Franchisee Model of Rural Electrification

A Comparative Study

Written By

Neeraj Kumar Ojha

Mukesh Kumar
R Sreeram

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 Introduction

Following the droughts of 1960, India learnt that it needs to be self-reliant in food to enjoy political
freedom in the International arena. Indian agriculture sector was reliant on rains, with a very limited
canal based irrigation system, the only effective alternative being ground water based irrigation
system using electrical pumps. This led to the genesis of rural electrification in India. Rural
electrification has remained in the focus of policy makers since then. However this focus has not
translated into effective results in reality and the overall situation of rural electrification in the country
remains grim today. Several reasons are attributed for the poor results including poor revenue
realisation by state utilities in rural areas, high cost to serve, low paying capacity of rural populace,
poor efficiency levels, high technical and commercial losses, etc.

The Electricity Act 2003 envisions changing the poor rural electrification situation in the country.
Thorough the act the policy makers have given renewed priority to rural electrification and quality
electricity services in rural India. The act has made it an obligation for the government to supply
electricity to all areas including villages and hamlets. It also provides provisions for exemption of
license required for local authority, panchayat institution, cooperative society or franchisees on
recommendation of state government. Further it has waived the permission required by a person for
generating and distributing electricity in rural areas. However, only having a suitable policy
framework to promote rural electrification is not sufficient to bring about concrete changes in present
situation. It is imperative to have suitable supply and distribution models catering to the needs of
particular rural area which can make use of these favourable conditions to improve the overall
scenario. With the state electricity boards finding it increasingly difficult to manage the numerous
electricity connections across the state, it makes sense for the state to delegate some responsibility to a
different party, a franchisee, which would have the special rights to conduct the business and exercise
the powers on behalf of the state. Section 14 of the Electricity Act 2003 offers provisions for
appointing franchisees by distribution licensees to undertake distribution on their behalf. Franchisees
would provide benefits in the form of improved recovery, improved customer service, theft control,
increased productive loads and also possibly convert the illegal connections to legal ones due to better
monitoring. There are several franchisee models based on grid extension which are being deployed
across several states in India. The purpose of our study is to compare various franchisee models and
evaluate their performance and overall experience in case of India.

We have covered the following areas in our study:

1) Background of rural electrification in India and need for alternative models for distribution.
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 2) Comparison of various models for rural electrification, viz., their advantages, disadvantages,
selection process of franchisers, Tariff determination etc

3) Evaluation of various models currently being implemented in India and measuring their
performance in terms of increase in collection, decrease in losses, the problems faced by
them, etc.

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 1. Background

The importance of rural electrification at the household level that provides minimum basic facilities of
lighting and communication is undeniable. Reliable and quality electricity supply to rural areas has
the potential to increase the productivity in agriculture and labour and many other activities including
health and education. Electricity can enable use of energy and time saving motors, mills and pumps as
well as improved public safety due to improved outdoor lighting after sunset. Due to these reasons the
policy makers have been continuously giving high priority to rural electrification. However increased
priority has not translated into very good results at the ground level and a large portion of rural India
still remains un-electrified. The progress of village electrification in India since independence has
been illustrated in Chart 2.1.

(Source: Ministry of Power Data on village electrification)

The scenario of rural electrification across states is illustrated in Chart 2.2

Chart 2.2 Status of Rural Electrification across Indian States

(Source: Ministry of Power Data on village electrification)

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The overall situation of rural electricity services remains gloom and in many of the states more than
40 percent of the villages still remain un-electrified. The above graph also shows that there is wide
disparity between the levels of electrification across the various states. Government of India has
launched a number of schemes for rural electrification in the country from time to time. These
include:

• Minimum Needs Programme (MNP) – launched during fifth five year plan (1974-79)

• Kutir Jyoti – launched in 1988-89

• Prime Minister Gramodaya Yojana (PMGY) – launched in 2000-01

• Accelerated Electrification of One lakh villages and One Crore households – introduced in the
year 2004-05

• Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) – launched in 2005

2.1 Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)

The RGGVY launched by the ministry of power merges the two schemes of the “Minimum Need
Program” and the “Accelerated Electrification of One lakh villages and One Crore households”. The
scheme envisions providing electricity to all villages and households by creating a Rural Electricity
Distribution Backbone (REDB) at every block in addition to covering rural BPL households. RGVVY
has set a target of electrification of 127,000 un-electrified villages, intensive electrification of 421,000
villages, providing electricity access to about 78 million households and providing free electricity
connections to 23 million poor households. The scheme is being implemented through the Rural
Electrification Corporation (REC) and the main features of the scheme are as follows:

• Aims at providing electricity for broad based economic and human development and looks
beyond just increasing agricultural production through better irrigation facilities.

