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Policy Dialogue on Financial Restructuring of Tamil Nadu’s Transmission Corporation

  • Project Name: Chennai–Kanyakumari Industrial Corridor: Power Sector Investment Project.
  • Region/Country: South Asia/India
  • Sector and Themes: Energy
  • Year: 2018–Present
  • Project Leaders: Pradeep Perera and Janardanam Srinivasan
Policy Dialogue on Financial Restructuring of Tamil Nadu’s Transmission Corporation
The project established an extra-high voltage transmission link to transfer extra capacity to Coimbatore, a major industrial center, and Chennai.

The project highlights the importance and strength of the “One ADB” approach.

Development challenge

The Tamil Nadu Transmission Corporation (TANTRANSCO) faced critical risks to its financial sustainability as identified by ADB during the financial due diligence of the $451 million Chennai–Kanyakumari Industrial Corridor: Power Sector Investment Project.

Tamil Nadu’s power sector was unbundled in 2010, and in 2015 the Tamil Nadu Electricity Board’s assets and liabilities were allocated to successor companies, Tamil Nadu Generation and Distribution Company and TANTRANSCO. This saddled TANTRANSCO with liabilities that were unrelated to the transmission business and also made it ineligible for recovery through the transmission tariff. TANTRANSCO needed to maintain a certain debt–equity ratio under tariff regulations. As a result, TANTRANSCO had to borrow from commercial sources. Tamil Nadu’s plans for investing in renewable energy depended on the fiscal sustainability of TANTRANSCO and its ability to invest in transmission infrastructure to provide connectivity to renewable energy.

Solution

ADB’s South Asia Energy Division used its knowledge and experience of India’s power sector, coupled with the financial management expertise of the ADB Procurement, Portfolio, and Financial Management Department, to identify the root causes of TANTRANSCO’S financial challenges and develop a pragmatic financial restructuring plan.

Knowledge products and services delivered

The project helped create a comprehensive financial restructuring plan and a financial management action plan to get TANTRANSCO back to fiscal sustainability in the medium term. These plans were approved by the Government of Tamil Nadu and they will strengthen TANTRANSCO’s financial sustainability, financial management capacity, and corporate governance.

Gender-sensitive workplace practices were also introduced along with initiatives to enhance career opportunities for female staff. In addition, a framework was designed and implemented to improve TANTRANSCO’s capacity to monitor the environmental and social impacts of transmission projects. ADB provided TA to help TANTRANSCO implement the financial restructuring plan to restore its financial sustainability and financial management action plan to improve corporate governance and financial management. Now, a series of measures are being introduced to improve the corporate governance and financial management capacity of TANTRANSCO.

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A comprehensive financial restructuring plan and a financial management action plan developed through the project helped TANTRANSCO back to fiscal sustainability.

Impact and results

Through the knowledge services provided under this project, ADB is helping the Government of Tamil Nadu effectively address legacy financial and debt issues, and improve the power sector’s corporate governance and financial management capacity. The project has also incorporated gender-sensitive workplace practices. TANTRANSCO’s capacity to monitor the environmental and social impacts of transmission projects was enhanced. The comprehensive financial restructuring plan designed by ADB, which includes an equity injection amounting to $3 billion from the state government, is expected to make TANTRANSCO financially viable by 2024. Encouraged by this initiative, the government of Tamil Nadu has requested that ADB help develop recommendations for financial restructuring and improved corporate governance of Tamil Nadu Generation and Distribution Company, which is also in dire financial straits.

Lessons for Replication

The project highlights the importance and strength of the “One ADB” approach. Seamless and effective cooperation to integrate the power sector expertise of the South Asia Energy Division’s knowledge and experience of India’s power sector, coupled with the financial management expertise of the Procurement, Portfolio, and Financial Management Department, resulted in ADB obtaining the government buy-in for the financial restructuring plan for TANTRANSCO. This highlights the importance of internal knowledge collaboration that ADB can leverage, using its expertise, knowledge, and experience for successful project outcomes.