Power Grid Corporation of India Ltd
NSE:POWERGRID
Power Grid Corporation of India Ltd
NSE:POWERGRID
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Good morning. On behalf of ICICI Securities, I would like to welcome you all to the Q1 FY '24 Earnings Call with Power Grid management discuss the company's business and share the performance outlook of. Today, we have the entire senior management team of Power Grid. It's my pleasure to welcome and introduce Mr. K. Sreekant, Chairman and Managing Director.
Good morning.
Mr. G. Ravisankar, Director Finance and CFO.
Good morning.
Mr. Abhay Choudhary, Director, Projects.
Yes, good morning.
Mr. R. K. Tyagi, Director, Operations.
Good morning all.
I would now request the CMD sir, to make the presentation and the opening remarks, subsequent to which the floor will be open for Q&A. Over to you, sir.
Thank you, Mohit. A very good morning to all the participants. Welcome to the Q1 '23-'24 call. I'll make an initial brief presentation following which we'll -- I'll be hoping to answer your questions. So this is a very brief overview. I think the only change you will find is the number of subsidiaries, more TBCB companies have been acquired. So the subsidiaries are at 37 now. And we remain the third largest CPSE by far in terms of gross block.
Next please. It's not moving. Yes. As on date, our transmission assets are 174,000 circuit kilometers, at 274 substations with over 5 lakh MVA of transformation capacity. We have 18 HVDC substations, 62 765kV, 163 400kV substations. And our system availability is in excess of 99.75% consistently over the years. Next. Major highlights of this Q1, we have won 2 TBCB projects, one for renewable energy integration from Ananthapuram and Kurnool and other RE evacuation from Rajasthan. These are having levellised tariff of about INR 341 crores. Another 3 projects for which bids we have submitted are under evaluation, and we expect them to be taken up for the E Reverse Auction shortly.
Next. The smart meter project has taken off. We have received the order from Gujarat. We have been talking about this for some time now. This has 69 lakh meters. And over the next 2 years and 3 months, we will implement this and having an investment of about INR 4,067 crores. Yesterday, the Board also approved the investment in our 85-megawatt solar project at Nagda. So in the next 10 months, we will implement this project. This is for captive consumption as well as sale through exchange about 180 million units of energy is expected to be generated from this project.
Next. Now the project execution this quarter, we have completed 2 substations and 1,428 circuit kilometer of lines. POWERGRID Bikaner Transmission System, which has Bikaner pooling station as well as the Bikaner-Khetri, Khetri-Bhiwadi transition lines. This is the major system, which has been commissioned. Meerut-Simbhaoli, almost out of 4 elements, 3 are commissioned, but one element due to RoW at one location is struck up, but that is also expected to be -- there is a court case, so we expect it to be completed shortly. 4,435 MVA of transformation capacity, primarily at Bhadla and Bikaner for RE evacuation. This is the physical progress in terms of projects.
In terms of our financials, CapEx has been -- next slide, INR 1,506 crores in the quarter, INR 1,615 crores is the capitalization on a consolidated basis. Next. In operational performance. This quarter, 99.86% has been the availability, last year, same period, 99.79% on an average. So slightly better performance this quarter. Trippings also have reduced to 0.09 compared to 0.12 last year. Financial performance. Our revenues on a consolidated basis have been INR 11,258 crores this year in the first quarter. And the profit has been INR 3,597 crores compared to INR 3,801 crores in the corresponding period last year. Going forward, I'll briefly highlight the reason for this decrease.
Next. So the consultant services, if you see, this is a breakup which you would have seen from the results published, consultancy services, there has been a reduction from INR 233 crores to INR 121 crores. Primarily, the project -- large project we have been executing for the government in Northeast is coming to an end. Therefore, the revenues are tapering down. Telecom is up 15%, and yes, that is the major highlight. The other is interest in this quarter has upped by about 15%. Compared to last year, there has been significant increase in the rates of interest due to floating rate interest loans.
