Issues and Challenges in Rural Electrification Schemes Implementation

Summer Internship Report
Issues and Challenges in Rural Electrification schemes
Submitted in Partial fulfillment for the requirements

of MBA in Power Management
Centre for Advanced Management & Power
Studies
National Power Training Institute
Affiliated to
MAHARASHI DAYANAND UNIVERSITY, ROHTAK
CERTIFICATE
This is to certify that the summer internship report of Mr. Anudeep

Yadav (MBA- Sem II Power Management, National Power Training
Institute, Faridabad) titled ‘Issues & Challenges in Rural Electrification
Schemes’ is an original work and that this work has not been assigned
to anybody in any form. The project work was carried from June 8th
2009 for period of two months at Feedback Ventures Private Limited.
During the entire period of training, his conduct was good & he
was sincere in his work. We appreciate his efforts in providing a new
outlook into the existing framework, the suggestions proposed by him
would be given a serious thought.
We wish him all the best in future
Dated: Aug
Mr. Naveen Kapoor

General Manager-Distribution Business
Energy Division
Feedback Ventures Private Limited
National Power Training Institute Page 2

DECLARATION
I, Anudeep Yadav, Roll No. 10 of MBA (Power Management) 7th Batch, National Power Training
Institute, Faridabad, completed my summer internship of eight weeks at Feedback Ventures
Private Limited, hereby declare that Summer Internship Report titled “Issues & Challenges in
Rural Electrification Schemes” is an original work and the same has not been submitted to any
other institute for award of any other degree. A Seminar presentation of the Training report
was made on ………………………….. and the suggestions as approved by the faculty were duly
incorporated.
Presentation In-charge
Anudeep Yadav
Roll No 10
MBA Power Management
CAMPS, NPTI
Principal Director of the Institute

Acknowledgement
At the outset, I am grateful to Mr Devtosh Chaturvedi (Head, Energy Division, Feedback
Ventures), for giving me the opportunity to do my summer internship in Feedback Ventures Pvt
Ltd.
I would like to take this opportunity to thank my mentor Mr.Naveen Kapoor who provided me
the opportunity to work on a live project, besides guiding me at Feedback Ventures Pvt. Ltd. He
gave me his valuable time and supported me at each step with his expertise in moments of my
doubts.
I’m also thankful to Mr. Satyajit for providing me the grass root level insights into the rural
power distribution sector and for pushing me for better.
My sincere thanks to our then Director CAMPS Mr.J.S.S.Rao, Deputy Director CAMPS Ms Indu
Maheswari,Mr Anil Kumar, and Dr Jay Kumar who took active interest in my summer interns
and was always there to guide me by their word of valuable guidance.
And at the last but not the least, I duly acknowledge with gratitude the help and support from
my family & loved ones which was always available to me during the hectic period of my
summer interns.

Index
1. EXECUTIVE SUMMARY ............................................................................................. 9
2. SIGNIFICANCE OF THE STUDY ................................................................................. 11
3. INTRODUCTION ..................................................................................................... 13
4. ELECTRICITY ACT, 2003 AND RURAL ELECTRIFICATION POLICY. ................................ 15
5. REVIEW OF RURAL ELECTRIFICATION (RE) SCHEMES ............................................... 18
5.1. KUTIR JYOTI PROGRAM (KJP) ......................................................................................... 19
5.2. MINIMUM NEEDS PROGRAM......................................................................................... 19
5.3. RAJIV GANDHI GRAMEEN VIDYUTIKARAN YOJNA (RGGVY) ........................................... 20
6. FRANCHISEE AND GOVERNMENT GUIDELINES............................................................. 22
6.1. THE ELECTRICITY ACT 2003: ENABLING PROVISIONS FOR FRANCHISEE ........................ 23
6.2. FRANCHISEE DEVELOPMENT GUIDELINES (RGGVY)....................................................... 24
6.2.1. RURAL BASED FRANCHISEE ............................................................................................ 25
6.2.2. URBAN FRANCHISEE ....................................................................................................... 25
6.2.3. MODELS OF FRANCHISEE: .............................................................................................. 26
6.2.4. RESPONSIBILITY MATRIX FOR FRANCHISEES MODELS ................................................... 30
6.2.5. QUALIFICATION OF FRANCHISEE .................................................................................... 31
6.2.6. SELECTION PROCESS FOR FRANCHISEE .......................................................................... 33

6.2.7. TARIFF DETERMINATION FOR RURAL FRANCHISEE ....................................................... 33
6.2.8. BUSINESS PLAN OF FRANCHISEE .................................................................................... 35
7. ISSUES AND CHALLENGES IN IMPLEMENTATION OF FRANCHISEE MODELS ............... 36
7.1. AREA SELECTION FOR RURAL DISTRIBUTION FRANCHISEE.......................................... 36
7.1.1. LOCATION ....................................................................................................................... 37
7.1.2. FRANCHISEE UNITS ......................................................................................................... 37
7.1.3. RGGVY WORK SCHEMES................................................................................................. 38
7.1.4. LAW & ORDER AND OTHER ISSUES ................................................................................ 41
7.2. DUE DILIGENCE. ............................................................................................................. 41
7.2.1. HEALTH OF DISTRIBUTION SYSTEM & SYSTEM DATA: ................................................... 42
7.2.2. STATUS OF ENERGY ACCOUNTING: ................................................................................ 42
7.2.3. LOW CONSUMER DENSITY. ............................................................................................ 42
7.2.4. AVAILABILITY OF SKILLED MAN POWER ......................................................................... 42
7.2.5. INSTITUTIONAL CAPACITY .............................................................................................. 43
7.3. FRANCHISEE MODELS ANALYSIS: .................................................................................. 43
7.3.1. MODEL -A REVENUE FRANCHISEE COLLECTION BASED ................................................. 44
7.3.2. MODEL – B: REVENUE FRANCHISEE – INPUT BASED...................................................... 45
7.3.3. MODEL – C : INPUT BASED FRANCHISEE ........................................................................ 46
7.3.4. MODEL – D : OPERATION & MAINTENANCE FRANCHISEE ............................................. 47

7.3.5. MODEL – E : RURAL ELECTRIC CO-OPERATIVE SOCIETIES .............................................. 48
7.3.6. MODEL – F: RURAL ELECTRIC CO-OPERATIVE SOCIETIES OPERATIONS MANAGEMENT

THROUGH CONTRACTING ............................................................................................................. 49
7.3.7. SWOT ANALYSIS OF INSTITUTIONAL PLAYERS IN DISTRIBUTION FRANCHISEE.............. 50
7.3.7.1. PANCHAYATI RAJ INSTITUTIONS .................................................................................... 50
7.3.7.2. NON GOVERNMENTAL ORGANIZATIONS (NGOS) .......................................................... 51
7.3.7.3. SELF HELP GROUPS (SHGS) ............................................................................................. 52
7.3.7.4. COOPERATIVES ............................................................................................................... 53
7.3.7.5. LOCAL ENTREPRENEURS ................................................................................................. 53
7.3.8. ISSUES RELATED TO DISTRIBUTION FRANCHISEE RESTRUCTURING .............................. 54
8. RURAL POWER SECTOR IN JHARKHAND. ................................................................. 56
8.1. FORCE FIELD ANALYSIS ................................................................................................... 56
8.2. GAP ANALYSIS................................................................................................................. 60
9. INTERNATIONAL EXPERIENCES ............................................................................... 65
10. POSSIBLE ALTERNATIVE – A MODIFIED RECS MODEL .............................................. 69
10.1. RURAL ELECTRICITY CONSUMER COOPERATIVE SOCIETY .............................................. 69
11. CONCLUSION ......................................................................................................... 73
12. LIMITATIONS OF THE REPORT ................................................................................ 74
13. BIBLIOGRAPHY:...................................................................................................... 75

1. Executive Summary
The report analyses existing schemes and provisions for enabling power distribution in rural places. With
central government giving special funds for creating necessary infrastructure, there is an urgent need to
develop and sustain an institutional setup which benefits the community, and contributes to achieving
the objectives of development.
As a part of summer interns in the organization, I was involved in ongoing project of rural distribution
franchisee in the state of Jharkhand, during the process I got the opportunity to meet various
stakeholders of the ongoing process and got excellent opportunity to analyse the whole process.
Importance of rural electrification cannot be underestimated given the fact that major share of
population is going to get benefits of development from it. This report builds on the experiences in the
field visits performed during the process implementation in Jharkhand state.
Various schemes which were implemented in past had suffered some or other difficulties in the
implementation, the definition of electrification as adopted by early planners didn’t proved sufficient
and needed corrections, schemes involving grants to states for achieving rural electrification was spent
without measurable standards of success ,though they achieved some of the targeted goals, schemes
like MNP,KJP further improved the electrification levels, but with their own share of difficulties in
implementations and irregularities. Also all along the time main focus was to achieve the creation of
distribution infrastructure.
In the renewed impetus by the central government towards achieving rural development, new
scheme , `Rajeev Gandhi Grameen Vidyutikaran Yojana’ was begun in 2005 to merge all existing
schemes into it ,it focused on creating rural distribution infrastructure with help of Project management
expertise from Central PSUs,the scheme envisages 90 % grant by GoI,and 10 % loans by nodal agency

REC, subject to fulfillment of conditions, the focus from this scheme has become more holistic in nature
with detailed specifications not only for definitions of electrification, but also to achieve connectivity by
other affordable means than grid extension for rural remote areas, there has been deep focus on
achieving revenue sustainability for rural distribution systems and accordingly the provision of
franchisee systems has been incorporated. Among the various provisions there has been tendency
among state utilities for choosing the franchisee models based on input or collection base; though all
operational aspects well catered, however these models suffer on accounts of creating much required
representativity in the rural distribution setup. Especially in states like Jharkhand, the force field analysis
and gap analysis shows that such approaches of franchisee model don’t contribute much to creating a
sustainable setup given the multitude of various factors.
International experiences in extending sustainable rural distribution access from USA, Latin American
countries, African countries and even countries in Asia like Thailand, Bangladesh etc have all taken steps
in terms of business models that incorporated higher representivity of consumers. Special mention of US
cooperative models needed here which are running with reasonable degree of commercial success.
The proposed solution for Indian rural distribution franchisees therefore undertakes all the
points of importance and suggests a slightly modified model of officially proposed F class model.

