Ministry to declare discom ratings based on stricter norms soon: Power Minister RK Singh
The government is in the process of finalising ratings for a power distribution company (discoms) based on the revised prudential norms, which will make fundraising for loss-making discoms tough, RK Singh, Minister of Power, New and Renewable Energy said on March 8th.
Earlier in the day, the minister chaired a meeting with officers from the ministry, Rural Electrification Corporation (REC), and Power Finance Corporation (PFC) to discuss the 10th Integrated Rating Framework for state and private discoms. The Integrated Rating Exercise is conducted annually to provide a discom-wide refresh of ratings and rankings based on performance and sustainability.
The minister said that the revised rating process will be based on the prudential norms. He was talking to reporters after the launch of the ‘Virtual Smart Grid Knowledge Center and Innovation Park’ as part of the Azadi ka Amrit Mahotsav Programme.
“We have almost finalized it. In another 10-15 days the revised rating system would be in place,” Singh said.
The ministry has been pushing lenders to follow prudential norms while extending loans to power discoms, in view of their mounting dues and muted cash flows.
The state-run power sector non-banking finance companies PFC and REC follow these norms and the ministry has been asking other lenders like the State Bank of India to follow suit. By revising the rating mechanism of these discoms, the government seems to be addressing this issue.
“There is a rating system for all commercial entities, so for distribution companies also we are going to come up with a rating system,” Singh said.
“The rating system will follow our revised prudential norms, so any distribution system which is loss-making will not be able to get ratings that will allow them to borrow money,” Singh said.
The rating to the discoms will be similar to corporate ratings given to the borrower and will indicate their ability to service debt.
“If you have a gap between the average revenue realized and the average cost of supply, and if it is a negative gap then with every unit of electricity which you sell you you make a loss. So the ability of the distribution company to service the debt will be zero,” Singh said..
At the insistence of the ministry, state-run power sector non-banking finance companies PFC and REC have introduced additional prudential guidelines for sanctioning working capital loans to discoms, power transmission companies, and generation companies.
These essentially entail that loans to discoms and other state-owned utilities would be contingent on their performance against prescribed conditions.
The prudential norms for DISCOMs include – timely availability of audited annual accounts, timely filing of tariff petitions, timely issuance of tariff orders, determination of full cost tariff by state electricity regulatory commissions, timely release of subside by state governments, adherence to working capital norm as a percentage of revenue, outstanding government department electricity bills, aggregate technical and commercial losses trajectory and Average Cost of Service-Average Revenue Realised gap as prescribed by the government scheme, no default to any financial institution, and, preparation of quarterly accounts.
The government has undertaken initiatives to address the issue of surmounting dues of generation companies and the worsening financial performance of discoms.
The ministry of power said last month that power distribution remains the most critical link in the power sector value chain as it generates the cash that feeds to the entire value chain right up to power generation and fuel supply. As of January 31st, 2022, discoms owed Rs 98,722 crores to central power units, independent power plants, and renewable energy units. If the dues of state power generation companies are also included, the total outstanding dues of all power-producing units would be Rs. 1.6 lakh crores.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
