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Electricity Distribution Companies Will Soon Supply Power Via Franchise Model, Providing new business opportunities

Sneha Santra
Sneha Santra Aug 27 2019 - 3 min read
Electricity Distribution Companies Will Soon Supply Power Via Franchise Model, Providing new business opportunities
The Power Ministry stated that the government is looking to implement an electricity distribution franchise model for helping the power distribution companies in India.

Franchising has become an emerging business opportunity for budding entrepreneurs. It is now a globally accepted business model, especially in the emerging private sectors all across the globe. Entrepreneurs can be seen shifting their gears towards the franchise-based business models for transforming their business’ vision into realities.

Even the government is now relying on the franchise model for transforming the nation’s power distribution scenario. Distribution serves the most important function in India’s power supply chain. Power Distribution Franchisee is neither a new concept in India nor the popular one.

It has been over a decade, when the first power distribution franchise was incepted in Bhiwandi, as an experimental basis, got an overwhelming success. The franchise model saw a good momentum after the success story of Bhiwandi in power distribution.

Recently, the Power Ministry stated that the government is looking to implement an electricity distribution franchise model for helping the power distribution companies in India. According to the sources, the state power distribution companies (Discoms) will have to hand over electricity supply businesses to multiple licensees or franchisees to get central government assistance or loans from the Power Finance Corporation.

This will be opening doors for many franchise business opportunities for aspiring entrepreneurs in this segment.

A Win-Win Situation

The power distribution is one of the most vital components of the country, yet it is the weakest link. According to reports, the state power distribution companies are undergoing massive financial losses. In fact, the combined losses of state-owned power discoms by the end of the year 2018 were ₹40,295 crore. Along with this, the Discoms continue to face power theft, billing inefficiencies and regulatory delays in tariff increases, resulting in financial losses. While the government’s Ujjwal Discom Assurance Yojana (UDAY) scheme seeks to reduce discom losses, there was hardly any impact on their financial status.

Therefore, it is thus believed that privatization can be the key to overcome the sector’s commercial challenges. It is conjectured that implementing electricity distribution franchise model might help cut down financial losses along with helping companies to become efficient in terms of billing and collection of electricity dues.

Franchising: Common Solution to Many Problems

Power Distribution Franchisee is promising business opportunity if done correctly. Past records prove that the franchise distribution can provide a common solution to many problems related to the supply of electricity.

The franchise distribution model will not only assist in reducing the losses but will also ensure 24/7 power supply along with penalties on discoms on performance issues, provide subsidy on electricity via Direct Benefit Transfer (DBT) and also to not let inefficiencies of the discoms be passed on to the consumers through a hike in tariff.

The franchise model will be generating new business opportunities for potential entrepreneurs along with presenting a revamped India

In the Franchise model, the tender on an area will be given out to the highest bidder by the respective state distribution companies to any private company which manages billing and collection on behalf of the discom. The franchise model will be curated keeping the distribution companies in mind. It will be coming along with a short term plan where the entire focus will be on separating content and carriage in the electricity business.

The franchise has to ensure a targeted collection on electricity dues for the period of the contract for the particular area.  There are several different models with this framework, including the revenue-based collection franchisee model and the input-based franchise model.

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