The acquisition of Rural Electrification Corporation (REC) by Power Finance Corporation (PFC) will boost the latter’s power T&D portfolio, according to Rajeev Sharma, CMD, Power Finance Corporation Ltd. Sharma was addressing a media conference in Mumbai on the company’s Q3FY19 results and the impact of the PFC-REC deal.
Power transmission currently accounts for just 9 per cent of the total loan portfolio of PFC, noted Sharma, while that of REC was as much as 40 per cent. PFC will be able to leverage the expertise of REC in power transmission (as well as distribution) and maximize its growth. On the other hand, REC will be able to leverage the expertise of PFC in the power generation space.
Dwelling more on the power transmission portfolio, the PFC CMD observed that there were some NPAs like that of Essar Power Transmission Company Ltd that is setting up the evacuation infrastructure for Essar Power’s 2×600-mw Mahan coal-fired power plant in Madhya Pradesh. Essar has assured 100 per cent principal recovery, which means that it has agreed to pay PFC the entire principal amount. If this happens, the provisioning (of 16 per cent) that PFC has currently made in its books will be reversed.
It may be recalled that Essar Power Transmission Company, a wholly-owned subsidiary of Essar Power, fully commissioned in October 2018 its 465-km transmission system of three inter-state 400kV lines, built with a total investment of Rs.2,400 crore.
Another stressed asset in the power transmission portfolio was an independent 765kV intrastate power transmission system in Uttar Pradesh, being developed by South East UP Power Transmission Company Ltd, promoted by Spanish entity Isolux Corsan. This asset turned “non-performing” after the parent company filed for bankruptcy in its home country. This case has now been referred to the National Company Law Tribunal. PFC’s exposure in this project is understood to be around Rs.2,400 crore.
At the sidelines of the press conference, Dr Arun Kumar Verma, Joint Secretary, Ministry of Power, Government of India, said that though REC was being acquired by PFC, the two companies would carry out their activities independently. Dr Verma is on the board of both PFC and REC. When asked about the roles of PFC and REC as nodal agencies for independent power transmission projects, Dr Verma said that projects will be assigned to both companies just as it was being done now. It may be mentioned that PFC and REC, through their respective wholly-owned subsidiaries PFC Consulting Ltd and REC Transmission Projects Company Ltd, act as bid process coordinators (BPC) for independent power transmission schemes that are offered to developers under the tariff-based competitive bidding route.
Deal to close within FY19
PFC envisages that the acquisition of REC will be completed by March 31, 2019. All regulatory approvals—from SEBI, Competition Commission of India and Reserve Bank of India—are in place. It may be recalled that on December 6, 2018, the Cabinet Committee on Economic Affairs (CCEA) gave its in-principal approval for strategic sale in REC along with transfer of management control, to PFC.