Power Grid opposes disinvestment

Company says its cash losses due to n-e operations could affect market valuation

The Power Grid Corporation of India Ltd (PGCIL) has opposed disinvestment on the grounds that its operations in the North-East had burdened it with cash losses which would affect its valuation in the market.

The company has projected losses of about Rs 900 crore on account of operations in the region, in the period up to 2007. It wants the government to compensate for the losses incurred.

The company laid out transmission lines in the region with tariff capped at 35 paise per unit. However, power projects have not come up, leading to the company incurring losses.

The finance ministry has, however, said the shortfall from internal accruals on account of lack of returns from the North-East should be made up not by additional budgetary support, but by raising money from the market. Therefore, an initial public offer would be preferable.

The company had said that the losses would reduce its earnings per share and, therefore, result in lower valuation in the IPO.

It had asked the Centre to compensate it with a grant of the like amount in case it wanted to go ahead with the proposed divestment of stake. The power ministry is reportedly considering the option of hiving off the North-East operations before the offer hits the market.

Power Grid Chairman and Managing Director RP Singh did not comment on the issue.

On Wednesday, Disinvestment Secretary R Poornalingam had said the government proposed to off-load stake in the Power Grid Corporation and Power Finance Corporation this year.

The extent of stake to be sold had not been decided so far. The two power companies have been asked to work out the number of fresh equity shares that they proposed to issue and the government would sell a matching number through the public offer.

Officials said following the success of the National Thermal Power Corporation IPO last month, which generated Rs 2,600 crore for the Centre, Power Secretary RV Shahi was keen that the government sell its stake in other power utilities as well.

The finance ministry had also proposed to sell stake in the National Hydro-electric Power Corporation. But the issue was not expected immediately as the power ministry first wanted the company to have a strong balance sheet before approaching the markets. The NHPC public offer was now proposed during 2005-06.

Meeting the shortfall

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• Power Grid Corp says its operations in the North-East had burdened it with losses. This could affect its market valuation
• The company wants the Centre to compensate for its losses before any public issue
• The finance ministry says instead of budgetary support to make up for the losses, the company should raise money from the market
• The power ministry is considering the option of hiving off Power Grid's North-East operations before an IPO