Next. This is the consolidated number in the same direction. I won't spend time on this. Next slide. Our gross fixed assets are INR 270,000 crores and capital work-in-progress is about INR 14,000 crores till date. Debt equity has significantly improved from 62 to 38 to 59:41 in the current quarter. Yes. Some of these numbers would be of interest to you. Last year, we had INR 351 crores of previous year sales in the quarter. This is now only INR 214 crores on the back of finalized tariff orders. This '22-'23 more than I think nearly 90% of their income has been through final tariff orders. So the adjustments due to previous year tariffs will be raised. That is about INR 140 crores lower this quarter.
Then consequent interest on differential tariff is also down by nearly INR 80 crores. So this is about INR 220 crores, which primarily explains the reduction in the profits. So last year, this first quarter, we had one-off events, nearly INR 500 crores, which has come down to 3 -- INR 270 crores, and that is one reason -- major reason for the reduction in the headline profit number. Otherwise, if you see the operational performance, it is better than last year. And overall, there is no fundamental change in the business as such. Our equity in the TBCB assets has now increased to INR 3,544 crores. And under construction, it is about 340 -- INR 350 crores. So roughly INR 4,000 crores of equity is deployed in the TBCB business.
Next. Our telecom performance, we have improved our overall telecom revenues to INR 191 crores. We are likely to cross, I think, 800 plus in the current year from telecom business. The business transfer agreement has been executed for hiving off the telecom business. So hopefully, by the 1st of October, we should see the entire telecom performing through the subsidiary Power Teleservices Limited. Next. Consultancy, as I mentioned, our revenues have come down primarily because in the Northeast, the project is coming to an end, and therefore, there is a significant reduction. We are attempting newer businesses. So we are taking up SCADA establishment for a couple of states. And then doing project execution for dedicated transmission lines for some of the hydro and renewable projects. So we are looking at other businesses to grow the consultancy revenue, but I think it will take a year or 2 to again get to that level because that was an issued income from the NERSIP business, which was for quite some time now.
Next. Commercial performance, the first quarter realization has been about 82%. April, there was a one-off bill on the back of tariff orders received. So that has pushed down the realization to 82% in terms of billing realization. But thereafter, March -- I mean, May and June the realization has been more than 100%. So today, we are at about 88% realization up to July '23. So we have an issue with Tamil Nadu regarding Raigarh-Pugalur recovery. So that is the -- one of the major reasons for this outstanding Next. In terms of works in hand today, we have about INR 48,700 crores. Ongoing RTM are about INR 11,000 crores, TBCB INR 12,800 crores. This year, we have targeted INR 8,800 crores CapEx initially, but this we will be looking to push up on the back of several projects we have received as well as the metering and the solar projects, which have been ordered. So I am very confident that this will be much more than INR 8,800 crore in the current financial year.
Next. Yes, outlook, if we look at next 9 years, that is the aligned to the 2030 target of 500 -- or 50% from nonfossil fuels, we have made an estimate that there is now INR 188,000 crores investment for the company we will be doing, that is our estimate. In the transmission business, about INR 171,000 crores, in solar smart metering infrastructure and data center businesses, I expect to do at least INR 17,000 crores. So this will taper up the current numbers which we have, that is the estimate which we have here factors the total market opportunity and what is the share. So INR 188,000 crores is the share of investment, which Power Grid hopes to make in the next -- estimates to make in the next 9 years or so. And that is the reason the pipeline which is coming in the transmission, particularly for the RE integration is a major source of confidence for us. A lot of projects have been approved, are in the pipeline and the flow for the bidding has also significantly increased.
So I'll take a pause here. And next, yes. I think one award, very important award we got ATD award for the learning the U.S.-based award, one of the 2 CPSUs and 17th among the 72 leading global companies. And we also, for our sustainability initiatives, we got the Global Prithvi Award 2023. Thank you so much. I pause here and look forward to answering your questions.
[Operator Instructions]
Mohit, would you like to start the question till the question queue assembles?
