results / Benefit to Client

Individual strategy roadmaps and scorecards for each business unit aligned with company goals was developed with consensus of the entire team on the strategic plan.

There has been a huge hue and cry about the unavailability of consumer data with the Indian utilities. However, the question that needs to be asked is that whether we have really made an effort to collect the right data set? And if we have, do we have the processes to continuously update the database and maintain it?In this post, I’ve tried to list down baby-steps that would go a long way in creating a reliable and comprehensive customer database through the Consumer Indexing (CI) process.

# 1 Create consensus on how the data is required across the teams within utility 

A lot needs to be done to really come to a common consensus across the utility stakeholders about how the utility plans to use the consumer data, not just to create a database because it’s a mandate in the contract. This would also require the utility to project and decide how the data will be maintained finally when the utility operations smoothen up in due course.

Further, one also needs to take a call on what data is the priority and when and how it will be collected

# 2 Create a methodology to collect the data

Now, most widely used methodology currently adopted is the consumer surveys or consumer indexing, as many call it. However, the whole process is extremely tedious and static. One needs to think destructively to really create a methodology which will be, not just fast, but also reliable enough to feed data continuously to the other internal teams.

This could encompass use of social media to really entice and engage the customers to voluntarily post their data and update their data.

What precaution needs to be taken is to adopt a infrastructure to really accept data from multiple sources and consolidate the same into one piece of data.

# 3 Support systems needs to be designed and put in place to receive and organize the customer data

As the process of consumer data upgradation picks up pace, the utility should really be ready to receive huge chunks of data from various sources – viz. legacy systems, new connections, on-field checks, consumer indexing process, social media, etc.

I believe that MS Excel is fairly strong a tool to manage such data, provided the data structure is correctly created. At the same time, appropriate end-to-end integration needs to be done for the data collection methodology.

# 4 Selecting the right tool for the right data

GIS systems, though being one of the latest of technologies adopted by the utilities, has a major drawback. The data once imported into a GIS system is static. A GIS system will always take only that data as input that you’ll feed to the system without doing any sanity check.

Now this creates a major loop hole in the system that can only be fixed by selecting a robust tool for data collection. This tool should also take into account that at times, the data might need to be collected from the field. Our experience in the field of customer data collection has proved that even a simple smart phone integrated with web-based forms is good enough. However, a well-designed consumer survey form is the easiest of all techniques used to initially populate the customer database.

Once the base-data is ready, the Billing Centers and Customer Care Centers should be developed to act as the nodal touch-points to gather the customer data on a more regular process.

# 5 Create the right training and monitoring modules

Even with the best of the methods and tools, without a systematic training and monitoring methodology, a good consumer indexing process could go for a toss. Right tools for training, and data audits are indispensable parts of the CI process

One of the speakers at the recently concluded India Utility Knowledge and Networking Conference (12-Feb-2013, New Delhi) pointed out that the utilities will go slow when it comes to adoption of technology and partner with smaller, local players to help them roll out the operations. We believe that there is a whole lot of internal thinking that needs to go in to really ensure that the utilities hit the ground running. Lack of clarity from the utility, coupled with the inefficiencies of the local players could kill the effort spent in the consumer indexing process.

Further readings: Putting your best foot forward – Best Practices in Consumer Indexing

As the operator tries rolling out the services, the foremost task at-hand is creating the base-line for the utility. This, typically, is collated using a consumer survey called consumer indexing (CI). The operator main aim is to collect the information required for consumer demography and demand estimation.

The figure below shows the variety of data the consumer indexing, if designed properly, can yield:

Here’s the catch though.

Since the consumer indexing process is an extensive full-city activity, our observation has been that it becomes extremely important for the operator to monitor the survey process continuously and ensure data accuracy.

