Franchisee model has a long way to go

The franchisee system in power distribution has not taken off despite provision for central financial assistance. Out of 1,61,373 villages where Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) funds have been utilised, only 42% villages operate through a franchisee system.

Individuals were included in the distribution sector as franchisees to initiate public-private partnership at the lowest level, and to promote entrepreneurial capabilities of local youth. The Electricity Act, 2003 allows a utility to grant franchisees for certain functions in a distribution area.

Further, appointment of franchisees were made mandatory in villages where RGGVY fund is being utilised. The aim was to ensure revenue sustainability of rural distribution.

However, the absence of a grievance redressal mechanism is hampering the growth of the franchisee movement. The weak financial position of most franchisees operating in rural areas and their short contract duration of a year are not conducive to the stability of the franchisee business model. The delay in payment of incentives to franchisees is another major turn-off. These flaws need to be corrected to make the model attractive.

Utility employees look at the mechanism with suspicion and treat franchisees as sub-contractors rather than business partners. There appears to be an apprehension that the appoint ment of a franchisee could be a precursor to privatization.

Recent study on working of franchisees in states like Andhra Pradesh, Karnataka and Orissa has indicated encouraging results on loss reduction and consumer satisfaction. However, it has recommended further measures like periodic review to strengthen and speed up implementation of franchisees.

A regular review of the working of the franchisee model can be useful in reducing losses in rural areas. It has been observed that to fulfill their obligation of setting up franchisees under RGGVY, utilities are establishing a simple version of the franchisee model that is, revenue-based collection model. But the Centre’s Rural Electrification Policy states that the franchisee should be linked to input energy of the area. The simple franchisee model should act as an introductory step. With experience, the basic model should be upgraded to an advanced version, to ensure sustainability of rural electricity supply.

There should be a time-bound shift from the simple model to a more comprehensive one. Clearly, successful implementation of the franchisee model requires immediate interventions at institutional, financial and operational levels.

Source – Financial Express



Executive at India Electron Exchange

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