• Looks to provide quality grid power to rural areas for encouraging industrial activity, use of
IT and for enabling modern healthcare facilities, in addition to providing electricity to rural
households.

• It boldly states that “electricity supplied must be paid for” and looks for long term revenue
sustainability for rural electrification.

• Proposes management of rural distribution through the use of franchisee model in which a
franchisee could be a user association, cooperatives, NGOs or even individual entrepreneurs.

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2.2 Need for alternative models for distribution

The power supply ability of the State Electricity Boards (SEBs) has deteriorated as they are not able
to cope up with the high social and economic demands of a large population and growing economy.
Traditionally, the supply of electricity to rural areas has been done almost exclusively through the
conventional grid supply by the state utility. However, with the absence of any incentive for the state
utilities to improve their service to rural consumers and provide extended hours of supply, this results
in high distribution losses and low collection efficiency. The delivery cost per unit rises sharply and
supply and collection deteriorate in rural areas. This is further amplified by the low levels of demand
due to unreliable supply conditions.

In view of these prevalent conditions, attempts were made in different states to rationalise the tariffs
and to reduce the cross subsidisation. However these attempts faced several hurdles. The bad service
and supply conditions coupled with increasing tariffs led to discord between the rural consumers and
the state utilities. This resulted in even further deterioration in the collection efficiencies. This along
with high technical and distribution loses soon resulted in a situation in which the recovery rate of the
cost incurred dropped to unacceptably low levels.

Electricity Act 2003 takes into consideration the above mentioned barriers for rural electrification and
provides provisions for bulk purchase of power and management of local distribution in rural areas
through the following local bodies:

• Panchayat Institutions

• Users’ associations

• Cooperative societies

• Integrated Rural Services Company

• Non-governmental organizations

• Franchisees

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 2. Franchisee Models

With respect to rural electrification, franchisees could involve in generation and distribution of
electricity, distribute electricity and collect revenue from customers in a specific area. Franchisee
could have its own generation equipment or opt to get inputs from current power utilities or do both.
Expanding rural electrification involves two modes: Grid extension wherein the current gridlines are
extended till the unelectrified villages and Decentralized Distributed Generation (DDG) which would
involve establishing a small plant (based on non-conventional energy sources such as biomass) in the
villages and using them to provide electricity. Franchising could exist in either case. In grid line
extensions, it could be with respect to distribution and collecting revenues from customers who are
being served by the currently existing grid lines. With respect to DDG, it could be setting up a stand
alone biomass plant and supplying electricity and collecting revenues. We shall focus on franchisee
models based on grid extension rather than on DDG. Franchisees could be possible with respect to
generating and distributing electricity. However, our focus would be on franchising models for
distribution of electricity.

There are four broad classifications of franchisee models for distribution

• Revenue Collection

• Energy purchase, sell and collection franchisee

• Energy purchase & sell, collection and O & M franchisee

• Electricity Co-operative as franchisee

These four classifications are presented in the six models listed below:

Model – A: Revenue Franchisee- Collection based

The role of franchisee is restricted to billing, collecting revenues, addressing complaints, releasing of
new service connection and keeping tabs on the status of distribution network in the area of operation
for providing appropriate feedback to the utility.

The franchisee is allotted an area and is given a target for revenue collection every month. The
remuneration package includes payment of the franchisee margins on achievement of the target, levy
of penalty for failing to meet the target and incentives for exceeding the target.

