Centre to implement rating system for power companies

In order to ensure that power distribution companies revise tariff regularly and improve their financial health, a rating system for such companies is being introduced for the first time in the country.

Independent agencies will be assigned to do the ratings. The ratings will then be circulated  among all the lending agencies including banks, Power finance Corporation (PFC) and Rural Electrification Corporation (REC), a senior official in the Union Ministry of Power told Deccan Herald.

They (ratings) will be based mainly on the financial performance of the distribution companies (Discoms) including revising the power tariffs regularly and getting reimbursement from the government for subsidised power.

Further, efforts made by these utilities towards reducing Aggregate Technical and Commercial (AT&C) losses in power distribution, maintenance of their accounts and inclusion of independent directors on board, will also be taken into account.  “Post-rating, the distribution utilities will be put into different categories. The firm which occupies a higher category will be eligible for larger quantum of loan at a lower rate of interest. This system will bring about financial improvement,” the official said.  The rating system will be implemented by the end of this year, he informed.

Discretionary quota

The Ministry may also ask the Planning Commission to use the ratings while allocating the discretionary quota of funds. Discretionary quota of funds are the funds or finances given by the Centre to the states.  

As the financial institutions are wary of lending to Discoms due to their poor financial health,  the Centre, therefore, wants to ensure that these firms are financially viable so that they can perform well by providing quality power to consumers, the official said.

All the states have to sign a Memorandum of Understanding (MoU) with the Ministry of Power to ensure that they adhere to some of the conditions imposed by the Ministry to improve the financial health of Discoms.  

According to the Power Ministry, accumulated loss of the distribution companies amounts to the tune of Rs 1 lakh crore in which, financial health of Discoms in states like Tamil Nadu, UP  and Rajasthan, were extremely poor. Power utilities in the country face aggregate transmission and commercial losses of nearly 30 per cent.

Though after being pressured by the Centre, 23 states have revised their tariffs for past six months, it required another three to five years for the  Discoms to improve their financial condition. The Centre wants that in future, Discoms should revise the tariffs at least once in every nine months.

The Power Ministry also circulated a cabinet note for setting up a Rs 1 lakh crore National Electricity Fund to reduce distribution losses of state-run utilities.