2. Significance of the Study
The study analyses the challenges involved in the process of implementation of franchisee system under
RGGVY, the long history of rural electrification in India has been fraught with unmet targets, in terms of
unelectrified villages, chronic shortages and shabby upkeep of rural systems of power distribution. The
latest impetus of central government under RGGVY is to provide power access to everyone by 2012, vast
funds provisions and close coordination with CPSUs is taken as to provide the boost to complete the
task.
Given such importance, it has rightly been made mandatory under the scheme for states to
design the sustainable distribution setup that takes care and builds up sustainability for rural areas. The
franchisee development is proposed way for enabling sustainability in the setup.
Thus it becomes very important in the light of past experiences, to analyse various challenges
faced in the process and design a setup that is more likely to succeed; the study is an effort to underline
main issues that may be hindering the implementation, and success of efforts.
In this report a brief introduction of rural electrification has been given, describing the enabling
regulatory provisions, and past schemes which were functional in past. Next section introduces the
concept of franchisee, and its various aspects as introduced by the RGGVY guidelines, along with
models, and their provisions. Further the report discusses about the challenges in the implementation of
rural franchisee on major points of concern, this includes a brief analysis of various proposed franchisee
models on certain common parameters to assess their strengths and weaknesses.
In section 6 ,rural electricity sector is analyzed using management techniques of ‘field force
analysis, and gap analysis, with focus to Jharkhand state, in field force theory analysis has been done on
various enabling forces and restraining forces, and the need to reduce the impact of restraining forces.
Gap analysis focuses on some key decision making boundaries where there is gap in perceptions and

understanding of the main motives. Next section discusses the approaches taken by various countries of
the world while pursuing the goal of rural electrification in order to analyse various options, and assess
their replicability. On the basis of previous discussion, last section discusses a new modified model for
rural franchisee incorporating the issues highlighted previously.

3. Introduction
Indian government has put rural electrification as one of its top priority issues since long time, and this
has been given renewed impetus by the current govt. The aim is to provide electricity access to each and
every village by year 2012. As per 2001 statistics, slightly more than 70 % of the total population resided
in rural areas, and if we put the use of energy as parameter of development for community, the per
capita consumption stands around 717 KWh for overall nation which is on lower side among the world.
The situation for rural can be for anyone to imagine.
Patterns energy use in India's villages varies considerably across the regions, as is access to
commercial fuels. Most villagers still depend predominantly on so-called traditional fuels to meet their
modest energy needs. Even in rural areas with access to modern fuels, human labor is dominant and
animals provide much of the energy used in transportation, agriculture, and artisan activities.
Traditional fuels, as presently used, have inherent disadvantages. Collection is hard and time-
consuming; combustion is difficult to control, causing inefficient cooking. Human and animal labor is
also arduous, limit increases in productivity.
It is clear that whatever traditional and animate-energy patterns exist, while adequate for maintaining a
subsistence existence at low population densities, are ill suited to providing modem amenities and
supporting the more intensive agricultural productivity needed to sustain a higher standard of living of
growing rural populations and boost their economic sustainability and development. It is generally
accepted that further integration of rural communities into the economic, social, and political life of the
nation will require modern, efficient forms of energy and higher levels of energy availability to them.

The state of affairs of rural areas is much lower than national average due to three counts, first the
access is not sufficient for areas, and second as per the infrastructure, the availability of power is not
there, and lastly to add, the availability is given so low priority as to not sustain commercial activities in
the rural areas. With Peak power deficits rising to around 12.6 %, the issue of equal impetus to rural
areas seems a big deal.
Power distribution programs in urban areas are making special efforts to contain the losses; this is much
more important issue for rural areas, when returns aren’t assured with high losses, how much subsidy
based power supply could be done. And with containing losses more difficult than urban areas,
attracting rural investors is still more difficult, conventional systems managed by SEBs have failed on to
maintain and sustain the revenue in the areas.
In order to provide proper returns base for power availability, India needs to develop economically
sustainable models for supplying power. Franchisee model development under RGGVY is an effort in the
direction of finding solution.
The report analyses various implementation strategies of rural electrification under RGGVY in terms of
sustainability and other issues, analysis of rural electricity sector is done based on experiences of field in
state of Jharkhand along with some international experiences to suggest some probable alternative
strategies.

4. Electricity Act, 2003 and Rural Electrification Policy.
Recognizing the importance of rural electrification in improving the economy of rural India, along with
social upliftment, its been given appropriate importance in the pioneer reform document of Indian
power sector .Some of the key policies opening up the way for guiding rural electrification are discussed
in this section.
• Separate provisions for National policy in Rural areas stand alone systems in generation and
distribution management
• Making mandatory for governments to assure electricity to all rural areas.
The definitions of electrified village had been changing as per the experiences from earlier schemes;
prior to October 1997 it was defined as
“A Village should be classified as electrified if electricity is being used within its revenue area for any
purpose whatsoever.”
After October 1997definition changed to
“A village will be deemed to be electrified if the electricity is used in the inhabited locality, within the
revenue boundary of the village for any purpose whatsoever.” the latest adopted definition for an
Electrified Village is undertaken based on following points
• Basic infrastructure such as distribution transformers and distribution lines are provided in the
inhabited locality as well as in all Dalit bastis/hamlets.

• Electricity is provided to public places like schools, panchayat offices, health centres,
dispensaries and community centers.
• The number of households electrified should be at least 10% of the total number of households
in the village.
In the draft REP (Rural Electricity Policy) document the broad goals are as follows:
• Accessibility – electricity to all households by 2012
• Availability – adequate supply to meet demand by 2012
• Reliability- ensure 24 hour supply by 2012
• Quality- 100% quality supply by 2012
• Affordability- pricing based on consumer ability to pay
While the REP seeks to achieve 100% household electrification by 2012, primarily through grid
extension, stand-alone systems are also envisioned for areas where grid extension may not be possible
on account of techno-economic factors. Pursuant to the REP all state governments are required to
formulate state level strategies and notify the same within 6 months from the notification of the REP.
The draft policy also seeks to provide at least 1 kWh/day to all BPL households and ensure that quality
as against the prevailing problem of blackouts.
The Planning Commission’s mid-term review of India’s Tenth Plan states that the current
practice of 40% capital subsidy for rural electrification programs has been far from successful. The plan
review has accepted and recommended the Ministry of Power’s proposal of a 90% capital subsidy
scheme for 100% household electrification over the next 5 years as envisioned in the National Common
Minimum Program (NCMP). However, the mid-term review goes on to qualify the 90% capital subsidy
will be successful only if a sustainable revenue model is in place. In its submission to the committee for

the year 2004-05, the Ministry of Power outlined a new strategy involving creation of a Rural Electricity
Distribution Backbone (REDB), Village Electricity Infrastructure (VEI). This also included distribution
transformers in each village where grid access was feasible, and a decentralized distributed generation
(DDG) and supply for villages where grid connectivity or NCES (non conventional sources of energy)
might not be possible or cost effective.

5. Review of Rural Electrification (RE) Schemes
The Rural Electrification Corporation (REC) was established as a public sector undertaking in July, 1969.
Initially, the principal objectives of the corporation were to finance RE schemes and promote rural
electricity co-operatives for funding rural electrification projects across the country. The tasks assigned
to the corporation have occasionally been expanded. The main objects currently are:
• To subscribe to special rural electrification bonds that may be issued by the State Electricity
Boards on conditions to be stipulated from time to time.
• To promote and finance rural electricity co-operatives in the country.
• To administer the money received from the GoI and other sources such as grants.
• To promote, organize or carry on the business of consultancy services and/or project
implementation in any field of activity in which it is engaged in India and abroad.
• To finance and/or execute works on small/mini/micro-generation projects, to promote and
develop other energy sources and to provide financial assistance for leasing out the above
sources of energy.
• To finance survey and investigation of projects.
• To promote, develop and finance viable decentralized power system organizations in
cooperative, joint, private sector, panchayat and local bodies.
Major RE schemes that have shown varying degrees of success are reviewed below.

5.1. Kutir Jyoti Program (KJP)
Originally launched by the Congress Government in the late 80sKJP was initiated in 1988-89 to provide
single point light connection (60w) to all Below Poverty Line (BPL) households in the country. KJP
provides 100% grant for one time cost of internal wiring and service connection charges and builds in a
proviso for 100% metering for release of grants. Nearly 5.1 million households have been covered under
the scheme to date. The scheme was merged into the ‘Accelerated Electrification of One Lakh Villages
and One Crore Households’ in May 2004 and now into the RGGVY.
The scheme was found to be making some contribution to the aim of reaching BPL families but its
implementation has major loopholes, causing its misuse and increasing the Losses, there were instances
observed in which misuse of Single point connection was done, multiple connections given in same
family, nonexistent and ineligibles figure into the list a lot, and along with there was also instances of
implementing agencies charging money from consumers. Overall the scheme did more damage to the
rural distribution system than benefits.
5.2. Minimum Needs Program
The Minimum needs Programme was introduced in the first year of the Fifth Five Year Plan. The
objective of the Programme is to establish a network of basic services and facilities of social
consumption in all the areas upto nationally-accepted norms, within a specified time-frame. The
programme is designed to assist in raising living standards and in reducing the regional disparities in
development. The programme is essentially an investment in human resources. The basic needs of the
people identified for this programme are Elementary Education, Adult Education, Rural Health, Rural
Roads, Rural Electrification, Rural Housing, Environmental Improvement of Urban Slums and Nutrition.
The MNP, which exclusively targeted states with less than 65% rural electrification (by the old
definition), provides 100% loans for last mile connectivity. The program resources are drawn from the

Central Plan Assistance. Rs. 775 crore was released during 2001-03 for rural electrification under the
MNP. The scheme was discontinued in 2004-05 on account of difficulties in implementation.
5.3. Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY)
The Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) – Scheme for Rural Electricity
Infrastructure & Household Electrification on 4th April, 2005 with the objective of providing access
to electricity to all households and improving rural electricity infrastructure. Ninety per cent
capital subsidy is provided towards overall cost of the projects under the scheme, excluding the
amount of state or local taxes, which will be borne by the concerned State/State Utility. 10% of
the project cost to be contributed by states through own resources/loan from financial
institutions. For revenue sustainability, management of rural distribution through franchisee
is prerequisite under Rajiv Gandhi Grameen Vidyutikaran Yojana.
The RGGVY aims at:
• Electrifying all villages and habitations as per new definition
• Providing access to electricity to all rural households
• Providing electricity Connection to Below Poverty Line (BPL) families free of charge
Salient feature of the scheme includes-
1. Rural Electricity Distribution Backbone (REDB) with 33/11 KV (or 66/11 KV) sub-station of
adequate capacity in blocks where these do not exist.
2. Village Electrification Infrastructure (VEI) with provision of distribution transformer of
appropriate capacity in villages/habitations.
3. Decentralized Distributed Generation (DDG) Systems based on conventional & non conventional
energy sources where grid supply is not feasible or cost-effective
4. Certification of electrified village by the concerned Gram Panchayat.

