Power ministry launches credit ratings for discoms

First annual exercise names Gujarat's best performers, UP discoms worst

The Union power ministry today launched a credit rating mechanism for power distribution companies (discoms) of 20 states of the country, as part of the ongoing exercise to reform the power distribution mechanism.

Power Minister Jyotiraditya Scindia said: “The ratings would facilitate the realistic assessment of performance of utilities and help banks and financial institutions adopt a uniform approach while extending funds to meet the needs of different utilities.”

The new rating system grades performance of utilities on seven parameters: Financial performance, audited accounts, cross-subsidy extended, reform measures like unbundling and overall regulatory environment. The parameters carry a cumulative weightage of 100. A maximum weightage of 60 per cent has been assigned for financial performance parameters, followed by 15 per cent weightage for regulatory health.

The rating methodology has been developed by the power ministry with help from private agencies, CARE Ratings and Icra.

Grades assigned to utilities range from A+ for best and C for worst performance.

The first version of the annual ratings released today named Gujarat discoms as best performers. Power utilities of Uttar Pradesh were rated the worst among 39 discoms.

Four utilities of Gujarat were awarded an A+ grade, based on their strong cost coverage, collection efficiency, cost-reflective rates and timely submission of audited accounts and tariff petitions. Two utilities of West Bengal and Maharashtra were given A grade. Four UP discoms were awarded C grade for sustained net losses, weak cost coverage, high line losses, negative net-worth and delay in submission of accounts.        

The key findings of the maiden credit rating exercise carried out by CARE Ratings and Icra were – low ability of most discoms to cover the basic cost of supply due to increase in expenses on account of higher fuel cost, substantial build-up of debt for funding losses, marginal improvement in technical and commercial losses and high subsidy receivables by some utilities from state governments.

The exercise also revealed only a handful of entities had filed their tariff petitions for next financial year (2013-14) by November 30, 2012. Further, only 21 of 39 utilities surveyed had filed audited accounts for 2011-12.
POWER-PACKED METHODS

• The credit rating mechanism would cover discoms of 20 states
• The rating system grades utilities’ performance on seven parameters, including finances, audited accounts, cross subsidy extended, reform measures and overall regulatory environment
• The rating methodology has been developed by the power ministry with help from private agencies, CARE Ratings and Icra
• Grades assigned to utilities range from A+ for best and C for worst performance
• The first version of the annual ratings released on Tuesday named Gujarat discoms as best performers. Power utilities of Uttar Pradesh rated the worst among 39 discoms