Some details of models implemented by various has been illustrated in Table 3-1

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Table 3-1 Revenue Collection Models in State

State Unit and Nos. Village/Coverage

Assam Distribution Transformers (DTs), 306 villages – individual Entrepreneurs

cluster of DTs

Bihar Distribution Transformers (DTs), NIT issued for 14,370 RGGVY villages and
cluster of DTs 20,091 other villages

Chhatisgarh Cluster of villages in a block NIT issued for 1,188 RGGVY villages and
18,532 other villages

Karnataka Micro feeders in a gram coverage 3,425 Gram Vidyut Pratinidhi covering
17,125 villages

Punjab 11 kV feeders except agricultural NIT issued for all feeders except
feeders agricultural feeders

Uttar Cluster of villages 500 villages

Pradesh

Uttaranchal Village Self Help Group (involving women)

engaged in 2361 villages

West Bengal Cluster of villages, minimum 600 130 self help group in 677 mouzan
(1st phase) consumers

(Source: http://recindia.gov.in/download/rggvy_franch_broch.pdf)

Another example would be the Orissa model "Village Contact Person" approach followed by
WESCO. The stage 2 of this model involved employing collection based franchisee, the results of
which are shown in the table 3-2 below:

Table 3-2 Revenue Collection Model Improvements in Orissa Model

Parameter WESCO After Stage-2

Input units 494,763 459,129

Billing units 188,010 188,010

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Billing (Rs.) 448,278 469,718

Collection 38.00% 40.95%

Billing/Input 49.53% 53.97%

Collection/Billing 222,032 253,499

Collection per unit 44.88 55.21

of output (in paise)

Gross loss (in Rs.) 458,515 378,032

(Source: http://www.drumindia.org/course-material.asp?trainingid=19&typeid=6)

Drawback of this system is it is not binding on the franchisee to involve in loss reduction as the
compensation is based in collections and doesn’t factor in the input energy coming into the area. This
model is thus not preferred for adoption.

Model B: Revenue Franchisee – Input Based

In this case, input area covered by the franchisee is measured by the supplying utility and the target is
set as collections made as percentage of input energy supplied to consumers beyond the point of
measuring by the utility. The location of area for franchisee is determined by the energy supplied by
the utility through 11 kV feeder(s) as a point / location of measurement of energy supplied to
franchisee and at this point a metering unit will be needed in the individual 11 kV feeders. For smaller
area of franchisee, the above system would correspond to location of distribution transformers.

Some details of models implemented have been illustrated in Table 3-3

Table 3-3 Input based Models in States

State Unit and Nos. Village/Coverage

Haryana Distribution Transformer NIT issued for one district

Karnataka 11 kV feeders 40 Nos covering 800 villages

Rajasthan 11 kV feeders NIT issued for 252 villages covering 1,150

villages in one discom

Uttar Pradesh 33/11 kV substations NIT invited for 15 substations

(Source: http://recindia.gov.in/download/rggvy_franch_broch.pdf)
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This system of compensation ensures that the franchisee also has an incentive in trying to reduce
losses. Franchisee also tries to reduce losses and prevent power thefts.

Model C: Input based

This model is similar to Model B with the major difference being the franchisee also buying the
electricity from the utility and paying the energy charges to the utility at a pre-determined rate. The
energy supplied / purchased will be as indicated in the 11 kV metering unit. It is the responsibility of
the franchisee to collect revenues from the consumers through bills so that the sustainable commercial
operation is ensured.

Model – D: Operation & maintenance (O & M) franchisee

In addition to the franchisee operation indicated in model C above, this model would see the utility
handing over the operation and maintenance of 11 kV & LT feeders including distribution
transformers to the franchisee. This would be done on a monthly retainer basis or at an adjusted
energy purchase price (of the utility), factored appropriately considering O & M cost of the
franchisee.

Model – E: Rural Electric Co-operative Societies

This model requires the state to authorize formation of traditional electric cooperative society which
are organized, owned and operated by its members. The society owns the distribution utility assets
and is the single point contact for the utility for 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 involve organizing the community and recruiting members;
owning the distribution system and carrying any debt on the assets; responsibility for all facets of
managing and operating the utility and purchasing power from the state power utility.

Model – F: Electric cooperative society – Operations management through contracting

This variant of the model - E, involves the concept of the Board of Directors of the society deciding
to run the operations of the society through an external experienced agency/ organization with suitable
fee structure rather than operating the system itself with the concurrence of the state/utility. An
appropriate “operations contract” with performance criteria is required to implement this model.

Deployment of efficient operation contractor (or managing agency/organization) may considerably

help proper day to day operations of the electric co-operative society.

