With per-capita consumption of power a fraction of that in developed countries, and with some small towns powering themselves using diesel generators for up to 12 hours a day, India still has tens of thousands of megawatt of generation capacity rendered stranded, with no takers for the power it could produce.

The way out of this paradox of scarcity amid excess lies in fixing distribution. The formula that politicians must find the will to tell people to pay for the power they consume is sound. However, for this to be practical means having franchisees that would distribute power and collect the bills.

If some of these franchisees are energy service companies on whom consumers depend not just for electricity but also for services such as lighting and air-conditioning, results could be more emphatic.

Much of the blame for the mess in power can be laid at the doors of state governments. Their utilities are either unwilling to enter into power purchase contracts, or reneging on their commitments. Around 22,422 MW, or roughly 14% of the installed private capacity and 6% of total capacity, suffers this fate. A possible solution lies in exploring two key developments in the short history of the reform narrative.

The first took place in 2002 when NTPC, which then accounted for around 20% of the total generation capacity in India, was seizing up. Utilities were paying a mere 70% of the bills. The deal hammered out with the states to rescue the situation was a radical one.

Its central element was a powerful instrument of deterrence — in the event of default, NTPC would get paid from the devolution of taxes from the Centre flowing to the state’s RBI account. The prescription worked. There was never an instance of payment default again. NTPC’s fortunes rose, insulated from the financial fragility of its bulk customers.

Such a Centre-state engagement was never again on display in the power sector. Over the last 15 years, several thousand crores of central funds have been ploughed into the states’ distribution sector with little or no accountability. Key aspects of central aid have stood compromised.

It is only in the last few years that the reform programme has turned its attention to the basic issue of metering supply, a step towards collecting bills, where efficiency stands at a paltry 80%. Large swathes of consumption go totally unmetered, even after GoI spending  Rs 6,000 crore in the last three years on upgrading the state distribution utilities’ infrastructure.

Stray cases of utilities handing over a few distribution areas to private companies is another bright spot. In 2010, Maharashtra adopted the franchisee model, inviting private players to meter and collect money from consumers, and split the gains with the utility.

The deal left little room for ambiguity. The meter readings on the supply and distribution arteries were made jointly by the utility and the private franchisee. Besides, the accounts were independently audited.

The experiment in the industrial town of Bhiwandi succeeded. The franchisee model, however, failed in Kanpur in Uttar Pradesh and Muzaffarpur in Bihar, for want of political will to enforce billing of electricity and its collection.

Exercise of political will offers the highest ‘reform’ yield in the power sector. However, politicians are wary of its electoral fallout. But, recently, in Rajasthan, two distribution zones have been franchised out to private players. The deal reflects an evolution —it’s not enough to tweak efficiency, the franchisee needs to invest a minimum sum of  Rs 200 crore to upgrade the local supply infrastructure.

GoI should, hence, revisit its flagship reform programme, the Integrated Power Development Scheme, which has an outlay of a staggering Rs 27,000 crore. Delhi’s traditional approach has been that of nudging states to roll over the bloodied books of its utilities in one manner or the other. The latest attempt — of getting the burden shifted across to the states’ balance sheet in a phased manner — worked.

GoI should now push the franchisee model as a precondition to fiscal assistance that must be primarily spent on installing meters. Further, in distribution circles that attract no would-be franchisees, the potential gains over time from reform could be capitalised to form a viability gap fund, securitised and sold to investors, perhaps with state government guarantee. If the franchisee doubles as an energy service company, consumers would have an additional reason to pay as well.