core sector communique

Power Distribution Utilities to be Rated

Ministry of Power has developed an Integrated rating Methodology covering the State Power Distribution Utilities. The system is an attempt to harmonize the rating of State Power Distribution Utilities by Banks/ FI. The objective is to rate all utilities on the basis of their performance and their ability to sustain commercially viable operations in the long run. The methodology focuses on rewarding efforts of distribution utilities and therefore stimulating and improving operational and financial performance of distribution entities. Marks would be assigned for both current levels of performance and relative improvement over the baseline parameters. It would also rank the utilities on the basis of performance. The parameters for analysis like AT&C losses, financial planning, cost coverage ratio, subsidy received etc. carry maximum weightage (about 60%) as they directly affect commercial viability. Compliance to regulatory practices has been assigned a weightage of 15%. Other parameters like timely submission of audited accounts, metering, IT and computerization, timely payments without default to Banks/ FIs, Renewable Energy Purchase Obligation etc. account for remaining 25%. A system of negative marks has also been introduced in the rating methodology. The parameters assigned negative marks include non-auditing of accounts (upto minus 12%), SEB unbundling (upto minus 5%), non-filing of tariff petition (upto minus 5%), untreated revenue gap (upto minus 5%), deterioration in AT&C Loss (upto minus 5%), increase in payables (upto minus 3%), presence of Regulatory Asset (upto minus 3%), negative net-worth (minus 3%) and extent of cross subsidy (upto minus 2%). This integrated rating methodology is expected to facilitate realistic assessment by Banks/FIs of the risks associated with lending exposures to various state distribution utilities. It would enable funding with appropriate loan covenants for improving operational, financial and managerial performance. Ministry of Power also explores possibilities of linking its other initiatives and schemes to the state with this rating mechanism. The annual ranking and rating of all state power distribution utilities (except the utilities in North Eastern states) will be carried out by the agencies appointed by Ministry of Power. The ratings would be published on the website of the Ministry.