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3.1 Franchisee Selection

3.1.1 Qualification of Franchisee

The prospective franchisees are required to hold certain minimum qualification which differs based on
the model of franchisee. For predominantly revenue collection based models – A&B, NGOs actively
involved during last three years in any social upliftment programme in the specific area intended for
franchisee or having proven ability in a particular district/state with proven credibility as certified by
the district officer (DM/DC)/District Electricity Committee, may qualify as franchisee. Organizations
having experience in handling funds for state sanctioned developmental programmes or any other
developmental funding agency at the state/central/international level and/or have ongoing operations
in the franchisee area may get preference.

In the case of individual entrepreneurs, the person should display adequate financial health backed by
banker’s certificate, conclusively establishing possession of financial resources equivalent to at least
two months’ revenue collection. His application should also be endorsed by the concerned Panchayat
Samiti of the franchise area.

Similarly for input based Models – C&D, organizations and individual should have satisfactory
financial and operational capability characterized by:

• Proven achievement of completion of development programme, involving outlay of not less than
annual revenue collection/projected revenue realization of franchisee area.

• Recommendation of district authorities / District Electricity Committees of the franchisee area in

support of their candidature.

• Should have the ability to source at least five skilled / semi-skilled (individual) work personnel on
full time basis.

• In the case of individual entrepreneur, he should also meet this criterion, along with establishing
credentials for the type of business operations associated with the electrical industries for which the
work force was employed.

• Clear undertaking from these organizations and individuals that they would be following and
undergoing the training / capacity building programme to be organized by the State Government /
State Utility.

• These organizations shall also furnish “Survey Questionnaire” and “Willingness-to-pay

Questionnaire” as per prescribed format with the arrangement of their own resources, while
submitting application in support of their candidature.
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3.1.2 Selection process

Selection would be done through competitive bidding based on the most favourable Bulk Supply
Tariff for the utilities subject to supply of power at previous year’s level.

Utility does a survey of users as per survey questionnaire enclosed including willingness to pay which
is later shared with bidders. Following this, the utility notifies about franchisee selection for particular
areas / tasks in local and state newspapers (at least two issues), by notifying District Electricity
Committee, Zila Parishad, Panchayat Samiti and all concerned Panchayats. Interested persons /
organizations submit therein “Expression of Interest” along with their Statement of Qualifications
(SoQ) based on which the bidders shall be short listed. Bidders shall then submit their financial
proposal. Three best bidders shall be selected as First successful bidder, stand-by bidder and waiting
bidder

3.2 Experience of franchisee models in India

3.2.1 Nagaon – Assam Model:

The Assam state Electricity Board (ASEB) was bundled in to five companies in 2004 by separating
the Generation, Transmission and Distribution companies (DISCOMs). Three DISCOMs namely
Lower Assam Electricity Distribution Company Ltd (LAEDCL), Upper Assam Electricity
Distribution Company Ltd (UAEDCL) and Central Assam Electricity Distribution Company Ltd
(CAEDCL) were formed after the restructuring of the ASEB.

In line with the objective of rural electrification, the Single Point Power Supply (SPPS) scheme
through agents/ franchisees was introduced in the state. The SPPS follows the Input Based Franchisee
model and Nagaon circle is under the CAEDCL and covers electricity distribution in two districts,
namely, Nagaon and Morigaon. The franchisees are called ‘SPSS Agents’ and they are empowered to
bill the consumers, collect revenues and carry out minor low tension (LT) line maintenance work.

Selection process

The franchisee in the state could be individual entrepreneurs, users association, NGO, cooperatives or
panchayat institutions. Advertisements were published in both English and Assamese daily
newspapers inviting potential entrepreneurs, users association, NGO, cooperatives, etc to become
franchisee under the SPPS scheme. There was neither competitive bidding nor any stringent selection
criteria followed for franchisee selection. However, interviews were conducted to ascertain the
applicant’s interest in the franchisee system. Usually the franchisees were selected based on first cum
first served basis.

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Scope of Work

For Franchisee:

The franchisee received electricity from the low tension (LT) end of distribution transformer (DT) and
made monthly payment to DISCOM based on the energy charge and fixed charge fixed for the
franchisees. The franchisees responsibilities included following things:

1. Maintain adequate infrastructure for keeping consumer data.

2. Preparation and serving electricity bills to consumers as per approved tariff of

regulatory commission.
3. Collect revenue from the consumers
4. Facilitating new connections, maintaining consumer ledger as per DISCOM’s fromat,
submitting a copy of monthly ledger sheet to the DISCOM.
5. Attend fuse off calls, undertake disconnection and reconnection on default.
6. Maintenance of LT distribution networks.
7. Assist the DISCOM in getting details about prospective new consumers.

