Bhiwandi Distribution Franchise

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In December 2006, Torrent Power Limited (TPL) signed a 10 year franchisee agreement with Maharashtra State Electricity Distribution Company Limited (MSEDCL) to distribute power to 0.16 million customers in Bhiwandi district (near Mumbai) of Maharashtra State. The estimated demand in the circle was 750 MVA with an annual power consumption of 2400 million units. Under the agreement, TPL was responsible for power supply, infrastructure upgradation and revenue collection for the Bhiwandi distribution circle. Specifically, TPL’s activities included meter reading, billing, revenue collection, operation and maintenance, customer care, capex (capital expenditure) investment and incremental power sourcing. MSEDCL supplied bulk power to TPL at the average rate of $0.04/kWh over the 10 years. However, TPL was allowed to source additional power from other producers in case of higher demand. TPL then sold this power to consumers of Bhiwandi at rates fixed by Maharashtra Electricity Regulatory Commission. This distribution franchise agreement was the result of both Government of India’s and State Government of Maharashtra’s (GoM) commitment to reform the loss making electricity sector. In June 2005, GoM unbundled the power sector and MSEDCL was given the task of distribution. MSEDL in turn decided to bid out various distribution circles to private parties under the franchisee model for reducing the transmission and distribution (T&D) losses and boosting profitability. In June 2006, TPL won the Bhiwandi distribution franchise in an international competitive tender conducted by MSEDCL. Although 40 companies showed interest in the pre-bidding stage, TPL and Crompton Greaves Ltd. were the only two companies that participated in the final round. TPL promised to cut T&D losses from 45 per cent to 14 per cent and increase collection from 62 per cent to 98 per cent. TPL was expected to generate additional revenues of US$ 33 – 40 million (Rs 1,500 – 1,800 million) in the first year itself and over the ten year period, the company was expected to add revenues of about 350 million (Rs 15,000 - 20,000 million). TPL was expected to invest US$ 22 million (Rs 1,000 million) in the first six months to upgrade the distribution systems. TPL took over the operations of Bhiwandi distribution circle in January 2007.