CEA proposes framework for states to monetise intra-state transmission assets

The Central Electricity Authority (CEA) has released a proposal outlining how states can monetise their existing intra-state transmission networks. The plan seeks to ease the funding gap of more than Rs 9.16 lakh crore identified in the National Electricity Plan (Transmission) 2032, as over half of India’s transmission capacity addition is expected to take place at the state level.

To help states raise capital without increasing fiscal pressure, the CEA has recommended adopting the Acquire, Operate, Maintain, and Transfer (AOMT) model for transmission asset monetisation.

Under this model, a state transmission utility (Transco) would transfer operational assets to a Special Purpose Vehicle (SPV). A private investor, selected through competitive bidding, would acquire full ownership of the SPV for a concession period of 10–15 years. The investor would pay an upfront lump sum, operate and maintain the assets, and recover costs through transmission tariffs. At the end of the concession term, the SPV would revert to the state Transco for a nominal fee of Rs 1, ensuring public ownership of the infrastructure is maintained.

The CEA has described the model as offering dual benefits: it provides states with immediate capital for new projects and introduces private sector efficiency in the operation and maintenance of transmission systems.

To address investor apprehensions, the CEA has identified two key areas requiring regulatory clarity: revenue stability and taxation.

For revenue certainty, it has proposed a uniform tariff framework for State Electricity Regulatory Commissions (SERCs). The recommendations include maintaining a fixed Return on Equity (RoE) throughout the concession period, defining stable operation and maintenance (O&M) norms for SPVs, and providing explicit guidance on depreciation and interest computation to ensure regulatory predictability.

On taxation, the note examines three possible structures for transferring assets to the SPV: Slump Sale, Demerger, and Direct Asset Transfer. It concludes that the Demerger route is the most tax-efficient under the Income Tax Act. For instance, in a transaction valued at Rs 500 crore, the Demerger method would attract an estimated Long-Term Capital Gains (LTCG) tax of Rs 29 crore, compared to about Rs 65 crore in Short-Term Capital Gains (STCG) under a Slump Sale.

The CEA has asked the Forum of Regulators to develop a model tariff determination framework based on these recommendations to standardise the process across states.

The initiative follows successful examples such as Power Grid Corporation of India Limited (PGCIL), which raised Rs 7,700 crore in 2021–22 through asset monetisation via an Infrastructure Investment Trust (InvIT). The CEA expects similar models to help states unlock the value of their transmission networks, attract long-term investment, and strengthen India’s grid infrastructure.