New Delhi: Power Grid Corp. of India Ltd, the nation’s largest power transmission company, plans to buy stakes in companies in Argentina and Paraguay as part of a plan to cut its dependence on its home market and as it expects asset prices to fall because of the global economic slowdown.
“We are exploring and pursuing opportunities in Argentina and Paraguay,” said a top PowerGrid executive, who declined to be identified. “We should get out of one geography as it is a regulated market in India.”
State-controlled PowerGrid is expanding overseas as a planned separation of power management functions will leave it with only the task of setting up transmission links in India. Power System Operations Corp. Ltd , a unit of PowerGrid, is now entrusted with power management functions and may eventually be separated from its parent.
“Their overseas stake buys is likely to offer revenue opportunities in overseas market and derisk domestic market dependence,” said Amol Kotwal, deputy director of energy and power systems practice for South Asia and West Asia at Frost and Sullivan.
PowerGrid gets a guaranteed rate of return on equity of 15.5% in the Indian market. The utility operates 86,000-circuit km of transmission lines, wheeling 50% of the power Rs 9,100 crore in 2010-11. That compares with a profit of Rs 204 crore and revenue of Rs 7,504 crore in the year earlier.
“We are looking at expanding our footprint. It can happen through creating new assets or acquiring stakes in overseas assets. We are exploring opportunities in Argentina and Paraguay,” confirmed another Power Grid executive aware of the company’s plans.
India’s central transmission utility has set a target to buy assets in South America, Africa and West Asia within one-and-a-half years even as some of its proposals to expand overseas have failed.
PowerGrid’s plan to bid for a 5-10% stake in Redes Energéticas Nacionais, SGPS, SA (REN), as reported by Mint on 21 October, failed to get the approval of the Indian company’s board. The stake had been offered by the Portuguese government, which is seeking to sell its holding in the aftermath of the Euro zone debt crisis.
REN, valued at about $5.88 billion, is in the business of electricity and natural gas transmission.
“We were supposed to submit a non-binding bid but in the final meeting our board didn’t approve of it,” said the second PowerGrid executive.
Another plan to buy National Transmission Corp. of Philippines in association with a local company also failed to yield results.
As part of its diversification strategy, PowerGrid also plans to enter the power transmission business in Bangladesh and Sri Lanka by setting up joint ventures with local partners. It also plans to jointly bid for contracts in West Asia and North Africa along with Qatar’s Venture Gulf Group and Kuwait’s Real Estate Construction and Fabrication Co.
The state-run company is also pursuing projects in Uganda, Tanzania, Nigeria, Kazakhstan, Tajikistan, Nepal, Bhutan, Sri Lanka and Myanmar for engineering and consulting contracts.