RInfra's regulatory assets could impact sale of Delhi power business

Reliance Infrastructure, which is looking at monetising its assets mainly to pare debt, is selling its electricity distribution business in the national capital. In addition to concerns over regulatory assets, the Delhi distribution business is also fraught with issues over lower tariffs.

There has been no tariff hike in the last four years and experts believe that the status quo is likely to prevail in the near future.

Reliance Infrastructure operates the power distribution business in the Delhi through two subsidiaries – BSES Yamuna and BSES Rajdhani. The Delhi state government holds 49 per cent in the two companies and the remaining share is held by the parent company RInfra. This could mean that getting the Arvind Kejriwal government on board could be another challenge.

It is learnt that the state government owes over Rs 9,000 crore worth of regulatory assets dues to the three power discoms in the Delhi including Tata Power Delhi Distribution Ltd.

Essentially, these regulatory assets are the gap between revenue and subsidy given by the government. The state government of Delhi compensates the three discoms for supplying subsidized electricity in the Capital. The subsidy in the form of regulatory assets is set aside by the government to be paid at a later date.

Delhi Electricity Regulatory Commission (DERC) recognizes regulatory assets due to these companies till FY’15. These regulatory assets were decided at the time of privatization of the Delhi electricity business in 2002-2003. The distribution license for 25 years that expires in 2029.

Concerned officials at Reliance Infrastructure did not comment on the story. In terms of buyer interest, analysts point out regulatory assets may be a concern for the Delhi business. "Buyers would take regulated asset under recovery assessment before bidding for acquisition," said Rupesh Sankhe, Rupesh Sankhe, vice-president , Elara Capital.

In August 2018, RInfra completed the sale of its Mumbai distribution business to Adani Transmission for Rs 18,800 crore. Of this, the business was valued at Rs 12,100 crore, and the remaining was related to regulatory assets and on account of net working capital. The Mumbai distribution business caters to around three million customers in the city.

Reliance Infra has been looking to monetise assets in a bid to turn itself into a zero debt company. The company is also in the process to sell its Delhi-Agra toll road to Cube Highways and Infrastructure for Rs3600 crore.

RInfra's erstwhile ownership of the Mumbai distribution business is different from that in Delhi. RInfra held a 100 per cent stake in the Mumbai business.