When does privatization of distribution utilities’ management reduce electricity losses? Evidence from Rajasthan, India

High levels of electricity distribution losses remain a persistent challenge in India's power sector. These losses strain the financial viability of distribution companies, limit their ability to support renewable energy investments and exacerbate economic and environmental challenges. Privatization is often proposed as a solution to reduce electricity losses in developing countries. Yet, there has been limited empirical research on how private electricity distribution firms engage with their external environment and on the factors determining their success in reducing electricity losses. This paper examines the Distribution Franchisee (DF) model, which privatizes management rather than ownership, through a comparative case study of three cities in Rajasthan, India, where the same private firm managed electricity distribution under near-identical 20-year contracts. Despite identical contractual incentives and the same private partner, outcomes diverged sharply within the same timeframe. Using process tracing methodology and drawing on Resource Dependence theory, we show that this divergence is not explained by differences in organizational capacity or infrastructure investment, which were comparable across cities, but by differences in the local political economy. Specifically, the stability of the local political environment and the composition of each DF's consumer revenue base determined its ability to enforce anti-theft measures and sustain technical reforms. These findings suggest that the success of management privatization in electricity distribution is contingent on city-level political economy conditions, with important implications for the design and implementation of private participation models in the electricity sectors of developing countries.