FOR DISCOM

DISCOM responsibility included:

1. Providing electricity to franchisee’s area.

2. Major maintenance of LT line.
3. Maintenance of DTs/ sub-stations.
4. Supply and install meter at franchisee input point.
5. Serve monthly bills to the franchisee for payment and notify all consumers in the
area about the franchisee’s responsibilities.

In case the franchisee fails to fulfil its contractual obligation, the DISCOM may resort to buy back
and the agreement may be terminated with two-month notice from either side.

Benefits to the franchisee:

Franchisee was given following benefits for his services:

1. Allowable LT line loss of 10 percent was permitted.

2. He was allowed a commission/ profit of 15 percent of meter bill amount.
3. He was given a LT line maintenance cost allowance of 2 percent.
4. He was given a rebate of 3 percent subject to full payment within due date.

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 5. Cash incentive of Rs 100 per new consumer processed through the agent.
6. Surcharge of 1.5 percent levied for non payment of bills within due date.

Impact of franchisee model

Franchisee model improved the performance in several ways which are listed as follows:

1. Improvement in revenue collection: The average revenue per month increased from Rs
4,99,388 before installation of the franchisee to Rs 9,76,142 for the 113 DT being managed
by franchisees as on December 2006. This gives an increase of about 95 in the monthly
average revenue realisation (ARR) in the operational area.
2. The average billing efficiency (ratio of energy billed to energy injected in the network) in the
districts not covered under franchisee scheme varied from 42.27 percent to 76.67 percent in
the year 2006. The billing efficiency for areas covered under franchisee scheme was 81.83
percent.
3. The percentage of billing (ratio of number of consumers billed to the total number of
consumers) under the franchisee scheme was almost cent percent.
4. Franchisee scheme also reduced the overhead cost incurred by the DISCOM such as vehicle
and fuel cost for visiting rural areas, disconnection/ reconnection charge, line maintenance
cost, anti theft drive, etc and this contributed in increasing the overall profit of DISCOM.
5. There was increased convenience for consumers in paying the bills at the franchisee’s office
and consumer camps organized at the villages. The defective meters in the franchised area
were rectified with franchisee taking active interest in the same. The percentage of defective
meters considering all consumers in the district was about 5.53 percent, whereas the same was
2.58 percent in the franchised area.
6. There has been an increase in the number of consumers by about 16 percent as on January
2007 after the starting of franchisee system in the district. The franchises were successful in
motivating people in the villages for regularising connections.
7. Impact on socio economic development: The franchisee system generated employment and
business opportunities to people in the district. Some franchisees did all the billing and data
management using computers. The franchisees recruited local youth for meter reading, bill
collection, theft checking, fuse off call and LT line maintenance. Many ITI trained youth were
absorbed by the franchisees for technical work.
8. Reduction in consumer grievances: There was improvement in consumer satisfaction because
the consumers were getting bills on time and they could pay the bills at the village itself.
Almost 90 percent of the consumers reported that the line maintenance and servicing fuse off
calls improved under the franchisee system.

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 Conclusion
The franchisees reported that loss in the LT network was more than the allowed 10 percent.
Franchisees were able to reduce the commercial loss through reduction in hooking and improving
the billing and collection rate. However, the technical loss in the LT line was high due to
haphazard growth of load over the years and long LT line length extending to 3 km and in some
cases to 5-6 km from the DT. It was also noted that the size of operation is a very important
parameter for success of the franchisee system in any state. For an economically viable franchisee
operation, the DTs in a particular area under the same feeder needs to be grouped in such a way
that the number of consumers is not less than 1000 or the revenue demand is not less than 1 lakh
for a franchised area.

Overall, the system has performed very well and has led to new avenues for business development
and employment. The DISCOM has benefited through increased billing efficiency and collection
efficiency and this has led to increased revenue generation of DISCOM.