Some of the Critical Factors for Success (CFS) for successful consumer indexing survey are listed below:

1. Design and Deployment of Project Management Techniques: The CI activity usually spans a substantial period of time. This necessiates deployment of a Project Management team which is well versed with the DRD and Data Collection methodology. A well formed PM team with participation across stakeholder teams forms one of the important CFS for CI Process. The KRAs of the PM team should include Unitization of Work, Timeline planning, Progress monitoring, etc.
2. Vendor Selection and Engagement: Identifying a vendor capable of delivering the DRD as per the pre-set data standards becomes the core of the CI project execution. As much important it is to identify the correct vendor, it is also the operator’s responsibility to engage the vendor in a manner where the CI process can be handled in a smooth and timely manner.
3. Appropriate Data Validation Rules (DVR): Once the DRD and Technical spcs are frozen, the operator should identify for itself the validation rules he needs to apply to check the data being collected by the CI vendor. Inappropriate or too rigid validation rules lead either to mass rejection or too poor quality of data being collected.
4. Well Defined Technical Specifications: The geo-spatial information being collected in the consumer indexing requires high end technical inputs to be ready for the survey before the start of the survey. These specifications include the likes of a high resolution satellite image of the area under survey, clear definitions of boundaries of zones and sub-zones (if any), etc.
5. Data collection methodology and medium: The operator should identify all the options available to select the best suited methodology to collect the data identified in the goals of the CI process. In the same step, the operator should also develop and design the medium, usually a survey form, for the CI process. The “wow” effect of the survey form design changes and improved efficiency of the consumer interview was observed when we re-designed the survey form from a functional flow question to a consumer interaction flow.
6. S.M.A.R.T. Goals: It is very important for the operator to upfront decide the data he wants to collect as a part of the consumer indexing process. The goals need to be identified across the teams which are going to be the users of the data collected. At the same time, the goals need to be clearly defined to the survey vendor so as to apprise him of the data usage. During our engagement with our clients, we have noticed that not much is done in documenting all the teams’ requirements right in the beginning. We strongly recommend writing up a  well defined Data Requirement Document (DRD). It not only becomes one of the most important pillars of the CI Process but also avoids endless discussions between teams on what is required, by whom and by when.
7. Business Process Management: The operator should be engaging in monitoring of not just the data being collected, but also the vendor processes. This, in the long term, helps the operator to achieve more accurate and timely data. Independent audits of internal as well as vendor processes always helps.

The data collected through CI process forms the base-line for the operator to put its plans (CapEx, OpEx, Revenue Planning) in place. Therefore, we believe, the onus of successful execution of the CI process is as much on the operator as it is for the survey vendor.

The high risks in the complex, unpredictable and highly political process of water sector reforms are unavoidable given the “essential goods” perception of water. However, what the utility operators need to understand is that investing time and money in “strategic communications” early in the engagement of water reforms and that it leads to a much smoother operations and success of the project. A World Bank report (2006) suggests that an understanding of public perceptions leads to better adoption of strategic communications help in improving the efficiency of the public utility.

The key challenges arising due to lack of strategic communications can be listed as:

1. Social conflict due to lack of information or misinformation or a communications vacuum that creates uncertainty
2. Power struggles leading to project delays
3. Consumer Opposition due to (justified or unjustified) fears about tariff, service levels and affordability
4. Customer dissatisfaction when hyped expectations are not met, or are not right sized at appropriate time

The idea behind this post is to try and identify areas where communication tools can support reform process and mitigate risks.

The three principles which can be applied to use communications as a strategic tool towards better utility management are discussed here:

1. Principle #1: Know-Your-Customer: Instead of making assumptions about what the customers want or how they would react, it is advisable to undertake a Communication-Based-Assessment (CBA) to gauge the support for utility reforms within the stakeholders. (See pManifold’s unique COPS Case Study). The CBA uses a mixture of conventional and unconventional data collection methodologies (including socio-economic parameters, Willingness-To-Pay, opinion polls, etc.) and establish baselines for stakeholders’ perceptions, interests and priorities.
2. Principle #2: Creating Awareness about the Need for Utility Reform: Once the CBA has captured the perspectives of customers and stakeholders, the Utility Management may determine what about the reforms need to be communicated, through which messenger to communicate the same and how to garner political support with other political groups and agencies. The Utility Operator should:
   • create awareness regarding the “state of the utility” in terms of challenges and opportunities for reforms and what it means to the customers
   • communicate the effects/challenges that lie ahead, if reforms are not implemented. At the same time, if not communicated correctly, the Utility might risk being looked upon as non-transparent
   • make the stakeholders understand their rights and responsibilities in the reforms process
3. Principle #3: Building Support and System for Change: Once the reforms are enacted, the communications does not stop there. The Utility should continuously use communications as a tool to build a culture of transparency and openness

