CARE's Analysis on Impact of Power Tariff Cut on Maharashtra State Finances and Credit Profile of Maharashtra State Electricity Distribution Company Limited
The proposed reduction in power tariffs is of the order of 20% (this amounts to Rs.706 crore per month or Rs. 8,472 crore per year) which will be compensated for by a transfer from the state government in the form of a subsidy and a part of it would be borne by the power company. The additional subsidy to be paid by the government would be Rs. 606 crore per month or Rs.7,272 crore for a full year while the power companies will take on the cost of Rs. 100 crs per month i.e. Rs.1,200 crore for the whole year.Owing to the increased government subsidy the state would move from a revenue surplus position to a revenue deficit, however in respect of all the other parameters, Maharashtra would continue to adhere to the norms laid down by the Thirteenth Finance Commission. Although the fiscal ratios do get lowered, the state budget, given its size, is strong enough to absorb the additional costs arising from the subsidy.
The credit profile of Maharashtra thus remains unchanged. However, it would be necessary to monitor the government finances closely especially in the next budget i.e. for 2014-15 where the government will have to make adjustments for this cost as well as look at alternative ways of increasing revenue or reducing expenditure.
The entity through which the tariff cut shall be administered is Maharashtra State Electricity Distribution Company Limited (MSEDCL, rated CARE BBB). The impact of the proposed tariff cut on MSEDCL is expected to be revenue neutral as the shortfall is envisaged to be funded primarily by way of subsidy from Government of Maharashtra (GoM).
CARE's rating on the bank facilities of MSEDCL factors in its ownership by GoM and its importance to the state by virtue of crucial service of supply of electricity across the state (excluding Mumbai) provided by it. In the past, MSEDCL has been receiving tariff subsidy from the state government in a timely manner (Rs.4,929 crore for the period April 01 to March 31, 2013) and the overall realization of subsidy has been around 100% in the past. Going forward, continued timely release of additional funds by the state will be crucial for MSEDCL to maintain its credit profile.
CARE has an outstanding rating of CARE A - (SO) [Single A minus (Structured Obligation)] for Maharashtra Jeevan Pradhikaran (MJP) for its Long-Term Bonds: Series XI and for Maharashtra State Road Development Corporation (MSRDC) for its Long Term Bonds Series: XVI- XXIII and Long term bank facilities (GoM guaranteed facilities). These Bonds/bank facilities are backed by unconditional and irrevocable guarantee of the Government of Maharashtra.
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