Telangana Moves to List State Power Utilities as Part of Power-Sector Reform

Telangana is preparing for a significant restructuring of its state-owned electricity sector, with plans to bring private investment into power utilities through the capital markets, beginning with the Telangana Transmission Corporation (TGTRANSCO).

HYDERABAD: Telangana is preparing for a significant restructuring of its state-owned electricity sector, with plans to bring private investment into power utilities through the capital markets, beginning with the Telangana Transmission Corporation (TGTRANSCO), according to a report in AndhraJyothi.

The Telangana Power Coordination Committee (TPCC) has decided to pursue disinvestment in TGTRANSCO and is considering a public issue as the route for raising capital, the newspaper reported. PricewaterhouseCoopers (PwC) has been identified as the consultant for the proposed exercise.

Under the plan reported by AndhraJyothi, the state would sell a 26% stake in TGTRANSCO, which is currently wholly owned by the Telangana government. The report puts the company's value at about Rs 68,000 crore, although the basis of that valuation has not been independently established in publicly available official documents.

TGTRANSCO would be the first utility taken up under the proposed reform. The government could subsequently consider similar disinvestment in other state power companies, including Telangana GENCO, the Singareni Collieries Company and the state's electricity distribution companies, or DISCOMs, according to the report.

The Telangana government's Energy Department currently lists TGGENCO, TGTRANSCO, Telangana Southern Power Distribution Company Limited (TGSPDCL), Telangana Northern Power Distribution Company Limited (TGNPDCL), Telangana Power Finance Corporation and Telangana New & Renewable Energy Development Corporation among the state's principal power-sector entities. Singareni is also listed among the organizations associated with the department.

Financial stress behind reform push

The proposed restructuring comes against a difficult financial backdrop for Telangana's electricity utilities.

According to AndhraJyothi, various government departments and agencies owe about Rs 57,336 crore to the electricity utilities. The newspaper reported that the DISCOMs themselves have debts of roughly Rs 62,000 crore, while TGTRANSCO has debts of about Rs 6,619 crore and TGGENCO about Rs 32,000 crore.

The financial problems are interconnected. When distribution companies are unable to fully meet their payment obligations for electricity purchases, the strain passes through to generating companies and their suppliers. AndhraJyothi reported that delayed payments by the DISCOMs have affected payments to GENCO and Singareni.

The newspaper said the financial condition of the distribution companies would have to be improved, including settlement of government dues, before the broader disinvestment program could be extended to them.

A capital-market listing would also represent a fundamental change in the way a state-owned power utility operates. A listed company is subject to disclosure, financial-reporting and corporate-governance requirements applicable to public companies, while outside shareholders acquire an economic interest in its performance.

PwC, which AndhraJyothi says has been selected for the proposed TGTRANSCO exercise, has an established power and utilities advisory practice in India covering areas including reforms and restructuring, economic regulation, distribution strategy and private-sector participation.

Committee headed by Arvind Subramanian

The broader reform initiative comes as Telangana examines the future structure and financial sustainability of its electricity sector. AndhraJyothi reported that a power-sector reforms committee is being constituted under economist and former Chief Economic Adviser Arvind Subramanian.

The proposed capital-market exercise could give the utilities another avenue for raising funds while also increasing scrutiny of their finances and governance.

However, the initiative remains at a preparatory stage. A decision to explore disinvestment or appoint a consultant is not the same as completion of an initial public offering. A public issue would require further corporate, regulatory, financial and disclosure steps before shares could actually be offered to investors.

For now, TGTRANSCO is the immediate focus. If the process advances and is subsequently extended to GENCO, Singareni and the DISCOMs, it would represent a major change in Telangana's model of ownership and financing for state power utilities.