Yes, yes, so I'll start the [indiscernible] I think the 1Q let's take it. Abhineet, please go ahead.
Yes. Just wanted understand from the fact that you talked about CapEx increase from INR 8,800 crore. So for '24, what could that number be? And the second question is that, sir, there is a large pipeline of TBCB projects as per 14th NCP so are you factoring those numbers for '25 if you are assuming a 50% market share for yours?
Yes. So in '24, we expect it to cross INR 10,000 crores CapEx this year. And '24-'25, when we have given you the INR 188,000 crore number for the next 10 years, that factors these projects which are coming up through the NCP and the government approvals.
But just trying to understand, in terms of -- while this is a 8-, 9-year stuff that you talked about, in the interim, say, '25, '26, will there be an increased CapEx and then it will come down because there is a -- the government's plans are in terms of 500 gigawatts. So transmission lines should start getting auctioned and being built before that, right?
You're right. So it will not be like '25 or '26 all transmission will be built for -- the target is for 2030. So it will go maybe a little ahead of the generation, but it will not be like 3 years ahead or 4 years ahead. So the CapEx will go -- I mean, I don't see the CapEx coming down before 2030. It will only be an increasing trend.
Okay. So safe to assume from INR 10,000 will go to somewhere around INR 20,000 crore, INR 25,000 crore because the average is coming at INR 20,000 crore, INR 21,000 crores.
Yes, that is true.
And any status on...
Last few years, it should cross 20 plus INR 20,000 crores like in the past.
And any set of Leh as you decide, sir?
That is still under government approval for the subsidy component.
Okay.
And we will pick up after the government approval is received. In between the FEED study is going on. As I mentioned, I think I mentioned this in the last call also, the front-end engineering and design study that is going on. That is expected to be completed by January, February '24.
Okay, sir. And these 2 projects that we have won and what is the project broad numbers?
We have given the tariff, that's about INR 340 crores.
Bhavin, please go ahead.
Yes. So I have 3 questions. First is during the IPO of InvIT in your media interaction you had highlighted that there will be 18 additional projects of INR 22,500 crores, which will be sold to the InvIT. We haven't seen any movement on that. So what is the status now and why the delay?
We said that is the pipeline which could be available. But post the national monetization pipeline, there has been a change in the stand. Now the guidelines require us not to transfer ownership but only rights to the cash flows. So we are adopting the securitization route rather than monetization through transfer to InvIT. So that is how assets are not going to the InvIT at present.
Okay. So it will be the case that Power Grid kind of ends to the maturity all the TBCB assets, the InvIT will have to earn approval final assets individually itself?
I won't talk for the InvIT, but I'm talking as far as Power Grid is concerned, we are looking to raise funds at the optimal cost. And in terms of the government framework, asset transfer -- ownership transfer is not kind of permitted so if we do cash flow transfer then to the InvIT route, it's not working out, there are tax implications and all in that structuring, which are value decretive to the shareholders. So we have observed that the securitization route raising debt on the strength of the TBCB cash flows is compliant with the NMP framework and is also optimal fundraising for the Power Grid.
Okay. Secondly, if you could talk about the competitive landscape in the recent bids of TBCB?
Yes. So we are observing that smaller ticket size, there are, say, less than INR 1,000 crores. There are 7, 8 bids received, larger ticket, say INR 2,000 plus crore 4, 5 bids are received. Competition remains very intensive. There is no let down in that.
Actually incrementally, we are seeing the size of the projects is rising and then there is -- there are a couple of HVDC also so what is your expectation of equity IRRs, can we expect midteens or early double digits?
Mid-teens will be not there even in a regulated environment. So I think early double digits can be a fair assumption.
Great. Last question is we are seeing a very tight supply chain on the equipment supply, especially globally, and we have seen increase in the prices also because U.S., Europe is going very strong on the HVDC and transmission. How is that impacting the supply chain and the pricing from -- for us?