5. Deployment of franchisee for the management of rural distribution for better consumer service
and reduction in losses.
6. Undertaking by States for supply of electricity with minimum daily supply of 6- 8 hours of
electricity in the RGGVY network.
7. Making provision of requisite revenue subsidy by the state.
8. Determination of Bulk Supply Tariff (BST) for franchisee in a manner that ensures commercial
viability
Franchisee may be an entity empowered by the state to either develop / operate a
generation & distribution system or ready to distribute electricity within an identified
contiguous area for a prescribed duration and collect revenues directly from rural
consumers. Different franchisee models details are available in the franchisee guidelines.
This is very ambitious scheme, in the process of implementation, central agencies some
concerns were observed.
While the Infra has been created in many places, proper system has not yet been created to
take over for care and thus at many places it is causing loss of energy and adding to losses.

6. Franchisee and government guidelines
Franchisee is defined as allocation of an exclusive right to exploit or carry out an activity. Herein one
party, the franchiser, allows another, the franchisee, to exploit a trade name, trademark, process, or
other resources in return for a fee. The ownership of the resources remains with the franchiser. This
franchise agreement specifies the manner, time-period, location as well as limitations of rights to exploit
resources
As per GoI, in rural electrification projects under RGGVY-
"The management of rural distribution would be through franchisees who could be Non-Governmental
Organizations (NGOs), Users Association, Panchayat Institutions, Cooperatives or individual
entrepreneurs. The franchisee arrangement could be for system beyond and including feeders from sub-
station or from and including Distribution Transformer(s). The franchisee should be preferably input
based to reduce AT&C losses so as to make the system revenue sustainable."
Based on the consumer mix and the prevailing consumer tariff and likely load, the Bulk Supply Tariff
(BST) for the franchisee would be determined after ensuring commercial viability of the franchisee.
Wherever feasible, bidding may be attempted for determining the BST. This Bulk Supply Tariff would be
fully factored into the submissions of the State Utilities to the State Electricity Regulatory Commissions
(SERCs) for their revenue requirements and tariff determination. The State Government under the
Electricity Act is required to provide the requisite revenue subsidies to the State Utilities if it would like
tariff for any category of consumers to be lower than the tariff determined by the SERC. While
administering the scheme, prior commitments may be taken from the State Government regarding –
a) Determination to bulk supply tariff for franchisees in a manner that ensures their commercial viability.
b) Provision of requisite revenue subsidy by the State Government to the State Utilities as required
under the Electricity Act.

The GoI has also desired Guarantee by State Government for a minimum daily supply of 6-8 hours of
electricity in the RGGVY network with the assurance of meeting any deficit in this context by supplying
electricity at subsidized tariff as required under the Electricity Act, 2003.
6.1. The Electricity Act 2003: Enabling provisions for Franchisee
Electricity Act mentions in many sections the enabling frameworks to help evolve franchisee for power
distribution. Following mentions these relevant details.
Section 5.
The Central Government shall also formulate a national policy, in consultation with the State
Governments and the State Commissions, for rural electrification and for bulk purchase of power and
management of local distribution in rural areas through Panchayat Institutions, users’ associations, co-
operative societies, non-Governmental organisations or franchisees.
Section 13.
The Appropriate Commission may, on the recommendations, of the Appropriate Government, in
accordance with the national policy formulated under section 5 and in public interest, direct, by
notification that subject to such conditions and restrictions, if any, and for such period or periods, as
may be specified in the notification, the provisions of section 12 shall not apply to any local authority,
Panchayat Institution, users’ association, co-operative societies, non-governmental organizations, or
franchisees.
Section 14.
The Appropriate Commission may, on application made to it under section 15, grant any person licence
to any person -
(a) to transmit electricity as a transmission licensee; or
(b) to distribute electricity as a distribution licensee; or

(c) to undertake trading in electricity as an electricity trader, in any area which may be specified
in the licence:
6.2. Franchisee development Guidelines (RGGVY)
The RGGVY scheme anticipates two types of decentralization: 1) Commercial decentralization, e.g. tariff
collection, and 2) Technical decentralization, e.g. operations & maintenance of distribution. The idea is
that individual businesses will become profit centres that are locally run. Also to introduce the
competition and turn the loss making divisions into profit centers.& to move towards a decentralized,
competitive market, SEBs must aid in this effort to create district-level or village profit centres that
manage distribution.
The REC and MoP are encouraging franchisee development for the maintenance of distribution systems
and for the collection of tariffs at the village level. It will require managerial and technical capacity to
engage with franchisees, a definition of business rules, execution of contracts, inspection of installation,
verification of delivery of service to standards, monitoring of performance expertise, establishing of bulk
power purchase agreements with generators with fuel cost provisions, minimizing the risks and lowering
transaction costs in general.
We need different models of franchising for areas where there is already existing infrastructure and for
areas where new infrastructure has to be developed, also taking into account the consumer mix and
their paying capability. They involve essentially different models of franchising. The franchising schemes
in various verticals have been discussed in detail in the following sections.
There are mainly two types of Franchisees systems to consider i.e. Urban based & Rural based.

6.2.1. Rural Based Franchisee
An appropriate business model that will ensure revenue sustainability has led to the idea of developing
rural electricity franchisee. The sustainability of the programme hinges on successful deployment of
franchisees. Franchisees could make difference in rural lives in many ways, by opening up new
employment opportunities to rural men and women to participate in the employment opportunities, in
certain models there is participation that will also instil a sense of ownership among the rural people
about they system.
The management of rural distribution will be through franchisees, who can be individual entrepreneur,
NGOs, women self-help group, Users’ Association, Co-operatives etc. In the case of rural electricity
distribution the franchisees are to be drawn from cooperatives, users’ associations, self-help groups,
non-governmental organizations (NGOs), panchayat raj institutions and individual entrepreneurs.
Key to success relates largely to the extent to which community supports the business models
and how the business model actively affects the everyday lives of rural population.
6.2.2. Urban Franchisee
The urban model, on the other hand is differentiated from the rural model on many counts, based on
the scale of operations, based on state of infrastructure, based on consumer mix, which while lending
itself attractive to large and medium size corporate, rules out the participation of individual
entrepreneurs, cooperatives, nongovernmental organizations, users’ etc. Further, the franchise
arrangement does not remain limited to meter reading, billing and revenue collection, as in case of
some of the rural franchisee models, but it becomes a full service franchise, where the franchisee
performs all the functions of the distribution licensee utility from revenue to O & M , to Capital
investments etc..

6.2.3. Models of Franchisee:
The present guidelines by the govt focus mainly on franchisees associate with the distribution of
electricity. Supplementary guidelines are in the process of being formulated for distributed generation.
Franchisee models has to be selected in such a way that the model cater to major problems that occur in
a power distribution in the region. The efficiency can be increased by the distribution utility by adopting
one of the six models in such a way that it solves the basic problems and hit it through the grassroots.
Although each application of franchisee model and functions cannot be fully replicated, this in turn
needs lot of ground work specifically for the area and developing an appropriate model out of the six.
There Six basic advised models in the area of management of local distribution of electricity are of
following types.
i) Revenue collection franchisee – It addresses to those areas where the collection efficiencies are low
and needs lots of improvement. Utility is unable to achieve certain efficiency may be because of
shortage of manpower or difficulty in locating consumer etc. Such franchisee is mainly responsible for
collection of revenue on behalf of utility from the ultimate consumers in the area franchised.
Consists of ‘Model – A’ and ‘Model - B’ types
ii) Energy purchase, sell and collection franchisee – Such franchisee shall purchase energy from the
utility and sell to the consumers in the franchised area. Its for those areas where consumption is high
and apart from collection it has many other issues which needs to be resolved.
Consists of ‘Model - C’ type
iii) Energy purchase & sell, collection and O & M franchisee– Such franchisee that, in addition to
purchasing, selling and collection of energy bill (as mentioned above), shall also be responsible for the

operation and maintenance of the local distribution system within the area franchised. Consists of
‘Model - D’ type
The franchisees shall be permitted to use the existing infrastructure of the utility in the area assigned to
it for the desired operation with the permission of the state power utility and shall not be the owner of
the electricity infrastructure within the franchisee area not created by it in the course of its operation.
But can invest in the assets other than the utility for upgradation of the system which can be taken care
by entering into the asset register and can claim for the same time to time form state utility.
iv) Electricity Co-operative as franchisee – The electric cooperative societies, which are created under
the existing co-operative societies Act of the respective state governments and empowered to engage in
the business of supplying electricity in the designated areas with the responsibility of operation and
maintenance of the power supply, as owner of the electric infrastructure in the area of its operation
(transferred to it by the utility), fall in this category. The co-operatives can be NGO’s, SHG’s or local
entrepreneurs.
The specifics based on above guiding principles into model types as described in guidelines is
given below.
Model – A : Revenue Franchisee- collection based
This kind of franchisee may be developed with the role limited to billing, revenue collection, complaints
redressal, facilitating release of new service connection and keeping vigil on the status of distribution
network in the franchised area for providing appropriate feedback to the utility. Such Collection
Franchisee would be appointed for an area and be given a target for revenue collection every month.

(Depending upon the baseline collection in the area for past year basis). The remuneration methodology
involves variations of any of or combination of following:
i) Paying the franchisee margins (which will be a percentage of Collections) on achievement of the
target,
ii) Levy of penalty for not achieving the target
And
iii) Incentives for exceeding the target.
Model – B: Revenue Franchisee – Input based
In case of the input based franchisee, the input energy into the area covered by the franchisee is
measured by the utility metering it jointly and the target for revenue collection are set based on the
collections made as a percentage of the input energy supplied to the consumers beyond the point of
metering by the utility.
The operations and remuneration methodology of the input based franchisee is similar to that of the
collection franchisee. The basic difference is in the target setting mechanism by the utility
The input based franchisee’s area may be decided based on:
(i) Energy supplied by the utility through 11 kV feeder(s) as a point / location of measurement of energy
supplied to franchisee and will need a metering unit in the individual 11 kV feeders.
(ii) Above system can also be distribution transformer wise located in the villages having smaller area of
franchisee operation The additional advantage of this method as compared to that of the collection
franchisees is that the franchisee also becomes a partner in loss reduction and tries to reduce theft in
the system.