The Utility, to leverage the strength of strategic communications as a tool, should make use of the following best practices:

1. The communications strategy should integrally be linked with the organizational strategy & goals and be in line with the utility operations
2. The Operator should take sufficient effort to make the information available and accessible to all the stakeholders. Establishing web portal and maintaining it constantly is critical to promote transparency.
3. Correctly identify the most trusted messengers or champions through early use of CBA
4. The Utility Operator should right size the expectations of customers as well as other stakeholders in order to mitigate the non-financial risks. Only when the beneficiaries believe that the project has met the set expectations, the Utility Operator can claim that the project has realized its full value
5. More often that not, in our typical environment, project delays occur. And when they do occur, the Utility Operator should be taking care to communicate the reasons behind the delay. This creates an environment of openness and credibility.
6. Whatever positive results are achieved by the Operator, the results should be communicated to the customers and other beneficiaries
7. Empowering the media is one of the best methods to spread word about the good work the Utility is carrying out. The media also serves as a tool to educate the consumers.
8. Collaborate with local governmental and non-governmental agencies to drive the Information-Communications-Education (ICE) campaigns to build a positive image for itself
9. Utility should invest in creating and maintaining an in-house professional communications capacity to avoid the inefficiencies in the governmental / state agencies’ communications program

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*Source: Communication for Water Sector Reform: Obstacles and Opportunities, (2012), The World Bank

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Mr. Ajai Nirula, Chief Operating Officer (COO) at Tata Power – Delhi Distribution Limited (TP-DDL) was one of the sessions moderator in recently concluded IUKAN 2013. As a veteran in the Power industry, he shared his inputs on various distribution reforms and the challenges associated with it.

Q1) What are the current trends in PPP models for Power Utilities in India?

• Presently, three business models are in existence i.e. Privatization, Franchisee Based (Unit Based Input Model) & Concession Based (Now recommended by Planning Commission)
  • Franchisee Based Model: Operates in designated areas, responsible for network maintenance, for a fixed period (generally 15 Yrs.), Bidding is done on price you pay for per unit power purchased
  • Concession Based Model: Fix tenure for 25 Yrs., Bidding party gets a license to operate in the area, bidding is done on viability gap funding concept
  • Privatization Model (Delhi/Orissa): Responsible for AT&C Reduction & maintaining reliability of network, licenses to operate in designated areas, asset valuation at a notional value, incentivization on overachievement of targets, Governed through a regulator

Q2) What are the challenges in PPP models in India?

• Privatization Model (Delhi/Orissa)
  • No political will to take it forward in-spite of a being a successful model in Delhi
  • Asset valuation for future models to be re-looked
• Concession Based Model
  • Not started yet. States are slightly hesitant to go ahead with this
  • Requires calculation of CAPEX etc. for next 25 years
  • No standard bidding guidelines in place
• Franchisee Based Model
  • How to handle customers if you can’t but power as it is in the hands of  utility
  • How to carry-out enforcement raids (don’t have legal powers to conduct raid)
  • Long term sustainability
  • Quality of material / specifications being used
  • Governance issues as there is no regulator

Q3) What is the future outlook for PPP projects in India’s (Power and/or Water)Utilities

• Franchisee Based Model: Though in few cases, this model has been adopted; its results on long term basis are yet to be seen. In Bhiwandi, initial results were good but now, pace has slowed down. Agra is yet to show the results. Kanpur has still not been handed over to the party. This model is bankable but only with the support of parent company
• Concession Based Model: This model can work with few modifications. Needs to be properly explained along-with the problems being faced in franchisee model
• Privatization Model (Delhi/Orissa): Good model to work for. Some political will is required. It is a win-win situation for private party & Govt. as there is an independent regulator to check the performance and govt. also gets benefitted through better revenue realization in the form of AT&C reduction.