You are very right about supply chain constraints in the HVDC space due to the renewable energy integration in the West, there has been a significant spike in the HVDC and cable demand. So the time lines, we are finding a challenge to what has been asked in the NCT approvals or so. So we are taking up with the government that these time lines are not possible to adhere given the supply chain constraints. As far as pricing is concerned, so since these are TBCB projects where we would like to have some understanding with the equipment manufacturers. So we would like to build that into our pricing. But still, it will be a -- because of this large size of the project and the variables which are there in terms of exchange rate variation, in terms of price escalation. So these are indeed challenges, which need to be factored when we make our court.
So just last question, if I may. We -- I mean the draft regulation may be there sometime in November, December and final in Feb-March. What is -- what are your expectation for the regulated assets?
The discussion paper of the staff is out. I think yesterday, we have submitted our comments on it. From the discussion paper, though there have been several alternatives proposed. There is a fair degree of emphasis on regulatory certainty. And there is also a suggestion to grandfather the provisions for existing assets and any changes can be taken up for the new assets. So I think this is a good approach, which was given in that paper. And what we would like to have is continuation because as far as transmission tariffs are concerned, much of it is on a normative basis. So there is not much to change, maybe making it more easy to do other businesses will help. Say, for example, we have land at several locations if that land can be better utilized for setting up solar or other. And that is simplified, it will help.
Next question is from the line of Anuj Upadhyay.
Yes, okay. Sir, the center had approved around INR 75,400-odd crores of power transmission projects and the TBCB any time line when -- by when they would be out for bidding sir or...?
There are already bidding, large numbers are already in bidding, some INR 55,000 crore is under bidding right now.
INR 55,000 crores, sir, right?
INR 21,000 crore has been concluded. INR 55,000 crore is under bidding. Another INR 81,000 crore is to be floated by the BPCs. So the pipeline is pretty...
Hello?
Yes.
Okay. And sir, the trajectory which you provided on overall INR 171,000 crores of CapEx on the transmission space. You mentioned that probably FY '24 and '25, we may see CapEx effect in the range of INR 10,000 crores to INR 12,000 crores. So would it be fair to assume that FY '26 onwards, we may see INR 20,000, INR 25,000 crores kind of a CapEx to be incurred at PGCIL level or it would be at a further -- I mean, at a later date, say, FY '27, '28 onwards. Any timeline which you could provide would be helpful.
I think '25, '26 is a fair time line to see that kind of...
'25...?
'25, '26. Yes.
The next question is from the line of Puneet.
Hello? Can you hear me?
Yes, yes, please go ahead.
Yes. My question is on your INR 81,000 crores projects, which you said are likely to be floated in up for bidding. What kind of certainty can we assign that this will be up for bidding? Is it only a procedural matter? Or does the government needs to do more to convert it into bidding?
Sorry, I couldn't get your question.
Sorry, the INR 81,000 crores project, which you said will be floated up for bidding. Is it only a procedural matter that it gets converted into tenders? Or are there further steps that the government needs to take to convert it into tenders?
No, these are -- I wouldn't say, procedural level. These are schemes which have been identified. They will be -- in fact, they will be floated by the BPCs. So these have been approved by the NCT. But as per the requirement of the renewable energy projects, these will be implemented.
So what kind of time line can we assume here for INR 81,000 crores?
I think for this to come to bid, maybe 1, 1.5 years maximum.
Okay, maximum. And on your smart metering project, now that you have bid out everything, what kind of IRRs would you be looking at?
Yes. Here, we can look for mid-teens.
Next question is from the line of Nikhil Abhyankar. [Operator Instructions]
Sir a lot of stats are coming up with intrastate opportunities. So what is the opportunity size over there in the medium term?
As we have shown in our presentation, we are looking to about INR 37,000 crores in the next 9, 8 years.
And anything in the...
And intrastate is difficult to predict in terms of the flow pipeline. Interstate is much more forward-looking and action is there. But intrastate because so many states are involved and each has its own pace of working. So it is difficult to project.
