Date:22/10/2004 URL: http://www.thehindubusinessline.com/2004/10/22/stories/2004102202980100.htm

Back Govt mulls 5 pc equity offer in PowerGrid, PFC

Balaji C. Mouli

New Delhi , Oct. 21

THE Power Ministry is mulling a 5 per cent equity offering of fresh shares in Power Grid Corporation of India Ltd (PGCIL) and Power Finance Corporation (PFC).

In the case of PGCIL, there are several business concerns expressed by its management that might undermine the valuation of the corporation's equity. However, there is no particular issue in the case of PFC, which requires the money, according to officials.

The Power Ministry has initiated serious discussions with PGCIL and PFC following a recent letter from the Department of Disinvestment recommending them to look at floating initial public offerings in PGCIL, PFC, National Hydroelectric Power Corporation (NHPC) and Rural Electrification Corporation (REC).

The Power Ministry is not pursuing the IPO matter with REC and NHPC since the Union Government is currently funding the projects of these companies.

In the case of PGCIL, a company engaged in the business of inter-State transmission of power, there are several issues that could undermine the valuation of its equity. PGCIL has set up transmission assets in the North-eastern region of the country with the objective of evacuating power from generation projects in the region to power deficit northern and western regions.

However, such generation assets have not been commissioned, leading to transmission assets not earning revenues and proving to be loss making.

Further, the recent depreciation norms for transmission companies set out by the power regulator are adversely affecting the bottomline of the corporation, say some senior PGCIL officials.

When contacted, the PGCIL Chairman and Managing Director, Mr R.P. Singh, declined to comment on the issue.

Buoyed by the recent IPO experience of NTPC, the Power Ministry is looking at obtaining a basic Cabinet approval to set in motion the IPO process for PGCIL and PFC. In the case of NTPC, the Cabinet approval allowed for IPOs up to 24 per cent of the current equity. However, since NTPC has a bloated equity of Rs 8,000 crore (pre-IPO), the company decided to go in for a 5 per cent IPO issue.

PGCIL has an equity base of Rs 3,000 crore. In the case of PFC, the equity base is Rs 1,000 crore. PFC, however, has been debating an IPO for over a year now. Its proposal for an IPO amounting to 10 per cent of its equity has not taken off since it was conditional on a buyback of shares — which was not acceptable to the Department of Company Affairs. According to the company, the buyback was essential as otherwise the cost of servicing fresh equity would not be a viable option in the context of accessing capital.

The Power Ministry's thrust on IPOs, beginning with the NTPC case, is not of need for capital but that of making the companies competitive through market regulation and perception. For example, NTPC does not need the IPO money since it has Rs 6,500 crore in fixed deposits earning 6 per cent return, significantly lower than the 12-13 per cent earned by the generation assets of the company.

For the moment, the Power Ministry is working out the details of the Cabinet note for kicking off the IPOs in PFC and PGCIL.