Power ministry to rate discoms

In addition to credit rating agencies, state distribution utilities are to be rated by the Union power ministry, which has developed a system to harmonise ratings by banks and financial institutions.

Many discoms are being weighed down by debt. The ministry will rate them on performance and ability to sustain commercially viable operations in the long run. These ratings will be published on the ministry website.

“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 ministry said.

Factors affecting direct commercial viability, such as aggregate technical and commercial (AT&C) losses, financial planning, cost coverage ratio and subsidy, carry 60 per cent weightage. Compliance with regulatory practices get a weightage of 15 per cent. Parameters such as timely filing of audited accounts, metering, use of information technology and computerisation, timely payment without default to banks and financial institutions and meeting the renewable energy purchase obligation account for the remaining 25 per cent.

The ministry has also come up with a system of assigning negative marks where discoms which do not audit accounts and do not file rate petitions will get minus marks. If a discom has higher cross-subsidy or higher payables and deterioration in AT&C losses, they will earn negatives.

The ministry says it expects this rating method to facilitate realistic assessments by banks of the risks associated with lending exposures to state distribution utilities.

“It would enable funding with appropriate loan covenants for improving operational, financial and managerial performance,” the ministry said. It is also exploring possibilities of linking its other initiatives and schemes to this rating mechanism.