Okay. Okay. And sir, we are also projected CapEx of INR 15,000 crores for smart metering over the 9 years. So what is the share of this Gujarat order over the next 2 years? And have we finalized any smart meter supplier for it?
Yes. The vendors have been finalized. We are going to do 69 lakhs. That is the initial estimate for the numbers. And that has a CapEx of about INR 4,100 crores, INR 4,050 crore or so. So we'll look to increase more because this is part of the first 10 crore meters. Overall, the meter size is about 25 crores. So we look forward to increasing this market share, both through our own as well as through our joint venture, EESL. They are also doing projects.
Understood. So should we expect a INR 10,000 crores of CapEx towards smart metering in the next, say, 2 to 3 years?
Yes. 2 to 3 years may be a little aggressive, but it will be next, say, 5 years.
The next question is from the line of [ Swati ].
So you noted that you have a plan of 1 point -- INR 1,165 crore (sic) [ INR 1,615 crores ] of CapEx for the [indiscernible] but on an ongoing basis the opportunity size for the next 10 years is around [ INR 1.9 trillion ] so are you doing [indiscernible].
Ma'am, your voice has not been clear. Can you be...
[ Swati ], can you keep your phone aside? Is there any other device close to you, or laptop, which is causing hinderance?
Yes. Can you hear me now?
Yes, better.
Yes. So you have indicated in your cite that a CapEx of INR 1.1 trillion planned for next 10 years, whereas even on your call you have alluded that the total capital, total opportunity size is INR 1.9 trillion in the interest rate [indiscernible]. So does that imply a 61% market share going ahead?
Not necessarily. Some will be RTM kind of projects which we expect to get. And also, definitely, we are right now around 50%, plus 55%, 57% depends on which -- where you take the cut. So we look forward to definitely maintain if not increase our market share. But it's not a very significant increase, which we are projecting compared to where we are today.
All right. All right, sir. And on the second one, the international projects that you're talking about [ INR 7,500 crores ] can you update or elaborate on which countries you're looking at? And maybe if you can update on the Kenya, INR 250 million and the Tanzania INR 400 million projects that you have spoken about?
So those are the 2 main ones we are looking at. Kenya, we are submitting the final proposal this week -- this August. So we received the in-principle approval for the PPP project, and we are going to submit the development report as they say this month. Tanzania is at still initial stages. Then we have been now founded of an opportunity in Nigeria. So in the African continent, we are looking primarily through the Africa 50 Alliance, opportunities. And then there is also the Katihar-Parbotipur-Bornagar line. So the Bangladesh portion of this will also be implemented with the joint venture. That is the discussion right now going on. Future interconnections with Nepal, the Nepalese portion also is envisage to be taken up through joint ventures with the NEA, Nepal Electricity Authority. So these are some of the opportunity set, which we are seriously evaluating at this point.
Understood. And just my last question. So can you give a broad year-wise bifurcation of the INR 1.8 trillion CapEx that you have planned out for the next 10 years, if that's possible?
Ma'am, you are again not clear. Yes.
Hello?
Yes, yes, please.
Yes, sorry. So I was saying, can you give us year-wise bifurcation of the INR 1.8 trillion CapEx that you have outlined for the next 10 years, if that's possible.
Year-wise bifurcation at this point, we cannot give you because that is a function of the pipeline, how quickly we get. And that again will be depending on the pace of the RE project development. So at this point, it will be difficult for me to give you a year-wise breakup.
So I just wanted to understand, will it be more front-loaded or more back-loaded sir just what are you expecting there...
It will be -- as I mentioned to another question from '25, '26 onwards, there will be a significant increase in the pace.
Next question is from the line of [ Ashwini Sharma ]. [Operator Instructions] Sir, we'll move to the next question. Next question is from the line of Dhruv Muchhal.