Model – C : Input based Franchisee
This model is similar to the Revenue Based Model – with one significant difference that the franchisee
will also buy the electricity from the utility and shall pay the energy charges to the utility at a pre-
determined rate. The energy supplied / purchased will be as shown in the 11 kV metering unit. The
franchisee will have to collect revenues from the consumers through raising bills so as to have
sustainable commercial operation.
Model – D : Operation & maintenance franchisee
In this model, in addition to the franchisee operation indicated in model C above, the Utility may also
hand over the operation and maintenance of 11 kV & LT feeders including distribution transformers to
the franchisee based on 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 approach calls for the State to authorize the creation of traditional electric cooperative society that
is organized, owned and operated by its members. The society owns the distribution utility assets and is
responsible for all utility 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:
• Organizes the community and recruits membership.
• Owns the distribution system and carries any debt on the assets.
• Is responsible for all facets of managing and operating the utility.
• Purchases power from the state power utility.
The society is formed through memorandum of association (MOA) and has the following key features:

i) Every household within the jurisdictional area of the society is member of the co-operative society,
ii) At the helm of the management is the Board of Directors elected by the members of the co-operative
society (one member one vote),
iii) Net profit of the co-operative are to be shared amongst the members,
iv) Co-operatives are the “licensee.”
Model – F: Electric cooperative society – operations management through contracting
This is a variant of the above model - E, keeping the formation procedure of the society unaltered. The
Board Of Directors (BOD) of the society may decide to run the operations of the society through an
external experienced agency / organization with suitable fee structure, instead of operating the system
itself with the concurrence of the state / utility. This can be achieved through an appropriate
“operations contract” with built-in performance criteria. Deployment of efficient operation contractor
(or managing agency / organization) may considerably help proper day to day operations of the electric
co-operative society.
The Franchisee Organization in line with the guidelines issued for “Rajiv Gandhi Grameen Vidyutikaran
Yojana”, organizations like Users’ Association, Non- Government Organizations (NGOs) duly registered
as societies or individual entrepreneurs may be franchisees who can adopt the above models except the
model “Rural Electric Cooperative Society” (Model-E & F) which is necessarily for “Cooperatives” only.
6.2.4. Responsibility Matrix for Franchisees models

A brief representation of various responsibilities of franchisee in different models is given in the table on
following page.

Model Model Model Model Model Model
Models of Franchisee--> A B C D E F
Scope of Work↓
Meter Reading √ √ √ √ √ √
Billing Prep & dist. √ √ √ √ √ √
Billing collection √ √ √ √ √ √
Arrear Collections √ √ √ √ √ √
Consumer Complaints √ √ √ √ √ √
O & M light DT, LT feeder etc X √ √ √ √ √
Feedback on network √ √ √ √ √ √
Releasing New Connections √ √ √ √ √ √
Disconnections &
Reconnections √ √ √ √ √ √
Loss Control X √ √ √ √ √
O & M of assets X X X √ √ √
Capital Investment X X √ √ √ √
Security of S/s X X √ √ √ √
Power Purchase X X √ √ √ ?
6.2.5. Qualification Of Franchisee
Different Franchisee models have been given set of guidelines for qualification and selection process.
Qualification for Models – A&B (Mainly revenue collection based)
For NGOs and UAs, who are actively involved during last three years in any social upliftment programme
in the intended franchisee area or in the district / state with proven credibility as certified by the district
officer (DM/DC)/District Electricity Committee, may qualify as franchisee. Preference may be assigned to
such organizations that have experience in handling funds for developmental programmes sanctioned
by the state or any other developmental funding agency at the state / central / international level and /
or have ongoing operations in the franchisee area. In the case of individual entrepreneurs, the individual
should possess adequate financial health supported 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.

Qualification for Models – C&D (Input based and O&M Franchisee)
NGOs, Users’ Association (UA) and individual entrepreneur:
Criteria as in above. In addition, such 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 (or 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 these criteria, 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.
Qualifications For Models – E&F (Co-operative based franchisee)
This section speaks very little about the requirements for eligibility .Here they just say about the need to
amend criterion for formation of cooperatives as per need.

6.2.6. Selection process for Franchisee
The broad principle of selection is advised to be competitive bidding based on the most favourable BST
for the utilities subject to supply of power at previous year’s level.
The following procedure may be adopted:
a) Utility to complete survey of users as per survey questionnaire enclosed including willingness to pay.
This has to be shared with bidders.
b) Utility to notify intent to select franchisee for particular areas / tasks. Notification in local and state
newspapers (at least two issues), notify District Electricity committee; notify Zila Parishad, Panchayat
Samiti and all concerned Panchayats.
c) Interested persons / organizations should submit therein “Expression of Interest” along with their
Statement of Qualifications (SoQ).
d) Bidders shall be short listed on the basis of SoQ.
e) Bidders shall then submit their financial proposal.
f) Three best bidders shall be selected as
• First successful bidder
• Stand-by bidder.
• Waiting bidder.
6.2.7. Tariff Determination for Rural Franchisee

Tariff determination by franchisee for distribution of electricity to its consumers may be based on the
following options:
Option-I
To follow the existing tariff of the Utility for various category of consumers for its own consumers and
seek fixation of appropriate Bulk Supply Tariff (BST) from the State Power Utility for purchase of power

keeping in view the sustainability of commercial operation of the franchisee. They have to submit
representative business plan for such fixation of tariff.
Option-II
Considering the affordability of the consumers as also willingness to pay price of electricity:
a) Less than the prevailing tariff of the State Power Utility.
b) More than the prevailing tariff of the State Power Utility.
For determining the BST for the franchisee, following need to be considered:
a) Consumer mix of the area to be served by the franchisee.
b) Likely quantum of load to be catered to within franchisee area.
c) Commercial viability of the franchisee.
For ascertaining likely quantum of load, following tentative criteria may be adopted in the initial years of
project operation:
Connected Load
i) For BPL households – not exceeding 60 Watts.
ii) For non-BPL households – not exceeding 500 Watts.
ii) For other category of consumers like commercial, rural industries, agricultural pump sets etc., the
existing usage pattern of the adjoining electrified area or pattern of the usage in the state may be
followed.
For establishment of commercial viability of franchisee operation, a return not exceeding 10% may be
considered after meeting all expenses.

6.2.8. Business Plan of Franchisee
To define and assess the opportunity for the franchisee, it may be necessary to prepare a business plan
especially for the models described under Model – C&D which would facilitate:
a) The nature of activity of the franchisee.
b) How the activities would be carried out and at what cost?
c) What shall be the price of electricity at which the franchisee is able to buy to have a viable
commercial operation?
d) Identify the potential consumers and the price of electricity that may be affordable by them.
e) An estimation of franchisee’s own cost vis-à-vis surplus it intends to keep for itself.
A representative Business Plan is provided in the guidelines. It is also essential to have some sensitivity
analysis done on the plan under varying expectations of business parameters including variant cost of
electricity, as also tariff that may be charged to the consumers in situations “likely”, “optimistic” and
“pessimistic”.
The most important thing is to firm up a Business Plan and as such, the concerned State Power Utility
may have to inform the principle of franchisee development for successful development of franchisee. A
Business Plan for the franchisee should essentially contain:
a. Adoption of particular type of franchisee out of the models described in earlier.
b. Identification of potential customers.
c. Determination of how to go about the business and buy & sell electricity at what price?
d. Estimation of his own cost and the surplus it intends to keep for itself.

7. Issues and Challenges in Implementation of Franchisee Models
Till so far we have discussed the brief about importance of rural electrification, some of the main
schemes which attempted to improve it in the country, and a brief description of the latest set of
proposed guidelines.
The guidelines which we had just discussed are in different phases of implementation across the country
in rural areas with varying degrees of success.
It is therefore imperative to analyse these guidelines in light of difficulties observed in field
implementation as in areas of Jharkhand.
Mainly the issues revolve around following points of the rural distribution franchisee system.
i. Area selection
ii. Due diligence of Area
iii. Institutional Capacity
iv. Models analysis.
7.1. Area Selection for Rural Distribution Franchisee

The issue for area selection is very important and is very critical for success or failure of franchisee in
power distribution. There are many factors which come into play, some of the main ones observed
includes
1) Location
2) Franchisee Units
3) RGGVY work Schemes
4) Law & Order and Other Issues.

7.1.1. Location
Location is one of the key deciding features for selecting franchisee areas, main factors in the
process of determination includes
- Located remote or near urban centers.
Remote locations have peculiar issues associated with them; most of these locations have
distribution network in very bad shape, the consumer mix consists of mainly unmetered category,
penetration of fake /ineligible consumers in privileged category is higher. So these areas need to have,
`willingness to pay’ and `Ability to pay’ assessments done. Also increased extent of local participation is
much desirable so as to nullify the higher influence of local socio political pressure groups.
In near urban located areas, they have higher extent of metered category consumers,
willingness to pay and ability to pay issues are comparatively of lower importance though focus on
improvement of existing distribution network needs same focus. It is needed to make system insulated
from political interferences as the same were observed to be dominant.
- Population’s economic status, the consumer mix in area.
The locations in remote parts and distant rural areas are dominated by poor consumers who fall in BPL
category, though a certain proportion of it is expected to be false but until verification nothing can be
said. Whereas in areas located near urban centers have a mix of consumers with disposable income and
thus healthy consumer mix is available.
7.1.2. Franchisee Units

Among the options, here as to what scale is optimum for implementation of RDF, we have the
choice between following..
(a) Division

(b) Subdivision
(c) Sub Station
(d) Feeder wise and
(e) DTR
While the first one is highly specialized proposition, the requirements for technical and
commercial expertise by Franchisee is highest, and thus the mode is not feasible in areas where
DF is yet to take ground. To some extent the next option, i e `sub division’ requires a little lesser
extent of sophistication in terms of technical and commercial abilities, however the application
at this level must be done after due analysis of balanced consumer mix and availability of
entrepreneurs, NGOs, cooperatives etc.
In terms of all considerations, the allocation of franchisee units at substation level is
most balanced option giving enough scope for economic viability, though it also requires a due
analysis of issues related to extent of metering and losses in network.
Allocation at Feeder level and DTR level is not viable in terms of economic viability
though it can be tried in initial phases of settling basic models for billing and collection based
aims. Both these units should be accompanied with time bound plans for gradual upgradation to
higher models including participation in AT & C loss reduction.
7.1.3. RGGVY work schemes

Franchisee units selected for franchisee implementations need to be analyzed for extent of
RGGVY works and low income consumers in the regions. The extents vary from place to place, in
Jharkhand during analysis most of the sub division areas were found to be dominated by low
income consumers and RGGVY works were in progress.
The points of attention includes,

- Proper handling over of created infrastructure
As it was seen on repeated occasions, the central agencies executing the work are hastily energizing the
networks and utility (already under the crunch of manpower and resources) is not able to take over
properly, is not being able to account over the consumption of power; thus there is a strong need to
devise a proper handover to be designed for RGGVY networks when RDF takes over the area. Another
related issue is that the scheme was not taking note of the state of affairs for existing infrastructure in
the area ,and instead most of the work was in progress for extending the network, the point needs due
attention as to fix some responsibility.
- Ring fencing of energy for low income
Consumers.
It was frequently seen during the field visits
in Jharkhand state, that most of them have
very dominant share of low income
consumers, this is creating the dual issues of
verification of authenticity of eligibility as
well as power consumption levels existing.
The larger share is cause for limited revenue
despite good energy inputs thus raising higher loss levels. fig 5(i)*
Revenue sustainability can be only sustained if utility offers a assured returns to RDF using the subsidy
or mixes some high paying consumers to alter the mix for making RDF commercially viable. Consumers
share in various areas is shown figures 5 i, ii, and iii below. It can be easily seen that the regions are
dominated by low income group consumers to the average extent of approx more than 80 % of
consumers.

