Deloitte working on privitisation of India's power sector

As the central government moves to privatise power distribution companies across India’s Union Territories , Deloitte has been brought on board alongside investment banking group SBI Capital Markets to support with the process. 

According to Livemint, the two organisations have been appointed by the Power Finance Corporation to manage different parts of the sale. Deloitte will oversee the privatisation of power distribution companies in Puducherry, Chandigarh and Andaman & Nicobar Islands, while SBI Capital Markets will manage the sale in Dadra & Nagar Haveli, Daman & Diu, Jammu & Kashmir and Ladakh.

Their appointment comes more than a month after the government announced the privatisation of union territory power distribution companies, and the pair are expected to complete the sale process by December. Officials plan to wrap up the privatisation drive by the start of next year at the latest.

The move to privatise was part of an overall economic stimulus package aimed at mitigating the impact of the lockdown. India’s power distribution companies have a combined debt of more than Rs.4 trillion, further exacerbated by the dip in industrial power demand since the spread of Covid-19. While the government is looking to support the power sector, its hands are tied to some extent.

Union territory power distribution companies are the only power entities that fall under central jurisdiction in India, with the rest falling under individual state governments. A draft Electricity Act (Amendment) Bill of 2020 was introduced in April, which aims to increase central support via direct benefit transfer (DBT) schemes, bumped up subsidies, retail competition, and a number of other reforms. However, state governments are likely to protect their control over the power sector, with many already resisting the new reform.

So for now, the government's best option is to privatise the power companies, which fall directly under its control. Livemint reports that a number of organisations are already showing interest in these new assets on offer. Three categories of buyers are emerging.

The first subset includes major domestic power companies, including CESC, Torrent Power, Tata Power, Greenko Group and the Adani Group among others. The second category consists of major global players such Enel Group from Italy, Tenaga Nasional from Malaysia, Electricite de France, and China Light & Power from Hong Kong. Lastly, a number of investment funds are looking to get involved, including Brookfield Asset Management, CDPQ and the CDC Group.

The involvement of Deloitte in the process is no surprise; a growing share of public sector organisations are relying on the consulting sector for major projects. The Big Four accounting and advisory firm has also been involved in a privatisation drive in Odisha since November last year, which presumably gave it a leg up in the competitive bidding process.

Ahead of the curve, Odisha began privatising its power distribution network well before the crisis. Deloitte was brought on board by the Odisha Electricity Regulatory Commission to manage the sale of the North Eastern Electricity Supply Company (NESCO), while analytical firm Crisil was appointed for the sale of two other companies in the state. The Adani Group, CESC and Tata Power are all in the race in Odisha, and now for similar work across the country.

In a recent interview, McKinsey & Company India Managing Director Gautam Kumra revealed that the new privatisation drive is set to reduce manufacturing costs in India, which is crucial to capitalising on global supply chain gaps post the crisis. Several economic experts have called for the government and private sector to ensure that this scenario is realised.