Dhruv from HDFC. Sir, you mentioned that there are INR 55,000 crores of projects which are currently under bidding and INR 81,000 crore, which will come up in the next 1 to 1.5 years, probably there will be more given the run rate at which NCPs are flowing in the projects. So sir, your CapEx guide that it will not cross beyond INR 20,000 crores in that sense seems a bit conservative, assuming 50%, 60% market share that you can [indiscernible] so just wanted to...
Sorry, Dhruv, we are not able to hear you clearly. Yes.
I'll try again, sir, yes, sir we have projects of about INR 55,000 crores, which are currently under bidding.
Right.
And INR 81,000 crore, which will come up in the next 1 to 1.5 years.
Right.
And probably there will be more when -- what exactly is NCLT is approving, the run rate at which NCLT is approving [indiscernible] so sir my point was that INR 20,000 crores will be CapEx run rate that you are [indiscernible] as you just stated that it will achieve with in say FY '26 or '27. Does that become a very conservative given typically 50%, 60% market share in projects?
No, I won't say conservative, see part of it stems from -- say, for example, this year, we have targeted INR 800 crore initially. But then this is definitely going to cross because there is now a larger set of projects under execution. Next year also, it will be higher. So INR 25,000 crore by '25, '26, as I mentioned, is a fair estimation. Because when the project is approved, you get nowadays about 2 years and larger projects about 4 years to execute. HVDC projects, for example, will need 4 years to implement. So if you take a INR 25,000 crore, INR 24,000 crores, then it will only add INR 6,000 crores to the annual CapEx. And that too will be like second, third, fourth year, there will be more CapEx. First year, will go in design much. So I think on an average peak can be INR 25,000 crores. You will be somewhere around INR 17,500 crores to INR 20,000 crores, INR 22,000 crores. That is the kind of numbers one can estimate, the rough ballpark kind of numbers.
Sir, given that a lot of projects are coming in a very short span, say, in the next 1 to 3 years, is it -- probably is it fair to say that the opportunity to gather -- capture more market share is also higher because the number of executors are relatively now?
No, no. It is not -- you will try to see how to capture the market share and all, that is a different issue. But even if we take -- for example, having made all this assessment, we have given this number of INR 116,000 crores as our CapEx for the interest rate transmission. So if you take it over the next 9 years, it will come somewhere around INR 13,000 crores annually. So any project will be about what, 2 years, it will take 2 years to complete a project. CapEx will be at least over 24 to 30 months. So I am not very confident that annual CapEx will exceed INR 25,000 crores.
Next question is from the line of [ Vipul Kumar Shah ]. [Operator Instructions] We'll move on to the next question, sir it is from Puneet.
On your guidance of INR 116,500 crores of interest rate CapEx, what is the opportunity size we can assume...?
The opportunity is the entire 500 gigawatt related transmission, which is planned so that itself is about INR 244,000 crores or so. That is the...
Okay. So out of INR 244,000 crore, INR 116,000 crore is your market share, how I should think about?
Out of INR 244,000 crore some has been already started for implementation and so on. So roughly, you can say that we have taken around 50% plus market share.
Okay. And you said this is dependent on the 500 gigawatt commissioning. So if that number were to get missed, is there a risk that the renewable -- the transmission capacity can also get deferred?
I think the entire government is committed to the 50 gigawatt -- I mean 500 gigawatt 50% nonfossil by 2030. So at this point, I will not subscribe to the view that it can be missed. It will be 1 year ahead or 1 year later, that's all. But as such, there is no risk to that target.
Mohit, would you like to ask the questions in the chat?
There are some questions in the chat. Sir, I'll just start with the first one, which has come from Koundinya from JPM (sic) [ JM ]. The question is if you can provide some color on the bidding time lines for the 3 HVDC projects.
For one project, Fatehpur-Bhadla, the bid is already out and the time lines have been given. I think the September is the target for even selection of the bidder. The other projects we are yet to see. But hopefully, in the next 6 months or so, we should see those also out in the market.
Sir, the second question is from the chat box on the Raipur -- Raigarh-Pugalur project the -- he is asking that we thought the receivers issue was resolved post 4Q FY '23. Can you please comment on the same?