Consumer categories represented by the DS
I, NDS I and agricultural categories IAS form
the majority of share in all the 3 regions
shown.
Fig 5(ii)*
-Consumer participation
Being rural areas it is advisable to undertake surveys regarding `willingness to pay ‘ ,that
would give a fair idea about
the acceptability of various
models of franchisee. The
measure is suggested because
most of the rural schemes
depend a lot on the level of
acceptance by the
community. Fig 5(iii) *
Following graph represents the latest trends in RGGVY progress as on 15 July 2009

*All Charts are based on data provided by Jharkhand state distribution utility
7.1.4. Law & Order and Other Issues

In rural areas law and order forms an integral part of enforcement strategies , in case of utilities the
level of co operation available is not encouraging sign, It was common concern of utility employees
regarding absolute lack of support from administration. To add to the complexities the problem of
insurgents is also a contributing factor.
Thus it is desirable to make administration being made a party to support the implementation of RDF
related supports.
One more issue that needs attention is to make provisions for independent cost surveys for the
distribution networks; this enables to make justified expenses estimate for rural franchisee.
7.2. Due diligence.

After finalizing the franchisee units, the next part belongs to performing thorough analysis of the area in
terms of various effecting parameters; Factors like health of distribution system, energy accounting
status, availability of system data are some of main issues which need urgent attention before
proceeding with the RDF implementation.

7.2.1. Health of Distribution System & System data:
Health of the system network is of utmost concern, during the field visits it was found that the existing
network lies in extremely bad state in state, all the RGGVY work is being done mainly in the provision of
network extension, and this leaves the existing network to its own. Details of loading, voltage, DT
damage and breakdown details are generally not maintained in most of the cases.
Considering this situation, it would be advisable to
undertake a analysis of the requirements for strengthening of existing network and make arrangements
for appropriate capital investments by utility with appropriate provision for third party checks for
quality.
7.2.2. Status of Energy accounting:

Before finalizing the plans for implementation of DF in area considered, there is strong need to make
independent analyses of metering arrangements available and resources required to implement
appropriate levels of energy accounting desired
7.2.3. Low Consumer Density.

In areas where very low density of consumers exist and where the consumer mix is unsustainable for
viable functioning, utility should compensate by providing provisions for some commercial consumers in
the area for RDF .This will enable the overall balanced consumer mix as required in guidelines.
7.2.4. Availability of skilled man power

In areas with low education levels, or where appropriate skilled manpower is not available in area, there
must be local capacity building programmes organised with help of utility. Capacity building programme
should be given exclusive focus and part of agreement between franchisee and state utility

7.2.5. Institutional Capacity
As visible in the current scenario, Panchayat Raj Institutions (PRI) hasn’t shown any inclination due
to political, awareness, financial issues. SHGs, NGOs etc are largely involved in service contracts like
meter reading, bill distribution services etc. Mostly the factor behind unwillingness on account of
players is due to lack of sector knowledge, skilled manpower & financial resources.
Also Individual entrepreneurs have issues with maintenance materials, non availability of fixed
returns for meeting costs, and conditions of franchisee area in regards to operations.
7.3. Franchisee Models Analysis:
All the proposed models in guidelines of government are analyzed in terms of four indicators:
a. Representativity
To develop a understanding whether the decision making process is accessible to all
sectors of the rural population.
b. Affordability
To know whether the electricity is affordable for the rural poor or it makes the costs too
high to afford.
c. Sustainability
To analyse mainly considering the technical viability of the project, that it would be able
to perform smoothly or not.
d. Replicability

To know upto what extent the programme could be replicated in other areas.
7.3.1. Model -A Revenue Franchisee Collection based

This model is developed in very limited role for revenue collection in rural areas, and serves the purpose
well but it lacks the comphrensive outlook for the sector.
Representativity
On representative grounds, this model has ample scope for providing participation of all sections of
community. In most of the experiences, local entrepreneurs are developing the franchisee with good
levels of participation; however the decision making is not decentralized to the extent desirable, as the
main powers remain with entrepreneurs.
Affordability
The model has no impact on affordability of the electricity for rural poor as the franchisee mainly
operates on limited motive to recover revenue and earn margins for themselves from utility .Thus this
point is not having any scope for discussion.
Sustainability
As the model is not having comphrensive outlook on issues of rural electrification, it is sustainable on
very limited basis. Utilities may opt it in the time bound manner so as to make necessary improvements
in commercial sections, but it order to be effective it has to be followed by more comphrensive model
for building up on the gains. On its own standalone basis, the model is weak on sustainability front.
Replicability
The model presents a very simplified concept in terms of scope and thus Replicability in most of the
rural areas of nation should not be an issue, however areas with special issues related to either
remoteness, poverty, high political interference, law and order etc, may present barriers.

That could be sorted out with increasing levels of community participation.
7.3.2. Model – B: Revenue Franchisee – Input based
The model builds upon model A, increases the level of interaction with the system to a step more closer.
Representativity
On issues of representativity, this model doesn’t makes any improvement on previous model, levels
of participation largely remains at the choice of the selected franchisee.ovrall basis ,the participation of
community needs a lot to be improved.
Affordability
As the tariff setting system is not in the scope of franchisee, there are no changes in the affordability
issues for rural poor in terms of electricity access in this model. As per the policies and SERC guidelines,
the tariffs are implemented by the utility.
Sustainability:
There is considerable improvement on sustainability front in this model. As the model introduces the
energy input in the scope, the franchisee becomes the part of tech loss reduction measures by the
design of scope in smooth manner. The model moves a step further towards increasing sustainability in
rural sector distribution; however, exclusive attention needs to be given to various related aspects like
ensuring quality of maintenance, clarifying roles of franchisee in dealing with theft, disconnection
procedures, capacity building measures etc.Also the model would be more sustainable if coupled with
time phased transition combination of model A.
With appropriate attention to aforementioned additional points, this model achieves good
sustainability.

Replicability:
On Replicability front, this model has its own limitations, the areas with better connectivity, education,
lower political interference and outlook for development presents a good ground for easy Replicability,
however the rural areas with poverty, high degree of socio political pressure groups, locations in
remoteness, issues of insurgencies etc present a considerable barrier to this model in replication.
7.3.3. Model – C : Input based Franchisee

This model increases the commercial nature of franchisee, introducing concept of buying and selling of
energy from utility at competitively determined rates.
Representativity
In this model, the issue of representativity takes a complete back seat, the nature of suggested
operations try to introduce a complete commercial operational efficiency of entrepreneur, and in the
process grants the rights to the level of community participation in process as he desires. There is
absolutely no decentralized decision making, this model trusts the business acumen of entrepreneur to
achieve success.
Affordability
The issue of affordability remains as it is in previous models, the tariffs control is not given to the
franchisee and the same would be governed by utility ARRs to the respective SERCs.
Sustainability
This model straight forward takes the step to hand over system for franchisee to achieve results
,trusting solely on business acumen, however in case of rural sector ,the concept could face issues
related to availability of sufficient parties with technical and financial requirements for subdivision and
higher level franchisee units ,and the need of comphrensive capacity building programs.

Also the additional issues mentioned in sustainability for model B stands to be looked into this model
also.
Replicability
The Replicability of this model is further a step more restricted ,limiting conditions being same as that in
previous model, only making effects higher due to chances of alleged perception coming in community
that private business could exploit them.
7.3.4. Model – D : Operation & maintenance franchisee

This model operates on basic guidelines designed in model C earlier, with an addition that apart from
the energy buying and selling, the network is handed over to franchisee for performing necessary O & M
as desirable.
Representativity
In this model, the issue of representativity remains as it is ,without any positive development over
situation in model C earlier. There is absolutely no decentralized decision making.
Affordability
The issue of affordability remains as it is in previous model C, the tariffs control is not given to the
franchisee and the same would be governed by utility ARRs to the respective SERCs.
Sustainability
This model moves one step ahead from model C to hand over system for franchisee to maintain the
system with required O & M ,the only main issues which could hinder the sustainability is the materials
availability and ensuring quality works and controlling of costs in capital expenditure with third party
audits.
Replicability

The Replicability of this model stays as same as that of in model C
7.3.5. Model – E : Rural Electric Co-operative Societies

This model envisages the creation of cooperative societies for the purpose of implementing franchisee
with appropriate changes as desired.
Representativity
In this model, the issue of representativity comes to front as the users themselves are the owners . The
decision making is decentralized and helps in developing the community ownership idea among the
region in which implemented. Although it lacks the representation of entrepreneur business acumen.
Affordability
The issue of affordability creates some complexities. As the cooperatives are expected to operate under
the provisions of no profit no loss or at minimal profits, and keeping costs lowest for users, the issue to
channel subsidy needs to be looked into for proper functioning.
Sustainability
Technical sustainability issues in this model are similar with those of models C , alongside these models
require a special will from utility side to implement it, and provide initial support
Replicability
The Replicability of this model becomes higher with respect to diverse rural environments found in
Indian villages, model is helpful in creating sense of ownership in the villages community which helps
counter the issues in the development .Levels of success will vary depending upon varying conditions,
and accordingly the level of support required from utility would vary too.

7.3.6. Model – F: Rural Electric Co-operative Societies operations management through
contracting
This model additionally envisages the presence of professional contractors to manage O & M alongside
cooperative societies for the purpose of implementing franchisee with appropriate changes as desired.
Representativity
In this model, the issue of representativity remains strongly focused, and as mentioned in model E, and
derives all the benefits from community ownership, the element of entrepreneur business acumen is
introduced in very limited way for O & M.
Affordability
Affordability remains a issue to be addressed, with involvement of professional O & M service provider,
the expenses might rise.
Sustainability
Sustainability issues are tried to be addressed in this model with introduction of professional contractor
arrangements, though other issues as outlined in model B need to be focused.
Replicability
The Replicability of this model becomes comparatively higher with respect to not only serving the
diverse rural environments found in Indian villages, but also supporting maintenance by professional
services. Though the availability of sufficient eligible contractors could be an issue in certain areas where
comphrensive capacity building would be needed to be provided by utility.
In this analysis we have seen how various models fare on various key parameters, model A is found to
be a good to start the process but eventually it is restrictive in its ability to bring about desired changes,
among other models ,model B (modified with certain additional points) have the ability to make
maximum positive contribution to rural electrification. All the models from A to D focus mainly on

entrepreneur business acumen but lack on the front of initiating community participation, and models E
and F though take right steps towards community participation but lack contributions of private
business support. World Bank document analysing the issue of rural electricity access also indicates that
involvement of communities is an important step of any such initiatives.
Thus there is a need to develop a workable model which strikes a balance between community
participation and contribution of entrepreneur business acumen to make rural electrification more
revenue sustainable.
7.3.7. SWOT Analysis of Institutional Players in Distribution Franchisee

Various players involved in the implementation process includes ,Panchayati Raj Institutions (PRI), NGOs
, SHGs, A review of various strengths and weaknesses is done in following section .
7.3.7.1. Panchayati Raj Institutions

Strengths
- Created by Constitutional Mandate, thus provides a direct representation of
community.
- Well Established Procedures, Rules and Regulations, thus a separate exercise is
avoided in the event of their participation
- Ensures participatory decision making. This provides much needed community
support which has been single most dominating factor to contribute to the enabling
environment required.
Weaknesses
- Lacks operations capabilities due to non availability of any executive staff.

