Decks cleared for public sector power IPOs

The cabinet committee on economic affairs is expected to consider...

The cabinet committee on economic affairs (CCEA) is expected to consider and clear the proposal to offer 10 per cent government equity through initial public offer (IPO) of three power public sector undertakings — Powergrid Corporation, Rural Electrification Corporation (REC) and that of Power Finance Corporation (PFC) —tomorrow.

These IPOs, once cleared by CCEA, are coming at a time when the government has put the entire disinvestment process of PSUs on hold and would be important for the government to meet the fund requirements of the power sector.

While the proposals of offering 10 per cent equity for Powergrid and REC are entirely new, the proposal of PFC to be considered by the CCEA is to reverse the earlier cabinet decision (of January this year) that required PFC to offer 10 per cent through IPO but at the same time required them to disinvest 5 per cent government equity.

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However, thereafter the UPA government put the entire disinvestment process of all PSUs on hold as there were differences between the Left parties and the government on the disinvestments PSUs.

While PFC had gone ahead with its IPO plans and even appointed lead managers, the ministry of disinvestment under the finance ministry, based on the political decision taken by the UPA government to keep divestment on hold, informed PFC to keep the proposal of 5 per cent divestment and 10 per cent IPO on hold.

In that regard, the CCEA is now expected to drop the 5 per cent divestment clause for PFC but would allow the company to go ahead with the IPO plans.

On Powergrid and REC, while the power ministry has not indicated the quantum of funds it can garner through offering government equity to public (equity expansion), it needs to be mentioned that the IPO proposal of Powergrid is not subject to the company bifurcating its regulatory and corporate functions.

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Powergrid, which is a central PSU created in the late 80s with the responsibility of constructing, commissioning and maintaining interstate transmission projects is, since the late 90s, also responsible for operating the grid operations as power transmission is generally considered to be a natural monopoly.

However based on the opinion of the CERC, the power ministry has been considering bifurcating these two functions but has not linked this with the IPO plans.

REC, like PFC is a finance company under the power ministry which is responsible for generating and disbursing funds for the governments’ rural electrification plans.

In addition to this, as afar as the infrastructure sector is concerned, the cabinet is also expected to approve the change of scope of the north-east road development programme.