Tangedco’s bifurcation process can take 6-12 months to end: India Ratings and Research

India Ratings expects Tamil Nadu's power sector unbundling to improve operational performance, reduce losses, and lower fiscal deficit in the future.

The Tamil Nadu government and the Tamil Nadu Generation and Distribution Corporation (Tangedco) could take six to twelve months to complete the bifurcation process of the State power utility and the unbundling of the power sector, India Ratings and Research has said.

The Union Ministry of Corporate Affairs had approved the State government’s decision to bifurcate Tangedco into separate entities for generation and distribution and carve out a new entity for renewable energy, with the merger of the renewable wing of Tangedco with effect from June 27, the ratings firm noted.

However, the division of the liabilities and assets of the erstwhile Tangedco was still in process, it said.

The firm said it maintains a ‘Rating Watch with Developing Implications’ on Tangedco’s bank loans, as it awaits greater clarity on the various aspects of the bifurcation — including the division of the State power utility’s borrowings (bonds and the bank loans); division of the current losses, and steps that the government would undertake to bring down the losses.

The Rating Watch with Developing Implications indicates that the ratings could be upgraded, affirmed or downgraded based on the details that will emerge on the bifurcation, it pointed out. The ratings firm affirmed IND A(CE)/Stable rating on Tangedco’s bonds, and maintained BBB/ Rating on the bank loans, and said it also awaited further details on any change in the nature of the State government’s guarantee for the existing bonds raised by Tangedco.

Under the Electricity Act, 2003, 20 major States had benefited from the unbundling of their power sector, it said.

India Ratings further said it believed that the complete unbundling of the power sector would help increase the operational performance, bring down Tangedco’s losses and eventually lead to lower revenue and fiscal deficit of Tamil Nadu.