- Funds sustainability is not assured to the extent required. More provisions for
necessary funding would be needed from govt support in form of soft loans.
- Involves political nature attitudes and at times involves less than best decisions.
- It has lack of sector knowledge, and poor accountability system.
Opportunities
- Substantive capacity building programs if implemented could contribute to building
up of the local resource base.
- Channelizing process for all programmes.
Threats
- Chances of no real participation occurring. Given the political nature , dominance
by any group may make it ineffective to represent all community
- Weak financial management systems. The past record indicates the lack of efficient
utilization of grants available.
- Unmet capacity building programs.
7.3.7.2. Non Governmental Organizations (NGOs)
Strengths
- A registered body which has nonprofit motives ,thus providing social
accountability
- Apart from PRIs, this player has local presence and thus easier in gaining social
acceptance than other players.
- It has well structured governing body, working is more efficient.
Weakness
- Faces lack of skilled manpower with respect to power distribution sector.

- Doesn’t have potential to absorb losses in initial phases. With govt support the potential
could be increased to certain extent.
Opportunities
- Can be used as local partners for community mobilization, revenue collection etc.
- Possibilities to create new and profitable venture.
- Ease in creating and maintaining capacity building programs for local manpower.
Threats
Without proper monitoring, there could be cases of misappropriation of funds. There is
always a requirement for proper monitoring mechanism, as there have been cases of
failure involving NGOs too.
7.3.7.3. Self Help Groups (SHGs)

Strengths
- Constitute the heterogeneous and socially inclusive groups.
- Community representation is on higher side, and is not driven by the profit motive.
Weaknesses
- Their financial status is not sure, could not be financially sound.
- Lack manpower required with respect to sector work.
- Possess no prior experience of sector working.
Opportunities
- Empowerment could lead to good teams.
- Provides opportunities for groups.
- Have provisions to take loans.

Threats
- Formation could be influenced by local politics or social pressure groups. The dominating
and resourceful group could try to dominate the group’s policies.
7.3.7.4. Cooperatives
Strengths
- Possess local area penetration. Almost equal in terms of PRIs ,as member’s presentation is
on higher side
- Instituted and supported by govt. regulations. Proper provisions already exist for enabling
administrative infrastructure.
- Non profit or community welfare motive.
Weaknesses
- Lack of skilled manpower.
- No past experience of sector.
Opportunities
- Could create a door for new profitable venture when provided with needed amendments
in state level rules.
Threats
- Choosing to experiment with this player without amendments could not prove fruitful.
7.3.7.5. Local Entrepreneurs
Strengths
- They are financially sound and resources availability is a lesser issue.

- Experienced ones can provide good support and improvements.
- Business acumen and good physical infrastructure to hire manpower.
- Can handle initial losses financially.
Weaknesses
- Moved by profit motives, local entrepreneurs could enact policies that may sacrifice social
benefits, requirement by the government.
- No community participation in the process.
Opportunities
- Can provide effective supervision of operations and efficient working. Business acumen is
the best contribution available for the setup.
Threats
- Chances of LEs might exercise decisive influence on local utilities harming the interests of
disadvantaged sections of society.
7.3.8. Issues Related to Distribution Franchisee Restructuring
While deciding the process of structuring any Distribution franchisee, there are some key factors which
need to be kept highlighted.
Model considerations
For areas having large no of unmetered consumers, input based franchisee
would not be a suitable choice until strict energy accounting is in place.Infact
any model would require a definite level of energy accounting in place before
being implemented and subsidy norms for poor consumers specified.

Consumer mix
Utilities have a tendency to keep HT consumers etc to itself, thus causing
unbalanced consumers mix which is contrary to the principles adopted in the
central govt guidelines.
Loss Reduction Targets
Without system and consumer metering /alignment, energy accounting is not
feasible. Targets are on stricter side are unrealistic.
Input Energy rate Computations
There are difficulties in computing the rates based on existing infrastructure,
and data availability.
Incentive Payment Structure
This is very controversial point, with incentive not being easily available in
operations, there has to be some inbuilt incentive structure sufficient enough for
sustaining. Issues related to sustainability need to be accounted on priority.
Bank Guarantee Issues-
Financial requirements are posing a hindrance in the way of many willing
players.
Period of contract –
Stability of systems need a minimum time span, certain periods like 1 year don’t
provide the stability element.
Administrative & Other Support –
Utilities need to treat DF more as a partners in system improvement than as a
contractor.

8. Rural Power sector in Jharkhand
The section attempts to analyze power distribution in the state of Jharkhand from various management
analysis techniques ,in order to form a clear picture as to what ails the system and to focus the attempts
on those factors in order to find a feasible solution to implement appropriate rural electrification
strategy for the region.
Here we have considered some management techniques to perform the analysis on the rural power
distribution system in the state, one of them is known as Force Field Analysis.
8.1. Force Field Analysis

Attributed to American psychologist Kurt Lewin, this theory analyzes change factors: the driving forces
and the restraining forces for the subject under consideration. This analysis attempts to sort out the
main issues associated with the issue.
Lewin's view on organizations
According to Kurt Lewin, an issue is held in balance by the interaction of two opposing sets of forces.
Those seeking to promote change: the driving forces. And those attempting to maintain the status quo:
the restraining forces. Lewin viewed organizations as systems in which the present situation was not a
static pattern, but a dynamic balance ("Equilibrium") of forces working in opposite directions. In order
for any change to occur, the driving forces must exceed the restraining forces, thus shifting the
equilibrium.

Fig 6.1 represents the pictorial
interpretation of the Dynamic
balance of issue.
Fig 6.1 Force field Diagram
These forces include: persons, habits, custom, and attitudes. A Force Field Diagram can be used at any
level: personal, project, organizational, network, to visualize the forces that may work in favor and
against change initiatives. The diagram helps its user to picture the "war" between forces around a given
issue. Usually, a planned change issue is described at the top. Below this, there are two columns. The
driving forces are listed in the left column, and the restraining forces in the right-hand column. Arrows
are drawn towards the middle. Longer arrows indicate stronger forces. The idea is to understand, and to
make explicit, all the forces acting on a given issue (i.e rural electrification in this report).

Reforms in Rural Electrification Plans in
Jharkhand
Enabling Forces Restraining Forces
Misgovernance in utility
Corruption in utility and consumers

Central Govt Plans for economic upliftment
Power theft and losses due to old infrastructure
Central Govt's Exclusive Funding like RGGVY

Consumer's attitude for free power available from
govt
Consumer's dissatisfaction from service Utility staff connivance
Remote locations
Perceived benefits in improved life by Political Patronage for malpractices

Consumers
Socio political pressure groups
Results from International Successful

models Issue of insurgency

Enabling forces
It is quite obvious from the analysis that in long initial phases of implementation rural electrification
plans would face lesser no of enabling forces in comparison to restraining forces. Mainly guided by
massive planning for upliftment of rural and poor sections of society by central govt in its various
schemes under National Common Minimum Programme, other enabling forces are lesser in extent.
Associated funding schemes provide a boosting force removing the lack of resources for plans.
Motivational enabling forces exist in comparatively lesser in number in vast spread of villages,
though it will be a force that will increase in extent once the schemes begin the work successfully and
produce meaningful changes in lives of villagers. These factors consist in consumer’s desire to improve
the services, and perceived benefits of improved life.
Results of successful rural programs in India and abroad should be advertised on priority,
especially in initial phases.
Restraining Forces
Depending on the lot of local factors, rural electrification faces many restraining forces. Some major
factors like Misgovernance in utility, corruption of utility and consumers both, staff connivance, etc are
those which have a presence in almost all the regions in varied proportions, the backward the region,
factors increase in their strength. Over the long period utility had ignored the proper upkeep of the rural
networks, with reduced funds and no policies the status of present is in shambles.
Political patronage for malpractices needs to be curbed on priority as this is a dominant factor in
determining the effect of many other forces. Location of regions in remote areas with poor connectivity
and hard terrain increases the costs, this factor needs to be kept in mind while designing model for such
areas. Many areas of state are affected by existing insurgency, ensuring community awareness of

benefits and community participation seems to be the best way to reduce the effect of this force,
resulting improvement in economic conditions will serve as dampener for this force.
Factors of power theft and losses are affected by many other forces, like consumer’s attitude and
political patronage, utility corruption etc, thus reduction in any of these forces reduces loss component
also. For additional support to reduce this factor, adequate investments for energy accounting and
network strengthening is also required. Overall Jharkhand requires a model that expressly considers
community participation in top priorities while implementing the rural distribution franchisee solutions,
population has a considerable proportion of economically and educationally backward people.
Unemployment, lack of development has fuelled the problems of insurgency in state.
It is quite easily visible that there is urgent need to increase the affects of enabling forces, so as to make
the balance in favour of creation of sustainable rural development.
8.2. Gap Analysis

Method of Gap analysis is used to analyse the factors causing the gaps in the desired state of results
need to be delivered by the rural electrification programmes.
Used generally in terms of businesses, the concept is that the gap analysis process which involves
determining, documenting and approving the variance between business requirements and current
capabilities. In terms of our analysis, we analyse the Gaps between what is the desired stable state of
operations required by the rural electrification system, and the current situation existing.
Various levels of implementation are analyzed for identifying the gaps; these involve starting from key
central govt agency REC, lack of regulatory oversight, implementing nodal agencies in state & state level
implementing contractors etc, contractors & rural community, rural utilities and rural consumers.

