PGCIL to retain position in power transmission

New Delhi, Jan 14: Power Grid Corporation (PGCIL) will maintainits predominant position as the central transmission utility althoughthe government has thrown the space open for the country's power houseslike Tata Power, Reliance Energy and RPG Transmission.

The power majors, also including GMR Energy, L&T, Essar Powerand the Torrent Group, are in fray to grab a pie of the powertransmission sector, as the government this week launched thetariff-based competitive bidding process for 14 large transmissionprojects entailing an investment of Rs 20,000 crore.

''PGCIL is likely to maintain its predominant position with itswide existing network and dedicated links for evacuating power frommajor generating stations,'' an industry source said.

The highly captive intensive nature of the business would also remain a strong entry barrier, the source added.

During the Tenth and Eleventh Plan periods, PGCIL proposes tosignificantly increase its transmission capacities with a total capitaloutlay of Rs 55,000 crore.

''PGCIL is gearing up to meet Rs 55,000 crore investmentrequirement for evacuation of power from the new generating stations,strengthening of the transmission system and inter-regional capacityincrease,'' Power Minister Sushilkumar Shinde said on thursday whileseeking private participation in the transmission space.

With the revision in the tariff structure for the period 2004-09,which includes a reduction in return on equity from 16 per cent to 14per cent and abolition of the develoment surcharge, the company'sdependence on debt financing for project funding will increase,resulting in an increase in gearing, the source added.

The company's debt cover is unlikely to be impaired given the lowlevel of business risks, cost-plus tariff structure, superioroperational efficiency and the facility of advance againstdepreciation.

During FY06, Power Grid posted a 28 per cent increase in its net profit at Rs 1,009 crore as compared to Rs 786 crore in FY06.

Its operating margins rose 24 per cent to Rs 3,198 crore in the year as compared to Rs 2,572 crore an year ago.

The ratio of net cash accruals to total debt (NCA/TD), however,continues to remain on the lower side because of large debt stocklocked up in projects which are under execution and thus yet togenerate any returns.

Credit rating agency ICRA has affirmed high credit quality ratingsto the company's Rs 7,133 crore long-term bond programme, Rs 2,510crore bonds programme for 2006-07 and Rs 650 crore short-term debtprogramme.

The ratings factor in PGCIL's strategic role in India's powersector, which is likely to continue despite the sector having beenopened for private partcipation, ICRA said.

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