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Deloitte and SBI Caps to help with UT power discoms’ privatization

Unlike discoms in the states, which fall under respective state governments, there is a separate dispensation for discoms in Union Territories, as they are administered directly by the central government. Photo: MintPremium
Unlike discoms in the states, which fall under respective state governments, there is a separate dispensation for discoms in Union Territories, as they are administered directly by the central government. Photo: Mint

  • India has stepped on the gas for ushering in next generation power sector reforms, by appointing these consultants to help with the preparatory work for the exercise, that is expected to be completed by December

New Delhi: Deloitte and SBI Capital Markets Ltd have been appointed consultants to help with the privatization of Union territories’ electricity distribution companies (discoms), said two people aware of the development.

While state-run Power Finance Corporation (PFC) has appointed Deloitte to help with the sale process to privatize discoms in the three Union territories of Puducherry, Chandigarh and Andaman and Nicobar Islands; SBI Capital Markets Ltd has received the mandate for Dadar and Nagar Haveli, Daman and Diu, Jammu and Kashmir and Ladakh.

A union power ministry spokesperson confirmed the development.

India has stepped on the gas for ushering in next generation power sector reforms, by appointing these consultants to help with the preparatory work for the exercise, that is expected to be completed by December. The union power ministry will issue the standard bidding documents for the same. With the electricity load for Lakshadweep Islands being low, it is currently not being considered for privatisation.

Mint reported on 15 May about India’s plan to privatise all electricity discoms in the Union Territories. These discoms have an enterprise value of around $700 million.

“The government is looking at completing the process before December. The mandate is to complete the exercise within eight months starting June," said a person cited above aware of the development.

Unlike discoms in the states, which fall under the remit of the respective state governments, there is a separate dispensation for discoms in Union Territories, as they are administered directly by the central government.

A Deloitte spokesperson in an emailed response said, “We are bound by confidentiality obligations and are unable to comment on client-specific matters."

Queries emailed to the spokespersons of SBI Capital Markets Ltd and PFC on early Friday morning remained unanswered.

With the financial health of states weakened by the prolonged lockdown, other states are also gradually coming around to the idea of privatizing their debt-laden discoms to raise funds.

There is a growing interest in these UT discoms on offer. Mint earlier reported about local companies such as state-run NTPC Ltd, electricity generation and distribution company CESC Ltd, Torrent Power, Greenko Group, Tata Power, National Investment and Infrastructure Fund (NIIF) and Adani Group interested in the assets. Large foreign utilities such as Italy’s Enel Group, Malaysia’s Tenaga Nasional Bhd, Electricite de France SA and Hong Kong’s biggest electricity provider China Light and Power Co. Ltd are also expected to participate. The third set of probable investors include funds such as Brookfield Asset Management Inc., CDPQ, CDC Group Plc, Macquarie Group and Actis Llp.

The race for securing discom licences is heating up. Mint earlier reported about billionaire Gautam Adani owned Adani Group, RP-Sanjiv Goenka group’s flagship electricity generation and distribution firm CESC Ltd, and Tata Power Co. Ltd. being among those who have evinced interest in acquiring Odisha government’ three electricity discoms. Also, NTPC Ltd has evinced interest in acquiring a 51% stake each in BSES Rajdhani Power Ltd (BRPL) and BSES Yamuna Power Ltd (BYPL). Enel Group of Italy, Torrent Power Ltd and Greenko Group have also submitted non-binding offers to pick up stakes in the two Reliance Infra entities.

India’s average aggregate technical and commercial (AT&C) losses are at around 21.4%. At least ten states have electricity losses of more than 30% that is posing a huge burden on their finances.

Debt burden of discoms is expected to touch a record 4.5 trillion this fiscal, according to a Crisil Ratings report. The discoms’ health has assumed alarming proportions with states struggling to pay for the electricity bought with the world’ longest lockdown worsening the already precarious finances of power discoms due to lower realizations.

Seized of the issue, the union government announced a 90,000 crore loan for fund-starved electricity discoms against their receivables, as part of the 20 trillion stimulus. However, it hasn’t found many takers as the states are averse to providing state guarantees against these loans meant for the sole purpose of discharging the discoms’ liabilities.

This comes at a time when a raft of reform measures including the draft Electricity Act (Amendment) Bill 2020, may become another flash point in the centre-state relationship, with a growing chorus of states including Telangana and Tamil Nadu opposing it.

The reform measures proposed by the Centre are intended to help improve the financial health of the power sector and implement the direct benefit transfer (DBT) scheme for better targeting of subsidies, promoting retail competition, payment security mechanism and introducing financial discipline. The proposed amendments have also pitched for a cost reflective tariff and setting up an Electricity Contract Enforcement Authority to enforce power purchase agreements (PPAs).

The draft also proposes to do away with multiple selection committee for central and state electricity regulators and one such committee for selecting chairpersons and members of Central Electricity Regulatory Commission and State Electricity Regulatory Commissions.

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