Power transmission sector sees growing interest from investors

More transmission and distribution assets are expected to be privatized in a bid to bring in efficiencies

The entire electricity produced does not reach consumers in India due to 25% leakage in aggregate technical and commercial losses. Photo: Pradeep Gaur/Mint
The entire electricity produced does not reach consumers in India due to 25% leakage in aggregate technical and commercial losses. Photo: Pradeep Gaur/Mint

Mumbai: Power transmission companies with assets that are up and running are seeing interest from buyers, who expect gains from the government’s attempts to plug power leakage and attract investments.

Adani Transmission Ltd, India’s largest private power transmission company, on Friday said it will buy a 74% stake in Maru Transmission Service Co. Ltd and a 49% stake in Aravali Transmission Service Co. Ltd. Both are subsidiaries of GMR Infrastructure. Adani also has the option to acquire 100% in the units for about Rs.100 crore.

The Indian power assets of Spain’s Isolux Corsan are on the block, according to people familiar with the discussions.

More such deals are likely.

There will be more interest in power transmission and distribution (T&D) assets, said Ashish Agarwal, director (infrastructure) at Equirus Capital (P) Ltd, an investment bank.

“Power generation is not a concern today, with enough availability of coal,” he said. “The issue is, the entire power produced does not reach the consumers due to 25% leakage in AT&C (aggregate technical and commercial) losses. The government is focused on plugging this leakage, which can be done by privatization of T&D to bring in efficiency. More T&D assets are expected to be privatized and investors could invest in creating T&D platforms expecting viable opportunities to deploy capital.”

Apart from buying operational assets, more companies are looking to bid for projects, both for power grid EPC (engineering, procurement, construction) projects as well as for the PPP-BOT (public-private partnership on built, operate, transfer) projects, according to Vinayak Chatterjee, chairman of consulting firm Feedback Infra Pvt. Ltd.

“Because, there is clear understanding that the government is keen on the sector and has budgeted Rs.100,000 crore capex for the fiscal, of this 30% is for power grid and 70% for the private sector. That is a large market,” he said.

“Adani Transmission Ltd is foreseeing significant growth in the transmission sector and expects to maintain its leadership position in the country,” Adani Group chairman Gautam Adani said in a statement on Friday.

Apart from Adani, active bidders in the T&D sector include Essel Infraprojects Ltd, Kalpataru Power Transmission Ltd and Sterlite Grid.

Adani Group had talks with Isolux Corsan for buying its transmission assets, according to people familiar with the discussions.

Adani Group declined comment. Isolux did not respond to an email query sent on 9 June.

India faces irregular power availability across states. Some states in the northern and western parts of the country have surplus power, while some states in the south face shortages. The National Democratic Alliance government, which has made boosting power generation a key policy priority, is looking to supply adequate power at affordable prices, with the aim of doubling electricity generation to two trillion units by 2019. The centre has set a target of bringing 24x7 ‘power for all’ by fiscal 2019.

“More and more EPC contractors are also considering PPP projects as safe because it is an annuity type product, which has assured income streams. Operating assets are more lucrative because the construction risks are removed. Long-term investors such as the pension funds prefer these kinds of annuity assets,” Chatterjee said.

Historically, India’s T&D sector has remained under-invested, Antique Stock Broking analysts Dhaval Patel and Rahul Modi wrote in a 28 June report.

“In an ideal scenario, investment in the T&D and power generation segments should be in the 1:1 ratio. However, the long-term average ratio between investments in power generation capacity addition and T&D segment over CY51-96 has remained 1:0.45. In the X and XI Five-Year Plan also, the ratio of investments has remained in the same range,” they wrote.

India is the only major country that is expected to see a significant rise in conventional capacity additions, primarily due to the steady rise in electricity demand, development of domestic mines and easy access to global coal resources.

“If its (government’s) power for all by FY19 is to be achieved, T&D investments have to come through. Total T&D investment planned in the 12th Five-Year Plan is Rs.4,860 billion, which signifies an opportunity of Rs.972 billion for FY17e,” Patel and Modi of Antique Stock Broking wrote.

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