3.2.2 Gulbarga- Karnataka

Gulbarga Electricity Supply Company Limited (GESCOM) initiated franchisee system in its
jurisdiction in the year 2004 as part of the rural electricity reforms initiated by the government.
The idea was to improve the electricity service and revenue from the rural areas. GESCOM
consists of two zones called Gulbarga and Bellary. Bellary zone covers three districts namely
Bellary, Koppel and Raichur while there are two districts under the Gulbarga zone namely
Gulbarga and Bidar.

Selection Process
Selection process for Gram Vidyut Pratinidhi (GVP) or the franchisee consisted of first inviting
application through a newspaper advertisement. About 4 to 5 candidates from each village applied
for this work. The eligibility criteria for the franchisee included that the person should be a resident
of the panchayat, should be in the age between 18-40 years and minimum SSLC with preference to
be given to qualified the candidates. Finally, short listing of candidates and then selection based on
the recommendations of the steering committee set up by the utility for the purpose is done. The
main function of franchisee in GESCOM is to carry out the following revenue related activities:
• Meter reading, bill distribution and revenue collection on behalf of GESCOM.
• Registering and readdress complaints.
• Attending to the grievances of the consumer.
• Giving feedback about field realities to GESCOM on a regular basis.

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 Post January 2007 the GVPs were renamed as Micro Feeder Franchisees (MFFs) after
implementation of the modified proposal in GESCOM. The deployments of franchisees in
GESCOM was not part of the RGGVY scheme, as these existing MFFs, were setup under REC
guidelines and were working since 2004.

After the selection, the GVP/MFF enters into a contract called Memorandum of Understanding
with GESCOM for a period of one year. The appointed franchisee also pays either a cash or bank
guarantee as security deposit to the utility. Those who belong to general category pay Rs 50,000
and those belonging to SC/ST or reserved category pay Rs 25,000.

Incentives and penalties of Franchisee

The franchisee model being used by GESCOM was Model A, Revenue franchisee – Collection
based. Based on guidelines specified by the Karnataka Power Transmission Corporation Ltd
(KPTCL) the remunerations for the franchisees included:
• Baseline collection target based on billing and collection achieved during last 6
months.
• Incentive fees of 8 percent of the collected amount subject to a maximum of Rs 4000
was payable to if the GVP achieved monthly baseline collection target.
• For collection over and above the baseline target, an amount of 8 percent of the
incremental collection was payable to the GVP.
• Penalty of 2 percent of the incentive fee payable was levied for every RS 10,000 of the
shortfall in the collection from the base line target.
In Gulbarga district, the franchisee failure rate was 2 percent and the major reasons for the dropout
in MFFs is non-satisfactory remunerations given to them for the work.

Impact of the Franchisee model

• A number benefits were seen after the franchisee model was deployed by the
GESCOM. Overall there was enhancement in the revenue collection, which was about
94 to 95 percent with reference to base collection.
Sr no. Name of the division Billing efficiency (may Billing efficiency (Dec
2004 before franchisee) 2006 after franchisee)

1 Gulbarga – I 83% 98%

2 Gulbarga – II 83% 95%

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 3 Yadgir 88% 94%

• Increase in revenue realisation of 20-50 percent.

• There was 10-20 percent increase in the number of consumers. Accordingly, the
revenue collection also increased by 15 percent.
• Increase in billing and collection efficiency. The consumers started receiving monthly
bills where previously they use to get a bill once in 2-5 months time.
• Employment opportunity for rural youths.
• Franchisee acted as link between the consumer and the utility and there was
improvement in overall quality of the electricity service.
• Door to door collection of the revenue providing convenience to the rural consumers.

However, some problems were also associated with the franchisee model deployed by
GESCOM which includes the following:
• The main problem was insufficient remuneration to the MFFs. The MFFs did not get
the benefits of increased counter collections (collections from direct payment by the
consumer) as it is not shown in their collections. There income depends on the
achievement of targets and in some case they are not able achieve it due to more
direct counter collections.
• Due to seasonal variations in the demand, sometimes the MFFs could not achieve
their target which was fixed and had to pay penalties.
• Delay in payments to MFFs by the utility.
• Lack of training to the MFFs. Training was given only once before the MFFs started
functioning.
• Though there were many advantage of employing local people but some
disadvantages were also found like local people having problem in asking people to
pay their bills, people ignoring the local person and not listening to him.
• Decline in MFF formation. In June 2004, 339 MFFs started operating of which 37 left
and three were terminated. The number of MFFs has remained same after that and has
not increased since than.
• Inability of many potential MFFs to pay the initial security deposit resulting in less
MFFs formation.

