Regulators' body told to create tariff plan for power transmission projects

This would apply to those under the govt's asset monetisation programme

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The power ministry has asked the Forum of Regulators, a joint body of central and state electricity regulatory commissions, to create a tariff determination framework that can be applied to power transmission projects to be covered under the government's asset monetisation programme.

 

The tariff framework will be adopted by all the state electricity regulators for promoting transmission assets monetisation. This is expected to facilitate the determination of tariffs for these assets such that investors get reasonable certainty of revenue and projects' commercial details at the time of bidding.

 

The power ministry had, in October 2022, issued the guiding principles for monetisation of transmission assets in the public sector through acquire, operate, maintain and transfer (AOMT)-based public private partnership (PPP) model.

 

Under the model, monetisation would be taken up in a series of steps, including identification of assets, their demerger in a separate special purpose vehicle (SPV), obtaining licence from the state electricity regulator and appointment of consultants for technical and financial evaluation, followed by the bidding process. 

 

During their discussion with the power ministry, the state governments had flagged multiple issues. These include revenue certainty for monetisation of assets, clarity on tax incidence in the process and payment security mechanism for intra-state transmission charges.

 

“One of the key challenges posed by the state transmission utilities and investors is related to predictable cash flow for monetised assets. Intra-state transmission projects mostly cover real time market (RTM) assets and the electricity regulator fixes tariffs for these assets for each control block based on norms,” the ministry said in a letter to the Forum of Regulators.

 

As these norms change for each control block, significant challenges will be faced by prospective investors in predicting the cash flow over the concession period. In the absence of clarity on predictable cash flow, investors may quote less value for the monetised assets. 

 

Post the deliberations on the issue, the ministry has envisaged developing an asset transfer and tariff setting approach for monetisation of state transmission assets. This will help determine the tariff for these projects.