CEA addresses key hurdles in state transmission asset monetization

The Central Electricity Authority (CEA) has issued letters to states outlining measures to resolve key barriers in monetizing intra state transmission assets under the Acquire, Operate, Maintain, and Transfer (AOMT) model.  

The move follows a workshop held on 06 December 2024 by the CEA with the National Investment and Infrastructure Fund, PFC Consulting Limited, and Power Grid InvIT, attended by 24 states and union territories. States flagged three main concerns limiting investor interest. These were revenue certainty over long concession periods, tax treatment of asset transfers, and payment security for intra state transmission charges.

On revenue certainty, the CEA has proposed a tariff determination framework for monetized assets operating under the regulated tariff mechanism. With analytical support from the International Finance Corporation and the NIIF, the framework recommends fixing the return on equity either for the full concession period or through a formula linked approach, while keeping it aligned with the state Transco rate. It also calls for pre-defined operations and maintenance norms for the special purpose vehicle, allowed interest on loans on a normative basis, and alignment of depreciation and working capital norms with existing state regulations. The CEA has clarified that upfront monetization proceeds should not be adjusted against the Transco aggregate revenue requirement.

On tax treatment, the CEA has advised states to adopt a demerger structure for transferring assets into a special purpose vehicle. Based on an analysis prepared with inputs from the NIIF, the IFC, and other stakeholders, the demerger route is identified as the most tax efficient option for public sector entities, compared to slump sale or direct asset transfer.

For payment security, the CEA has pointed to the Electricity Late Payment Surcharge and Related Matter Amendment Rules, 2025, notified by the Ministry of Power on 02 May 2025. The rules extend late payment surcharge provisions to intra state transmission, linking payment discipline by distribution companies to access to power markets.

The CEA has stated that these measures are intended to make transmission asset monetization a viable financing tool for states, at a time when significant private capital is required to support grid expansion.

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