3.2.3 Damoh- Madhya Pradesh

There have been four franchisees working under input based model of franchising in Damoh
region of MP. Each franchisee was allotted one distribution transformer of 100 KVA capacity
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 and the total number of consumers covered by the franchisees was 289 (including domestic,
commercial, agriculture, street light and industrial).

Selection process
The utility officials initiated consultations with the local community and collected applications
from willing entrepreneurs. The officials then shortlisted a list of entrepreneurs for further
evaluation based on criteria like financial, social status and other related parameters. In this
way the final franchisees were selected. The franchisee was required to deposit security
amount equal to 2 month average

Responsibilities of franchisees
Franchisees were responsible for meter reading, bill distribution, collection of revenues and
providing new connections. The utility company issued electricity bills to the consumers on
the basis of meter reading submitted by the franchisees. Revenues received from the consumer
were retained by the franchisees. On non-payment/ part payment of bill by due date by the
franchisee, the electricity supply may be discontinued by the utility company with a grace
period of 15 days. In case of continued defaults of electricity bills, the franchisee may be
terminated with a 30 day notice given by the company. The utility company may adjust the
security deposit against the arrears of electricity bills.

Responsibilities of the Utility

Utilities would bear the cost of routine maintenance of distribution transformers and shall
install and commission new DTRs. The utilities would carry out the maintenance of HT/ LT
lines including attending to faults. Transformers failed up to 12 percent of the total number of
DTRs installed in the franchisees area would be replaced by the utility, while the transformers
failed beyond the above limit would be replaced by the utility but the cost would be borne by
the franchisee.

Franchisees were billed for all the units supplied at the base line tariff of Rs 1 per unit
(excluding duty and cess) and the franchisees had to pay the bill within 7 days of the issue of
the bill. The bills were issued by the Executive Engineer (O&M) of the area.

Impact of franchisee model

1. Improved revenue collection: There was significant improvement in revenue collection
due to adoption of franchisee model. The franchisee collected greater amounts from
consumers than what they paid for all invoices raised by the utility company. This was due
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 to advance collected by the franchisee for the provision of temporary pump sets to
agricultural consumers.
2. Increase in the number of consumers: There was steady increase in the number of both
domestic and BPL consumers because of the prompt and grievance free service of the
franchisee.
Franchisee Total consumers during Total consumer as on
handover 21.02.2007

Mr. Rajesh Singh 83 104

Mr. Satendra Singh 67 110

Mr. M Singh 56 72

Mr. C B Singh 52 63

3. Control of theft: Franchisee system was able to check the unauthorised connections and
theft by cabling of LT network to prevent hooking and installation of meters to prevent the
tampering of the same.
4. Increase in local employment: The franchisee system operated out of the entrepreneurs’
home and on an average each franchisee employed about 3-5 persons for different
assigned activities.
5. There was better service in attending fuse-off call and other minor service complaints.
However, power shedding didn’t change as most of the consumers complained about the
duration of electricity supply (8-12 hrs).
6. There was failure of one franchisee appointed by the utility company due to his part time
interest in the activity. Further, the collection in his area was poor because of low income
of the villagers. The franchisee couldn’t control power theft by villagers because of his
little technical expertise.
7. One major problem in this franchisee system was that each franchisee was given a single
transformer due to which it was not able to expand its network and augment its revenue
and earnings. For a profitable operation, each franchisee should be given a larger area
preferably a distribution centre comprising of all 11 KV feeders.

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 References

1. Prem K. kalra, et al., 2007 - Electrification and Bio-energy Options in Rural India
2. Devender Singh, 2008, Paris – Sustainable Rural energization in India
3. Modes of Rural Electrification – Forum of Indian Regulators - Final Report
4. Website of Rajiv Gandhi Grameen Vidyutikaran Yojana
http://www.rggvy.gov.in/rggvy/rggvyportal/index.html
5. Website of Rural Electrification Corporation
http://recindia.nic.in/
6. Website of Distribution Reforms, Upgrade and Management
http://www.drumindia.org/course-material.asp?trainingid=19&typeid=6

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