Reliance Infrastructure's (RInfra) deal to sell Mumbai power distribution business to Adani Transmission Limited (ATL) is facing “objection” from the government of Maharashtra due to non-payment of electricity duty (ED) and tax on the sale of electricity (TOSE) of around Rs 2,417.86 crore.
Therefore, it is only on payment of ED and TOSE to the government of Maharashtra that the RInfra will be able to finalise the sale of its business to ATL.
As per the timeline shared by RInfra, Mumbai suburban power consumers are likely to receive bills under Adani’s brand starting second half of July.
According to Maharashtra Electricity Regulatory Commission’s (MERC) order that was released on Thursday, the government of Maharashtra through its electrical inspector approached MERC stating that after September 2016, RInfra has defaulted in making payment of ED and TOSE. “The total amount due and payable by RInfra is Rs 2,117.86 crore, considering principal amount as on 31 March 2018 with interest up to 29 May, 2018, with the amount of arrears increasing by approximately Rs 1,00 crore per month,” read MERC’s order copy.
As the financial position of Reliance Electric Generation and Supply Ltd (REGSL), the company that will be sold to ATL, is not sound, the state government is of the opinion that it will not be able to recover its dues. Thereby, government raising an “objection” towards the deal, unless the dues along with interest is cleared.
In the order, MERC has termed the issue as “a serious case of default”.
“The commission cannot permit assignment of distribution licence and transfer of distribution assets from RInfra to REGSL, and sale of 100% shareholding in REGSL to ATL, unless all such statutory dues accrued till the appointed date are first paid to government of Maharashtra,” observed MERC.
MERC has also given ATL the option to adjust the tax payment amount from the deal value to be paid to the government. However, the nod from MERC is subject to payment of the dues.
As MERC set payment of ED and TOSE as conditions precedent, RInfra submitted that the arrears shall be paid at the time of closing of transaction for transfer of the utility to REGSL.
Commenting on the subject, an RInfra spokesperson said, “Reliance Infrastructure has itself committed to government of Maharashtra and to MERC that it will pay the arrears of ED and TOSE at the time of closing of transaction for transfer of utility to REGSL. MERC has acknowledged the same in its order.”
The estimated deal amount is Rs 18,800 crore. RInfra executives claim that post transaction, the company is likely to become debt-free, with Rs 3,000 crore cash surplus. However, going by the payment of around Rs 2,400 crore towards ED and TOSE as well as Rs 271.56 crore for retaining four of the properties, it is unclear if there will be a cash surplus of Rs 3,000 crore.
The valuation of these four plots at Rs 250.02 crore has been arrived at on the rateable value as per ready reckoner rates prescribed by the government of Maharashtra for the financial year 2017-18. The buildings on these plots are valued at Rs 21.53 crore. RInfra has its corporate office at two of the plots, one plot has a residential building and the other is a mixed-used plot.
Even for this transaction of four plots, the total of Rs 271.56 crore will either be made by RInfra separately to ATL or get adjusted in the entire deal’s amount.
In December 2017, both the companies had announced the signing of definitive binding agreement for 100% stake sale of Mumbai’s integrated business of generation, transmission and distribution of power.
The total deal amount of around Rs 18,800 crore is inclusive of Rs 13,251 crore for the assets, Rs 5,000 crore for regulatory assets under approval and Rs 550 crore net working capital on closing.
For RInfra, this measure of sale of its asset is part of debt-reducing exercise to monetise and deleverage the company for future growth. Going forward, RInfra wants to focus on upcoming opportunities in asset-light engineering, procurement and construction as well as defence businesses.
RInfra distributes power to nearly three million residential, industrial and commercial consumers in the suburbs of Mumbai, covering an area of 400 square kilometre. It caters to a peak demand of over 1,800 megawatt and has annual revenues of Rs 7,500 crore with stable cash flows.
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