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POWER SECTOR ENERGETICA INDIA Third Annual Integrated Ratings of State Power Distribution Utilities A strong and efficient distribution sector is vital for the growth and transformation of the power sector. Formulation of the Integrated Rating methodology has been one of the important steps taken by Ministry of Power in India towards highlighting the focus areas for improvements in the Distribution sector. The Integrated Ratings have been extremely useful to banks/Fls while evaluating various funding proposals for the power distribution utilities. Background The Integrated Rating methodology for State Power Distribution Utilities was developed by Ministry of Power (MoP) and unveiled in the State Power Ministers conference held in July 2012. The methodology was developed by MoP keeping in view poor financial health of State Distribution utilities and the need to base future funding exposures on an objective rating mechanism. The main objectives of developing the integrated rating methodology for the state distribution utilities are: 1. To devise a mechanism for incentivising/ dis-incentivising the entities in order to improve their operational & financial performance 2. To facilitate realistic assessment by Banks/FIs of the risks associated with lending exposures to various distribution utilities and enable funding with appropriate loan covenants for bringing improvement in operational, financial and managerial performance 3. May serve as a basis for Govt. assistance to the state power sector through various schemes like R-APDRP, NEF, etc. MoP mandated Power Finance Corporation (PFC) to co-ordinate the rating exercise, which in turn has appointed ICRA & CARE to carry out the rating exercise. The exercise does not cover State Power/ Energy Departments and private sector distribution utilities. Scores have been assigned both on the basis of absolute & relative improvement in operational and financial performance parameters. Financial performance parameters like subsidy received, cost coverage ratio, AT&C losses, financial planning, etc carry the maximum weightage of about 60%. Efficient Regulatory practices are the second most important factor holding weightage of 15%. These include Issue of regulatory guidelines, Issue of tariff guidelines, Timely filing of tariff petition & Timely issue of tariff order. Other parameters relating to submission of audited accounts, metering, IT & computerisation, no default to Banks/FIs, Renewable energy purchase obligations compliance, etc account for around 25%. Certain parameters carry negative scores on non compliance like Non auditing of accounts (upto minus 12%), SEBs unbundling (upto minus 5%), Non filing of tariff petition (upto minus 5%), Deterioration of AT&C loss (upto minus 5%), Untreated revenue gap (upto minus 5%), Increase in payables, presence of regulatory assets, negative net worth (each upto minus 3%). The methodology used in the current rating exercise is by and large the same, however, in January 2014, MoP approved modifications w.r.t. parameter relating to cost coverage. As per these modifications, there has been a change in calculation method (formula) and also some recalibration in the score ranges for cost coverage ratio as compared to the previous rating energetica INDIA · MAY | JUN16 71


energetica-india-57_asiapowerweek
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