The above views are respondent’s personal views, and not to be associated with his company in any other ways.

Paschim Gujarat Vij Company Ltd. (PGVCL), the largest Power Distribution Utility, compared to other distribution utilities in Gujarat, is serving more than 47 lakhs customers, across 8 districts and 44 divisions. The utility PGVCL has considerable losses (both Aggregate Technical & Commercial (AT&C) and Transmission & Distribution (T&D)) compared to other utilities and hence, is evaluating different options of Public Private Partnership (PPP) models to improve the operational efficiency and performance monitoring. They are evaluating various models including the Input Based Distribution Franchisee (IBDF), Light Capex new Orissa model and others. To have a detailed understanding of IBDF model, a team of PGVCL recently visited MSEDCL’s office in Mumbai for a deeper study on the model.

pManifold has done a quick market research to understand the performance of Gujarat’s distribution utilities on key parameters using its DF Attractiveness Matrix. The data used is of the FY 2011-12.

Key excerpts are mentioned below:

• PGVCL has highest area compared to other utilities, covering scattered geography with 8 districts and 44 divisions.
• Total number of customers is double in PGVCL as compared to others, with highest percentage of Agricultural customers (i.e. ~11%) followed by UGVCL with (~8%).
• Losses are highest in PGVCL, compared to others due to larger proportion of agriculture sales. Due to this, the state regulatory has set trajectory of 2% loss reduction per year for PGVCL and 1% for others.
• Average cost of supply (ACS) is highest for PGVCL and its sales realization is least.
• Quarterly Transformer Failure rate is also highest for PGVCL.

Apart from the above points, based on the analysis of tariff reports, it is observed that the tariff for domestic and agriculture customer categories has remained at 70-80% and 20-30% of the average cost of supply, while the non-domestic and industrial categories pay in the range of 120-150% respectively, across different utilities. Thus, non-domestic and industrial revenues continue to cross subsidize agriculture and domestic categories.

With a view to reduce the losses and improve the overall system efficiency, PGVCL has taken a good initiative to understand more on the Distribution Franchisee model. We hope that the preliminary thoughts picks up more traction in coming time period so that the DF model develops further and reach to its potential.

One recent success for Distribution Franchisee model in the country was first debt funding to Essel DF project at Nagpur. SBI Caps was involved in Debt Syndication partner role. Rahul Bagdia from pManifold Team recently spoke to Mr. Sudarshan Mohotta, VP Project Advisory & Structured Finance Division, SBI Capital Markets. Mr. Mohotta and his team were instrumental in closing this deal. He has around 17 years of experience in project & corporate finance and banking including financing of infrastructure projects. At SBI Caps, he has been actively involved in structuring and evaluating infrastructure projects and arranging funds with focus on power, port and road sector.

This interview focuses upon ‘What will bring confidence amongst investors to invest in Power Distribution Franchisee models?’ The below shared are the author’s personal views and not to be associated with any of his company’s and other associations.

