×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Government nudges state power utilities towards capital market

Government nudges state power utilities towards capital market
Comment E-mail Print Share
First Published: Thu, Nov 29 2007. 12 59 AM IST
Updated: Thu, Nov 29 2007. 12 59 AM IST
To bridge a mounting investment gap in India’s power sector, the government has suggested that power utilities in states raise money through initial public offerings (IPOs), much like Centre-owned power companies.
Not only will this alleviate the fiscal pressure on state budgets, it will also motivate more states and public sector undertakings (PSUs) to press ahead with power reforms. The decision was taken in October by the sub-committee of group of ministers (GoM) on financial issues, headed by Planning Commission deputy chairman Montek Singh Ahluwalia; it hasn’t been announced yet.
“Profit-making state power utilities also need to be encouraged to raise equity through IPOs and follow-on public offers (FPOs),” the committee said in a statement.
India has a power generation capacity of 135,006MW. The 11th Plan (2007-12) has set a target of adding 78,577MW of power generation capacity, requiring at current estimates some Rs10.31 trillion. According to the power ministry, the government expects a Rs4.51 trillion shortfall in funding.
Says Kirit Parikh, member, Planning Commission: “If a particular state power utility is working very efficiently, such an approach can definitely work.” State power utilities will be following the example of Central utilities such as NTPC Ltd, Power Finance Corp. Ltd and Power Grid Corp. of India Ltd, all of which are listed.
Others slated to follow suit include Rural Electrification Corp. Ltd, National Hydroelectric Power Corp. Ltd and North Eastern Electric Power Corp. Ltd.
The suggestion that state power utilities tap into capital markets through equity “is a good move, but it will depend upon how the markets react to the state power utilities,” says Anjan Ghosh, head of Icra’s corporate sector ratings.
“Even some of the profit-making state power utilities are availing government subsidies. Since they come under the state’s control, the state’s interference in terms of change in tariffs may not work favourably with the markets.”
For more autonomy, state power utilities will have to reduce their dependence on subsidies or else states will have to give up providing free power to farmers.
The power utilities in Andhra Pradesh, Gujarat, Karnataka, Rajasthan, Haryana, Punjab and Maharashtra depend on subsidies, which, in some instances, are as high as 25% of the annual power revenues accruing to the state.
Says Shabbir Ali, Andhra Pradesh’s power minister and also a member of the sub-committee: “Even we want this. This proposal is a good way to raise resources and will also help in reducing losses on the part of the utilities as reducing aggregate transmission and commercial losses will be a pre-condition... (for) listing.”
Raising money from the market for state PSUs is also critical, in view of the cut in Central support for infrastructure projects in the 11th Plan to 12.5% from the level of 16% in the 10th Plan (2002-07).
Addressing the full Planning Commission meeting on 8 November, Ahluwalia had said the ability of the PSUs engaged in infrastructure to generate their own resources is critical for the expansion of investment.
sangeeta.s@livemint.com
Comment E-mail Print Share
First Published: Thu, Nov 29 2007. 12 59 AM IST