add_main_image New Delhi: India on Tuesday launched an annual rating system of state power distribution companies to boost lending to them and also help improve their performance.
The utilities have been graded on a scale of six—from A plus to C—by ICRA Ltd and Credit Analysis and Research Ltd (CARE). A highly rated distributor will be eligible for funds from state-owned banks and other financial institutions at a lower rate of interest.NextMAds
The system has been instituted at a time when the government plans to bail out debt-laden power distributors by recasting their short-term borrowing. These utilities owned by state governments are finding it difficult to raise working capital and owe ₹ 2.46 trillion to lenders.
The rating will be based on seven parameters such as financial performance, junior power minister Jyotiraditya Scindia said.
“Distribution is the vital link in the value chain of the power sector. Distribution has been an area of concern,” said Scindia.
Such a mechanism may provide incentives to distributors to improve their operational and financial performance and help lending institutions assess exposure risks. The rating may also serve as a basis for the federal government’s assistance to the state power sector.
India is readying a plan for a mandatory rating system for state-owned distribution firms, Mint reported on 16 May 2011.
“The exercise was started in May 2011. We hope that distribution companies will look at these ratings and move up from one level to another,” power secretary P. Uma Shankar said at the launch on Tuesday.sixthMAds
In an exercise carried out among 39 state power distribution utilities, four were awarded A plus and two were given A. Eleven utilities have been given a B plus rating, 10 have been given B, eight got C plus and four are rated C.
The health of the power sector is linked to the financial condition of distribution utilities because they are responsible for buying power from utilities such as NTPC Ltd. There is a growing concern about investing in power generation units due to the poor financial health.
Challenges facing power distribution utilities include sourcing of power and managing load shedding, according to Ajoy Mehta, managing director of Maharashtra government-owned power distribution utility Maharashtra State Electricity Distribution Co. Ltd.
The cumulative losses of distribution utilities rose from ₹ 1.22 trillion in 2009-10 to ₹ 1.9 trillion in March 2011. A study by consulting firm Mercados EMI Asia for the 13th Finance Commission estimated losses in 2014-15 at ₹ 1.16 trillion.