Considering the first gap, that is between central implementing agency REC and the requirements of
rural electrification. If we analyse the mission and vision statements of REC, we would find the
statement as,
“To facilitate availability of electricity for accelerated growth and for enrichment of quality of life of rural
and semi-urban population.
To act as a competitive, client-friendly and development-oriented organisation for financing and
promoting projects covering power generation, power conservation, power transmission and power
distribution network in the country. “
The latest issued guidelines for rural electrification programmes under RGGVY mention the revenue
sustainability as key clause, however I believe that addition of the same in mission & vision statement
would go a long way in guiding the thinking towards making more focused approach for achieving long
run sustainable programmes.
It is observed in the draft document details that the states which have initiated franchisee deployment,
majority of them have been overlooking the holistic approach to it and implementing in blocks.
I believe that the draft guidelines should detail focused on models which provide the holistic treatment
for full rural electricity system in the area, rather than giving a block wise approach.
Next gap pertains to the lack of regulatory oversight on massive rural program undertaken, as is
quite obvious that after the infrastructure has been created by the programmes, the key parameter
would depend on the governance of the setup that operates/owns and sustains the system and serves
the consumers.

Regulatory commissions should be given a role for coordinating the creation of monitoring
system for ensuring compliance of basic guidelines of RGGVY, and suggest in making the systems being
sustainable if required.
Our third gap pertains to the gap in the perceptions of the central funding agencies and the
state level implementing nodal agencies (consisting mainly of SEB successor utilities or SEBs themselves)
.Power being a subject in the concurrent list in Indian constitution, there has always been scope for
difference in policies between central government plan to make power distribution more sustainable
and political ambitions of state governments. In 1998 regulatory commission act and Electricity Act
2003. Both these Acts were promulgated in consultation with states, but the implementations of the
acts were painfully slow and the response from states varied in degree. The timeline fixed for their
implementation has been extended more than once due to non agreement of various ruling political
parties on some of the controversial clauses such as open access, privatization of distribution, protecting
the interests of existing Worker’s and Engineer’s union. This Gap creates a sense of uncertainty, and
slackens Governance in the state sector to a large extent. It appears that in order to bridge this gap, the
consensus on implementation needs to be strengthened.
The fourth gap analyses the situation of state utilities and the implementing agencies
(contractors),in past there has been a big gap between what were the expected qualities of work and
what was delivered, there were many drawbacks in the planning and execution by state utilities, there
was also an element of corruption in utility personnel. All of which has created loss of money and
leakage of electricity. The current arrangements taking participation of CPSUs have plugged the gap to a
larger extent, but a important part which still remains to be plugged is to curtail leakage of energy and
thus revenue in rural areas. This is the key reason to stress on importance of building revenue
sustainability in rural distribution systems.

Next gap discusses the issues involving implementing contractors and community people, from
the earlier experiences, majority of rural community have a mindset of different perceptions for
contracting agencies. The issues related to corruption, low quality work, pertaining to political & or
antisocial element alliance etc are attributed to them. Many times some or any of these beliefs were
found true, and the overall effect it makes is to create lot of hurdles in way of rural electrification.
Difficulties in getting RoW, denying local supplies, labour etc, and more so the agitations for not
employing local people in works. Situations have somewhat improved with better guidelines and
involvement of CPSUs.But still a lot more need to be done to provide image makeover for rural
electrification works, so that village community considers them a partner in their own development.
The last analyzed gap consists of rural utilities & consumers; during the field visits it was
observed deep variation in perceptions of both the parties towards rural electrification services. It is a
well known fact that rural electrification has been kept on very low priority by utilities, in terms of
supply standards, O & M services, and even planning, the consumers are more thought of as receivers of
govt welfare grant than as service user requiring standards. The utility management from top to middle
level actively neglected the issue for long terms, this has made a mindset in rural consumers, and there
are always concerns in consumers about integrity of utility staff.
On the other hand within the utility serving the region, it was found a perception that despite
for any improvements, the consumers are not willing to pay, there was element of political interferences
also. This whole issue has many lessons, in order to bridge and narrow this gap; we need to address all
party issues. There is a need to ensure the quality and reliability of supply, along with proper
participation of rural consumers into the distribution process, so that a part among themselves is made
accountable for quality of services. Also there is strong need to provide resistance of distribution set up
to political interference, and to treat consumers as increased level of priority than before.

Thus overall in the gap analysis of the sector, main issues that once again come to fore includes
the following,
- Focus on revenue sustainability.
- Proper regulatory oversight.
- Heightened governance consensus.
- Building standards, and changing villager’s perceptions to electrification.
- Image makeover from corruption & exploitation for agencies.
- Ensuring equal treatment as consumers, and sharing a participation in process.

9. International Experiences
In this section I have analyzed how rural electrification programs have been initiated in the different
parts of the world and can we draw any inferences out of those experiences for help in efforts to
implement rural electrification in India. Developed countries like USA were in the same condition as of
India in around 1930s, before rural electrification began, china also faced the situation in 1970s.
.I have analyzed how the rural electrification programs have been initiated in different parts of world
covering examples from USA to Latin America, to Africa, to Asia.
In USA despite widespread electricity usage in cities by 1920s,it was not supplied by power
companies to rural consumers due to general belief that infrastructure costs would not be recouped, in
order to analyse the reality of costs and benefits of rural electricity, A Minnesota state committee was
organized to carry out a study of the costs and benefits of rural electrification. The University of
Minnesota Department of Biosystems and Agricultural Engineering conducted an experiment, providing
electricity to nine farms in the Red Wing area. The "Red Wing Project" was successful- the power
company and the University concluded that rural electrification was economically feasible.
The Rural Electrification Administration (REA) was created by executive order as an independent federal
bureau in 1935, authorized by the United States Congress in the 1936 Rural Electrification Act. Mostly
rural supplies in the United Sates are being fed and serviced by Electric cooperatives. The Co-Ops are
private, independent electric utilities, owned by the members they serve. Democratically governed
businesses, electric cooperatives are organized under the Cooperative or Rochdale Principles, anchoring
them firmly in the communities they serve and ensuring that they are closely regulated by their
consumers.
The government initiative was the driver for achieving close to a hundred percent electrification of
households. Since then not much has changed, and there are Co-Ops or Community utilities which are

running the power retailing in rural areas. The Co-Ops Board is there to frame policy, make long-term
strategic decisions, and is responsible for submitting the tariff proposal to the Regulator. Co-Ops get
preference power from low cost hydro generators.
However they have appointed a professional manager to run the Business of power retailing in the rural
area.
In South America, Rural Electrification in Costa Rica also has achieved high levels, and worth be
looked into, The Costa Rica model of RE supply is a participative model with co-operatives. The unique
features of Costa–Rica model is cooperative ownership, Extensive outreach, and community
involvement at the beginning of service. The National Rural Electrification Authority, NRECA provided
technical assistance to development of cooperatives. Cooperatives cover 20 percent of the population
In terms of financing, costarica has taken different approach, Initial loans from USAID, and
concessional loans to the cooperatives. The terms for these loans were 40 years, with a grace period of
10 years at an annual interest rate of 1% to 2.5%. In its financing model of its own, the Communities
were required to come up with part of capital costs if they were too far from network.
In Mexico, the government has had a tariff subsidy policy for many years. Although many
subsidies have been eliminated, there remained subsidy for agriculture and residential customers. In
Mexico, over the years, the tariff has fluctuated, sometimes coming close to costs but sometimes being
well below costs. The operating cost of the overall electricity sector in Mexico is not financially viable
based on the revenues collected from customers; there is no local participation in the program at the
grass roots level. But the funds for infrastructure are now decentralized to the municipalities and the
states. Municipalities now select the infrastructure program that they would like to implement, and
then the work is contracted to the public electricity.

In Chile, there is a different model adopted, Chile uses a rural electrification fund with a planned
life of 10 years to offer one-time, competitively awarded subsidies to local operators bidding to provide
service.
Subsidy is given through competitive bidding; local communities in partnership with private operators
develop and submit a proposal specifying the amount of subsidy and company contribution
Funding of subsidy is provided by National Fund for Regional Development, local distribution company
operates, manage and maintain the systems.
In Asia countries have generally preferred cooperative models, applying performance-based
subsidies with mixed success. In Bangladesh and the Philippines cooperatives have to meet specified
targets. Payout of the donor-provided subsidies to the cooperatives depends in part on their achieving
the annually negotiated targets, such as reducing system losses, increasing sales, meeting customer
connection targets, improving collection rates, and repaying loans. In Bangladesh targets are also the
basis for annual bonuses to cooperative employees.
Some Countries in Africa have experimented with decentralized generation and distribution
systems, using the community participation model, Ethiopia and Uganda are successfully using
community owned micro hydro systems. In Tunisia, Morocco and Mauritius rural communities were
involved in the electrification process, participating in the decision-making bodies, making contributions
towards the electrification of the villages and in the selection of the schemes to be electrified.
Observing the different types of implementation approaches in rural electrification by
different countries across the globe, we can infer some basic favourable guidelines.
• Most of the rural electrification schemes with higher degree of success have community
participation inbuilt into them.

• Rural electrification schemes require long term government support in financing, though it can
be reduced in longer runs but it is not feasible to remove the subsidy support, expecting the
system to run without support is unrealistic.
• Effective Schemes providing the proper ring fencing of energy and subsidy for poor consumers
go a long way in improving the model performance.
• Where incomes are low, electricity supply must contribute to activities that promote economic
opportunities for inhabitants create favourable scope for increasing revenue sustainability.

10.Possible Alternative – a modified RECS model
Aforesaid analysis of various factors in play while implementing the process of rural franchisee in power
distribution, along with experiences of approaches taken in various parts of the world prompts towards
a new model to be considered for franchisee.
The model should have balanced scores on the fronts of representability, sustainability, affordability and
replicability. While analysing RGGVY guidelines proposals we found that they mainly lacked on two
fronts,
(i) Ensuring representability
(ii) Replicability in diverse situations found in rural areas.
Thus while deciding on the new proposition; main focus has been given on adding above two aspects.
10.1. Rural Electricity Consumer Cooperative Society

Model F has been chosen as guidance, it is proposed to have following characteristics
Background
Cooperative model of franchisee is considering the lack of representivity in other models and also
keeping in mind the importance of the community ownership in rural consumers & lack of trust and
perception issues.
Vision
To provide cost efficient and reliable electrical power to rural consumers and add value to their lives.
Initialization of Co-Op:
- Guided bylaws and rules for cooperatives societies for RECS and rochdale principles
- Areas should be sustainable in terms of consumer mix, at least with a substation level.

- All area people are members who elect their Board Members. Appropriate reservation for
different social classes in terms of their population, and certain positions for women
- Any who desires electricity connection must be member, all costs etc are to be deposited,
and if falling in BPL etc must be identified with checks of eligibility and loan entered in the
books for seeking subsidy. All previous connections have to be re registered.
- Financial assistance in terms of soft loans with zero interest provided by REC to RECS as
loans routed through RDF cells to RECS, this will serve as working capital expenditures.
- Comphrensive capacity bldg program organised for Utility management RE departments
with support from rural management institute IRMA. Creation of separate RDF cell is
advised at head offices and division level. Committed budget for common public awareness
programs for inviting participation.
- Provision for yearly changeover of 1/4th of Board members and provision of majority
decisions. Permanent representation by serc nominee and a utility fellow on deputation (of
willing) of officer rank, reputed nongovernmental organisation nominee.
- Professional managed administration by hiring of professionals by board, with provision for
performance based compensation to them.
- Provision for annual independent serc appointed (multimember committee, including a
member from Transparency Intl, India chapter) functional and financial audit of functions of
RECS.
- Expenses assessment should be independent based on system needs and consumer mix
should be balanced.
- RECS should be given option to sell energy at cross subsidized rates to commercial
consumers in their areas. Consumer mix given should be balanced for commercial viability.

