The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has approved monetisation of Rs 7,000 crore of assets of Powergrid. This becomes the first instance of a government-owned company in the power sector recycling assets through the infrastructure investment trust (InvIT) model.

“This approval would help Powergrid to monetise in the first lot assets with gross block value of more than 7000 crore,” the Central government announced yesterday evening.

“These assets, which are mainly high-voltage transmission lines and substations, are held by Powergrid in form of special purpose vehicles (SPVs).”

The proceeds from the asset monetisation would be used to fund Powergrid’s new and under-construction projects. Powergrid, under the ministry of power, began commercial operations of power transmission in 1992-93. Powergrid is India’s largest electric power transmission utility, having 164,511 circuit kilometre transmission lines and 249 substations as of 31 August 2020.

The Powergrid asset monetisation move follows the Budget 2019-20 decision to use new and innovative financial instruments, such as the infrastructure investment trusts (InvITs), to raise funds for expansion and infrastructure projects. Powergrid has a capital expenditure plan of Rs 20,500 crore for the next two years.

The Government of India has enacted an enabling regulatory and taxation framework for InvITs and expects the Powergrid asset monetisation to “deepen this market”. Powergrid would first monetise assets of more than Rs7000 crore, with further monetisation to be carried out after studying the impact, the government said.

The Central government has decided to use asset recycling as a key strategy to release capital invested in operational assets. It expects the move to attract domestic and global investors as well as sovereign wealth funds.

“The InvIT would provide an opportunity to the general public, institutional investors such as pension funds, mutual funds, to benefit from this investment opportunity and participate in the growth of Indian infrastructure sector,” according to the Cabinet Committee on Economic Affairs.