1. How are Bankers seeing about investing in DF model?
   • PPP projects in power distribution sector are plagued by the stereotyping of PPP models in place with the current bleeding distribution utilities, especially among the commercial banks. The PPP models proposed in power distribution space are generally Input based Power Distribution Franchisee models, wherein the appointed Distribution Franchisee (DF) purchases power from state Discoms and bills and collects revenue directly from the end consumer. Thus, the DF is dependent on end consumer for revenues and not the bleeding discoms as against the misconception of the banks arising due to their lack of awareness of the DF model in this space.
   • Banks are only now beginning to appreciate the key differences in the business models of DFs and Discoms. Also, amongst most banks, the overall power exposure (which includes generation, transmission and distribution sectors) have either reached or crossed the internal prudential sector exposure limits creating further roadblocks in access to bank funding in power distribution space. Irrespective of these hurdles, banks do take on projects with strong Sponsors, however, small players or weak sponsors would find it difficult to access bank funding inspite of the merit of the projects being funded.
2. What are key elements of their appraisal consideration?
   • The key considerations by the banks during any appraisal would typically include the following:
     • Sponsor strength and track record in DF experience or related areas
     • DFA provisions and restrictions
     • Security cover available
     • Political and prevailing power scenario of the relevant state
     • Consumer mix and willingness to pay in the particular DF
     • Implementation strategy
     • Historical track record of the Discoms in terms of regular tariff revisions, prevailing state demand – supply situation, commitment to loss reduction, etc.
3. What specific best practices and challenges have you seen while evaluating any particular state DF (Maharsahtra, MP, Jharkhand, Bihar etc.)?
   • While states like Maharashtra, MP with a good track record of collection efficiency and therefore willingness to pay pose lesser challenges in terms of load shedding and load growth support by respective discoms; states like Jharkand and Bihar which lack the willingness to pay, find lower acceptability amongst bankers, when it comes to any strategies in improving collection efficiency in such areas besides reduction in technical losses.
   • Also an indication of smooth takeover of operations by the DF in the circle by way of acceptability and / or minimal resistance among key stakeoholders including existing employees, consumers, etc plays an important role in the initial success of the project.
4. Essel Nagpur DF financial closure is seen as a good start in the industry. Can you share top view on the deal, and how do you see DF market evolving?
   • With financial closure of Nagpur DF with a consortium of 5-6 lenders with SBI taking the lead, banks have started deriving confidence in the business model and acceptability of the same is expected to improve in the future.
   • Capex light models evolved in Orissa is a positive development to allow easier entry for smaller players with B2C expertise, which would help in bringing down commercial losses which typically accounts for a significant portion of the AT&C losses in a bid out DF area
5. What minimum but necessary design change you will suggest in current RfP and DFA?
   • RfPs need to necessarily provide visibility on the other miscellaneous taxes, duties, subsidies, etc that have been paid in each year upto the year of bidding. Also certain DFAs need to provide a clearer security structure as to the extent of first claim of the relevant Discom in the event of enforcement. The DFA should provide the DF with the right to create first charge on all DF receivables in favour of Working capital lenders funding receivables of the DF
   • In order to provide comfort to Lenders to a DF project, DFAs also need to provide for the following:
     • Adequate termination payment for all the assets created by the DF till the date of termination, irrespective of the cause of termination.
     • Substitution Right for an DF event of default as well as Lenders right to trigger termination of DFA in event of default by DF on Financing Agreement provisions
6. Please elaborate an ideal Escrow Mechanism from Bankers view point?
   • An ideal escrow mechanism between would typically stipulate the following:
     • A range of 50-60% of daily collection paid to Discoms towards part settlement of payables of Discoms would leave some room for banks funding the project
     • The payables invoicing cycle of Discoms should be aligned as far as possible to thr 45 – 60 days receivables cycle of the DF. A 30 days Discom invoicing cycle would be ideal, especially when a partial cash sweep escrow mechanism is in place with the Discom
     • Escrow mechanism should have provisions for invocation of SBLCs without any delays / concessions
7. Any further financing innovation you see could expedite DF model scale-up?
   • With a operational track record of DF operations, securitization opportunities could arise in the event of better than forecasted operational metrics (eg: achieved AT&C loss reduction, other cost savings, etc.) and increasing consumption / load growth in DF circles. This would help generate incremental free cash for Sponsors for further investments in other DF circles.

Posted by: Kunjan Bagdia @ pManifoldThese expert interviews are part of pManifold and IUKAN initiative to bring new ideas and help overall Indian Utility industry to grow strong and sustainable. Please bring to our attention if you would have interest to share your views with broader utility professionals and help drive this change. You can write us at contact@pManifold.com.