CCI Approves the Acquisition by Power Finance Corporation Limited of 52.63% equity stake along with management control in REC Limited

On January 31, 2019, CCI approved the acquisition by Power Finance Corporation Limited (‘PFC’) of 52.63% equity stake along with management control in REC Limited (‘REC’, collectively with PFC as ‘Parties’) (‘Proposed Combination’). The Proposed Combination was notified to CCI pursuant to the decision of the Cabinet Committee on Economic Affairs dated December 06, 2018 granting in-principle approval for strategic sale of Government of India’s (‘GoI’) 52.63% shareholding in REC to PFC along with a resolution dated December 20, 2018 passed by the board of directors of PFC granting an in-principle approval to the Proposed Combination.

PFC is a public sector enterprise, which is registered with the Reserve Bank of India (‘RBI’) as a Non-banking Finance Company – Infrastructure Finance Company, since 1990 and was declared as a Public Financial Institution (‘PFI’) in 2010. It provides (directly and indirectly) various financial products and services from the project conceptualization stage to the post commissioning stage, for clients in the power sector. PFC is also a nodal agency for various schemes of GoI in the power sector, including; (i) Ultra Mega Projects (‘UMPPs’); (ii) Restructured Accelerated Power Development and Reforms Program (‘R-APDRP’)/ Integrated Power Development Scheme (‘IPDS’); and (iii) Independent Transmission Projects (‘ITPs’).

REC is also a public sector enterprise, registered as a Non-banking Finance Company – Infrastructure Finance Company with RBI since 2010. REC is engaged in financing projects/schemes for inter alia power generation, transmission, distribution, etc. REC is also designated as a nodal agency for various schemes of GoI in the power sector such as; (i) Pradhan Mantri Sahaj Har Ghar Yojna; and (ii) Deendayal Upadhyaya Gram Jyoti Yojna; etc.

Based on the business activities of the Parties, CCI identified overlaps between the Parties in two product segments, as detailed below. However, CCI did not provide the exact market definition, since the Proposed Combination would not have led to any AAEC in India.

i.      Provision of credit for power sector in India: CCI observed that this market may be further classified based on varied criteria such as instrument of financing, type of loan products, nature of power project such as generation, transmission or distribution etc. For assessing the presence of the Parties, CCI stated that market share estimates in terms of gross loan assets would not provide a fair indication of current competition dynamics, and assessed the Parties presence based on bidding data. Accordingly, based on the bidding data of the Parties (including the winning bids), CCI observed that the presence of the Parties was not significant and was constrained by the presence of various enterprises, especially banks.

ii.      Provision of consultancy services in the power sector in India: CCI noted that the Parties did not have a significant presence in this market, with a less than 10% combined market share pursuant to the Proposed Combination. Further, the market was also characterized by significant competitors such as WAPCOS Limited, Tata Consulting Engineers Limited, etc.

In its assessment, CCI also noted that the Parties had common shareholding in certain entities namely, Energy Efficiency Services Limited (‘EESL’), Shree Maheshwar Hydel Power Corporation Limited (‘SMHPCL’) and NHPC Limited (‘NHPC’). However, given that (i) EESL was not engaged in any business activity as that of the Parties; (ii) SMHPCL had been classified as a non-performing asset (‘NPA’); (iii) SMHPCL had limited capacity under implementation; and (iv) NHPC’s total installed capacity constituted an insignificant part of the total installed capacity in India, CCI observed that the common shareholding would not be likely to cause any AAEC in any market in India.

CCI also observed that the Parties work closely with GoI, and even pursuant to the Proposed Combination would continue to follow the mandate as decided by GoI. Given that the Proposed Combination does not lead to any AAEC in any of the markets identified above, CCI approved the Proposed Combination under Section 31(1) of the Act.