The tariff has been notified by the CERC under the CERC sharing regulations, which provides 30% of the tariff to be included as a national component distributed over all the license -- I mean, discounts and the rest 70% to be borne by the southern beneficiaries because it is meant for the southern region. Now Tamil Nadu has taken up that this should be declared as a national asset, entire 100% should be part of the national component. They are drawing reference to the Biswanath Chariali system, which was included as a national asset. And also to the fact that this system is now facilitating flow of renewable energy from Southern region to Western region. So the central government has recommended this to the CERC, the POSOCO, the Grid India and the CTU have also recommended because of the bidirectional flows. CERC went by the sharing regulations and ordered that the sharing should be 30-70 only. So aggrieved Tamil Nadu has gone to APTEL, wherein APTEL has remanded back this matter to the CERC in one element. I mean there are 4 orders for the total Raigarh system, 4 elements, 4 orders were there. So 1 order has been remanded back to CERC. For the 3 other elements also the hearing is tomorrow. More likely that they all will be remanded back to CERC. So the current position is that the tariff order has been set aside until the CERC decides afresh. Okay? With that, so I believe that the tariff as such will have to be paid, if not in this ratio, some other ratio. There will be some lag in collection. That's all.
The third question is on the CERC tariff regulation. The approach paper for the next control period speaks of differential and potentially lower tariffs. Can you help us understand the way discussions are going here. And if there is any cut to base ROE?
So the discussion paper right as the approach paper has talked of a differential. Now differential can be that you make the other higher. There is no need to make one smaller to make them look bigger. So if you feel hydro -- this has been done in the last tariff also that hydro were given a little higher. If you feel that it is still not compensating the hydro, you need to give more, please do go ahead. No worries but you don't have to cut for the transmission sector to make the other look big. I don't think cutting transmission tariff will no way increase the profits of the hydro investors. We have given our views, and they -- given the current interest regime and the construction risk profile with increasing ROW and all, the return, which is there currently is a fair return in our view. Second, the approach paper also talks of grandfathering. That is the new regulations to apply to assets commissioned after the new regulations have come into force. So I think at this point of time, there is only some points for discussion. When the draft regulations come, there will be a little bit more clarity on the view of the commission because at this point, this is views of the staff. They are not the views of the commission. So in the transmission sector, I would not read too much into this approach paper in terms of reducing the rate of return or anything.
The last question comes from Bharanidhar Vijayakumar from Spark Capital. The question is, what is the revenue model in smart metering? What is the initial cost we incurred? And then the cost per year during O&M and revenue per year during O&M? Also, what is the likely return or IRR in the smart metering investments?
The revenue model is that we will be paid per meter per month. So for the domestic or for [ XT ] and feeder meters, different rates are quoted, and we'll be paid per meter per month by the discount. Our payment to our vendors are in 2 parts. One part is for the meter assets. So it is linked to the installation and commissioning. And then we will be paying them per meter per month, again for the O&M expenses. So it is a kind of turnkey that they also have to adhere in terms of the service level agreements and recoveries also. There is a fair degree of back-to-back arrangement. As far as the investment is concerned, as I mentioned in the CapEx phase, we envisage to incur about INR 4,000 crores investment for the 69 lakh meters. The ROE expectation is mid-teens from this project. Sorry, Mohit, you are not audible. You are muted, Mohit.
Yes, yes, sir. I think we have reached to the end of the call, I don't think there's any further queue. Sir, thank you for -- thanks to the management for giving us the opportunity to host the call. Sir, would you like to make any closing remarks?
Thank you so much. I think the business looks much more robust and with a very strong pipeline approved and in-bidding available. I think compared to where we were a year back, the situation is much more clear. And the processes for approval of projects have also been simplified, more delegation has been given to the NCT and the CTU. So business looks good. Operational performance has been strong. That is where I would like to conclude. Thank you so much for joining the call.
Thank you. Thank you. Thank you, everybody. Thank you.