- Profit sharing per member should be adjusted in the electricity bills of members, especially
for BPL families.
- Proposal to include plan for revenue subsidy support along with for gradual reduction plans
in subsidy and subsidy targeted should be mainly at BPL consumers.
- Buying of power from state utility by RECS should begin at current realized tariff rates, along
with margins just enough for sustaining costs. Differences should be adjusted in subsidy.
- RECS should be given freedom to evaluate renewable hybrid plants to consider cost
effective power rates in case utility rates go higher, for example meeting peak hour loads.
- Utility to ensure the availability of power availability estimates to the RECS in advance.
- SERC should have a monitoring cell for RDFs which monitors the audit activities and
regulatory compliance by all parties involved.
Org Structure:
RECS is proposed to have lean structure, with board of directors hiring a professional
manager management along with needed support staff, co-op members having required
tech know-how are incorporated in on priority in capacity building programs.
Key services are outsourced on competitive bidding separately for O &M and Commercial
service providers, managed professionally by Co-op management; these outsourced service
providers would be gradually involved in hands on capacity building for local workforce also.
Key performance Indicators for RECS
The financial and technical service levels are proposed to be monitored by following parameters
- Technical parameters like SAIDI, SAIFI etc.
- T & D Losses

- A T & C Losses.
- Times Interest Earned Ratio.
- Trend of number of customers per employee. This should be attempted to be kept on the
lower side

11. Conclusion
Analyzing the proposed model according to main parameters as we have taken in section
7.3, we can observe the following points. The modified RECS model incorporates highest
level of representativity, thus creating a sense of community ownership, while trying to
retain the benefits of input based and other models.
- The sustainability is increased on dual fronts, once the professional management is taken
for achieving efficiency and internal capacity buildup, and another for taking the
competitively bid from service providers for taking technical support in O & M etc.
- Affordability rests with the utility’s mode of subsidy provisions and commissions directives
as per govt support for providing subsidy.
- The model has comparatively higher degree of replicability in diverse conditions which are
going to be found across India, as the community participation ensures that community
takes a well informed and self decision.
During the whole analysis, the existing state of affairs in the rural electrification approaches
are observed from holistic approach .The prime consideration was not only that the rural
distribution system gets a kind of private guardianship with profit for fixed period of time,
but to analyse the possibilities of a system that incorporate the sense of ownership in
community and builds a long time sustainability for itself;
It has been observed in past many studies that according to their income groups, rural
people are always willing to spend a fixed amount to fulfill their energy needs, Also for
making turnaround in the lives of rural people and contribute to sustainable development in
area, extent of community participation is required to be increased for ensuring the all

round support, and therefore franchise models with base of cooperative principles forms
the basis of such efforts.
12. Limitations of the Report
The report bases its recommendations based on observations of practical difficulties during the field
visits and informal interaction of the author with various stakeholders of the proposed rural
electrification franchisee system. Thus for forming firm opinions further in depth surveying guided by
points raised in the report should be undertaken.
The diligence and understanding spent in designing of rural franchisee process could well make the
difference between achieving the aim of India becoming a developed economy, or remaining a
developing one.

13.Bibliography:
i. Best Practices and Grid Rural Electrification By Doug Barnes, The World Bank
ii. Case Study on rural electricity cooperatives in india -
http://www.drumindia.org/UserFiles/File/ruralpart/RPS%207-
4%20Case%20study%20on%20Sanjay%20Rural.doc
iii. Cooperation the REC story at www.hoosierenergy.com
iv. Evaluation of Franchisee System: Report on Bongaigaon (Assam), jodhpur and pali(
Rajasthan) by IRADe,feb 2007
v. Evaluation of Franchise system in selected districts of Assam, Karnataka and Madhya

Pradesh by TERI, 2007
vi. http://reic.uwcc.wisc.edu/electric (economic impact of rural electric cooperatives)
vii. Force Field Analysis- http://www.mindtools.com/pages/article/newTED_06.htm
viii. Gap Analysis -http://www.businessdictionary.com/definition/gap-analysis.html
ix. http://www.dce.coop/index.php?Itemid=140&id=44&option=com_content&task=vi
ew History of RECs in USA
x. Extending rural electrification-A survey of innovative schemes By Ray Tomkins
xi. RGGVY Brochure and guidelines website - www.rggvy.gov.in

xii. Rochdale cooperative principles http://en.wikipedia.org/wiki/Rochdale_Principles
xiii. Red-wing rural electricity project-USA
http://www.asabe.org/awards/historic2/53.html
xiv. Rural Entrepreneurship through Electricity by RC Pandey in hydro Nepal issue
January 2009
xv. REPORT of EQUIPMENT QUALITY CONTROL COMMITTEE (Constituted under Section
128 of Electricity Act 2003 by Uttar Pradesh Electricity Regulatory Commission as
“Investigating Authority”) july 14 2008
xvi. Subsidizing Rural Electrification in South Asia: An Introductory Guide by USAID

SARI/Energy Program www.sari-energy.org

You are not here merely to make a living. You are here to enable the world to
live more amply, with greater vision, and with a finer spirit of hope and
achievement. You are here to enrich the world. You impoverish yourself if you
forget this errand.
Woodrow Wilson
28th president of US (1856 - 1924)

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Summer Internship Report

Issues and Challenges in Rural Electrification schemes

Submitted in Partial fulfillment for the requirements

This is to certify that the summer internship report of Mr. Anudeep

Mr. Naveen Kapoor

National Power Training Institute Page 2

Institute, Faridabad, completed my summer internship of eight weeks at Feedback Ventures

Principal Director of the Institute

National Power Training Institute Page 3

power distribution sector and for pushing me for better.

and was always there to guide me by their word of valuable guidance.

National Power Training Institute Page 4

1. EXECUTIVE SUMMARY ............................................................................................. 9

2. SIGNIFICANCE OF THE STUDY ................................................................................. 11

4. ELECTRICITY ACT, 2003 AND RURAL ELECTRIFICATION POLICY. ................................ 15

5. REVIEW OF RURAL ELECTRIFICATION (RE) SCHEMES ............................................... 18

5.1. KUTIR JYOTI PROGRAM (KJP) ......................................................................................... 19

5.2. MINIMUM NEEDS PROGRAM......................................................................................... 19

5.3. RAJIV GANDHI GRAMEEN VIDYUTIKARAN YOJNA (RGGVY) ........................................... 20

6. FRANCHISEE AND GOVERNMENT GUIDELINES............................................................. 22

6.2. FRANCHISEE DEVELOPMENT GUIDELINES (RGGVY)....................................................... 24

6.2.1. RURAL BASED FRANCHISEE ............................................................................................ 25

6.2.2. URBAN FRANCHISEE ....................................................................................................... 25

6.2.3. MODELS OF FRANCHISEE: .............................................................................................. 26

6.2.4. RESPONSIBILITY MATRIX FOR FRANCHISEES MODELS ................................................... 30

6.2.5. QUALIFICATION OF FRANCHISEE .................................................................................... 31

6.2.6. SELECTION PROCESS FOR FRANCHISEE .......................................................................... 33

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6.2.8. BUSINESS PLAN OF FRANCHISEE .................................................................................... 35

7. ISSUES AND CHALLENGES IN IMPLEMENTATION OF FRANCHISEE MODELS ............... 36

7.1. AREA SELECTION FOR RURAL DISTRIBUTION FRANCHISEE.......................................... 36

7.1.1. LOCATION ....................................................................................................................... 37

7.1.2. FRANCHISEE UNITS ......................................................................................................... 37

7.1.3. RGGVY WORK SCHEMES................................................................................................. 38

7.1.4. LAW & ORDER AND OTHER ISSUES ................................................................................ 41

7.2. DUE DILIGENCE. ............................................................................................................. 41

7.2.1. HEALTH OF DISTRIBUTION SYSTEM & SYSTEM DATA: ................................................... 42

7.2.2. STATUS OF ENERGY ACCOUNTING: ................................................................................ 42

7.2.3. LOW CONSUMER DENSITY. ............................................................................................ 42

7.2.4. AVAILABILITY OF SKILLED MAN POWER ......................................................................... 42

7.2.5. INSTITUTIONAL CAPACITY .............................................................................................. 43

7.3. FRANCHISEE MODELS ANALYSIS: .................................................................................. 43

7.3.1. MODEL -A REVENUE FRANCHISEE COLLECTION BASED ................................................. 44

7.3.2. MODEL – B: REVENUE FRANCHISEE – INPUT BASED...................................................... 45

7.3.3. MODEL – C : INPUT BASED FRANCHISEE ........................................................................ 46

7.3.4. MODEL – D : OPERATION & MAINTENANCE FRANCHISEE ............................................. 47

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7.3.6. MODEL – F: RURAL ELECTRIC CO-OPERATIVE SOCIETIES OPERATIONS MANAGEMENT

7.3.7. SWOT ANALYSIS OF INSTITUTIONAL PLAYERS IN DISTRIBUTION FRANCHISEE.............. 50

7.3.7.1. PANCHAYATI RAJ INSTITUTIONS .................................................................................... 50

7.3.7.2. NON GOVERNMENTAL ORGANIZATIONS (NGOS) .......................................................... 51

7.3.7.3. SELF HELP GROUPS (SHGS) ............................................................................................. 52

7.3.7.4. COOPERATIVES ............................................................................................................... 53

7.3.7.5. LOCAL ENTREPRENEURS ................................................................................................. 53

7.3.8. ISSUES RELATED TO DISTRIBUTION FRANCHISEE RESTRUCTURING .............................. 54

8. RURAL POWER SECTOR IN JHARKHAND. ................................................................. 56

8.1. FORCE FIELD ANALYSIS ................................................................................................... 56

8.2. GAP ANALYSIS................................................................................................................. 60

9. INTERNATIONAL EXPERIENCES ............................................................................... 65

10. POSSIBLE ALTERNATIVE – A MODIFIED RECS MODEL .............................................. 69

10.1. RURAL ELECTRICITY CONSUMER COOPERATIVE SOCIETY .............................................. 69

11. CONCLUSION ......................................................................................................... 73

12. LIMITATIONS OF THE REPORT ................................................................................ 74

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