Centre seeks to allay concerns on transmission assets' monetisation

The Union power ministry has assured states of revenue certainty, tax efficiency and payment security as it pushes ahead with monetisation of intra-state transmission assets

The Union Power Ministry has sought to allay concerns raised by state governments on monetisation of transmission assets, including questions regarding revenue and payment security.

 

In a meeting with the ministry last week, the state government representatives had flagged concerns over revenue certainty for monetised Regulated Tariff Mechanism (RTM) assets, clarity on tax incidence on monetisation process, and payment security mechanism for intra-state transmission charges. 

The meeting was also attended by the representatives of the National Investment and Infrastructure Fund (NIIF), PFC Consulting Ltd (PFCCL), and Power Grid InvIT. In a communication to the state, the ministry said the tariff for projects will be determined in a way that ensures reasonable revenue certainty and cash flow for investors. The ministry also identified the demerger model as the most tax-efficient model of monetisation of transmission assets. 

 

The government had issued the guiding principles for Monetization of Transmission Assets through Acquire, Operate, Maintain and Transfer (AOMT)-based public private partnership model in October 2022. 

The model envisages limited period transfer of assets and the steps include identification of assets, their demerger in a separate SPV, obtaining licence from State Electricity Regulatory Commission (SERC), technical and financial due diligence, appointment of Bid Process Co-ordinators, preparation of tariffs, bidding and evaluation. 

Intra-state transmission projects mostly cover RTM assets, and the electricity regulator fixes their tariff for a five-year control period based on norms. As the norms change for each control period, challenges may be faced by a prospective bidder in predicting the cash flow of monetised assets. 

The ministry, in the communication, added that it envisaged an assets transfer and tariff setting approach, based on the examination of tariff-setting processes followed in case of other representative monetisation and private participation programmes, including cases of private participation in power distribution sector. This approach is expected to facilitate determination of tariffs for monetised transmission assets such that investors have reasonable certainty of revenues at the time of bidding. 

The Ministry of Power also discussed and analysed the incidence of taxes that will occur through the monetisation process either at the time of demerger or concession award. 

Based on the analysis, it was observed that the demerger model is the most tax-efficient model of monetisation of transmission assets, and as the tax implications may vary based on the specific details of each action and local rules and regulations of the state, state transmission utility may consider engaging a transaction adviser. 

Finally, the ministry said the institutional framework is in place to ensure timely payment of dues of intra-state transmission companies by distribution companies. This will take care of the states’ concerns around payment security mechanisms under the monetisation process.