Power Grid to Monetize Transmission Assets of ₹70 Billion via InvIT

The budgeted capital expenditure for the next two years is $2.79 billion

September 21, 2020


Earlier this week, state-owned Power Grid Corporation of India (PGCIL) received the Cabinet Committee of Economic Affairs’ approval to monetize its transmission projects through the Infrastructure Investment Trust (InvIT) model.

InvITs serve as a source of finance for infrastructure projects. Individuals and institutions invest in InvITs like in mutual funds. The money raised is used by the company in financing income-generating infrastructure projects like inter-state transmission networks. InvITs distribute its earnings among investors as dividend income.

To raise money for massive infrastructure projects, including power transmission, the center has prepared a plan for monetizing some 24 projects from state-owned companies. It is expected to ease interest burdens on projects, enable asset value unlocking, and propel economic growth.

Following CCEA’s approval, PGCIL will be the first PSU in the power sector to raise funds for its new and under-construction capital projects. The approval will allow PGCIL to raise funds for its first lot of assets with a gross block value of more than ₹70 billion ($953 million). The company’s capital expenditure for the next two years is ₹205 billion ($2.79 billion).

These assets are high voltage transmission lines and substations, held by PGCIL in special purpose vehicles (SPVs). PGCIL will deploy proceeds from the asset monetization initiative for their new and under-construction projects and intends to monetize additional assets in the future based on its experience from the first one.

Such monetization is a crucial strategy of the government for recycling capital invested in operational assets. PGCIL’s InvIT is expected to attract both domestic and global investors, including sovereign wealth funds.

The government has already readied a regulatory and taxation framework for InvITs. The proposed InvIT by PGCIL is expected to deepen this market. It will provide an opportunity for retail and institutional investors, including mutual funds and pension funds, to reap benefits from this new investment instrument and participate in the growth of the Indian infrastructure sector.

Debjoy Sengupta is a Senior Assistant Editor at Mercom. Debjoy brings more than two decades of experience in frontline journalism, spending most of his career working for dailies like Business Standard and The Economic Times. He has reported on a vast array of sectors, including power and renewables. A graduate in business economics, Debjoy is an amateur 3D digital artist and a photographer. More articles from Debjoy Sengupta.