Andhra Pradesh DISCOM Experiences Steepest Rating Decline in FY 2020
Almost all of Karnataka DISCOMs were downgraded along with Rajasthan and Andhra DISCOMs
July 21, 2021
The Ministry of Power released its ninth annual integrated ratings for the state distribution companies (DISCOMs) for the financial year (FY) 2020.
Overall, 16 DISCOMs (out of 41) registered improvements in their cost coverage ratios. Out of these, six DISCOMs registered more than 10% improvement in their cost coverage ratio. The cost coverage ratio for 20 DISCOMs remained low due to higher expenses and non-cost reflective tariffs. Out of the 22 DISCOMs, which reported a decline in cost coverage ratio, four registered a decline of more than 10%.
As per the report, the average cost coverage improved to 0.87x during the ninth rating exercise compared to 0.86x in the eighth rating exercise. Nine DISCOMs were strong performers on cost coverages, including Hubli Electricity Supply Company Limited (HESCOM), two Haryana DISCOMs, three Gujarat DISCOMs, and one DISCOM each of Chhattisgarh, Himachal Pradesh, and Assam.
The Average aggregate technical and commercial (AT&C) loss level of rated DISCOMs improved to 21.16% in FY 2020 compared to 21.85% in FY 2019. Out of the total rated power DISCOMs, 20 registered an improvement in their AT&C loss levels during FY 2020. Nine utilities reported AT&C loss levels within 15% as compared to eight utilities in FY 2019.
Fifteen utilities that achieved more than 10% reduction in AT&C loss parameters in the FY 2020 were Eastern Power Distribution Company of Andhra Pradesh, Uttar Gujarat Vij Company, Southern Power Distribution Company of Andhra Pradesh, Tamil Nadu Generation and Distribution Corporation, Hubli Electricity Supply Company, Mangalore Electricity Company, Gulbarga Electric Supply Company, Paschimanchal Vidyut Vitran Nigam, West Bengal State Electricity Distribution Company, Manipur State Power Distribution Company, Madhya Pradesh Pashchim Kshetra Vidyut Vitran Company, Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company, Madhyanchal Vidyut Vitran Nigam, Purvanchal Vidyut Vitran Nigam, and Madhya Pradesh Madhya Kshetra Vidyut Vitran Company.
Eleven DISCOMs, including Madhya Gujarat Vij Company, Kerala State Electricity Board, Punjab State Power Corporation, Telangana State Southern Power Distribution Company, Bangalore Electricity Supply Company, Maharashtra State Electricity Distribution Company, Uttarakhand Power Corporation, Assam Power Distribution Company, Northern Power Distribution Company of Telangana, Jharkhand Bijli Vitran Nigam, and South Bihar Power Distribution Company registered deterioration of more than 10% in AT&C loss parameters.
Karnataka DISCOMs saw the highest number of rating downgrades with four out of five utilities downgraded to (B+); these were – Bangalore Electricity Supply Company (B+), Mangalore Electricity Supply Company (B+), Chamundeshwari Electricity Supply Corporation (B), and Gulbarga Electricity Supply Company (B+). The Hubli Electricity Supply Company was upgraded from (B) to (B+).
The downgrades were based on high AT&C loss levels in FY 2020 due to deterioration in collection efficiency, high dependence on subsidy report, low-cost coverage ratio in FY 2020, and high level of O&M and employee expenses as a proportion of revenues.
All the DISCOMs in Rajasthan were downgraded to (C) and (C+) ratings. Two of the utilities were downgraded last year from ‘B’ to ‘C.’ One was downgraded to a (C+) rating. The lack of upgrades in Rajasthan was attributed to concerns about the low-cost coverage ratio, low collection, billing efficiency, and high-power purchase cost.
The report recommended that the Rajasthan DISCOMs should focus on reducing AT&C losses even more. Timely issuance of tariff orders was also a recommendation for some of the DISCOMs. The report also recommended increasing the billing efficiency through various administrative and technical measures. The cost coverage should also be improved through suitable tariff increases and curtailment of losses.
The two Andhra DISCOMs were downgraded to (C) and (B) ratings for FY 2020. The Eastern Power Distribution Company of Andhra Pradesh was downgraded from (A) to (C). The Southern Power Distribution Company of Andhra Pradesh was downgraded from a (B+) to a (B) rating.
The report recommended that DISCOMs resolve serious audit qualifications and maintain a low level of AT&C losses. The report also recommended that DISCOMs file timely receipt of subsidy dues from the state government and improve the cost coverage through suitable tariff increases and curtailment of losses. The report also mentioned the need for a reduction in receivable and payable days.
The four Gujarat DISCOMs retained the same rating for FY 2020. The rating remained the same at A+ for Dakshin Gujarat Vij Company, Uttar Gujarat Vij Company, Madhya Gujarat Vij Company, and Paschim Gujarat Vij Company.
The report recommended that DISCOMs maintain a low level of AT&C losses through improvement in billing and collection efficiency and reducing the power purchase cost. The report also recommended improving subsidy collection levels and clearing the pending subsidy claims from the government of Gujarat through a higher budget provision in the future.
The Madhya Pradesh Paschim Kshetra Vidyut Vitran Company rating was downgraded to (B+) for the FY 2020, and the rating for the Madhya Pradesh Madhya Kshetra Vidyut Vitran Company remained the same at (C+) for FY 2020. Also, the Madhya Pradesh Poorv Kshetra Vidyut Vitran Nigam’s rating remained the same at ‘C+’ for FY 2020.
The report recommended a substantial reduction in AT&C losses to be brought down in the billing and collection efficiency. The report also suggested improvements in the collection period and to the cost coverage through suitable tariff increments and curtailment of losses.
The Maharashtra State Electricity Distribution Company’s rating remained the same at (A) for FY 2020.
The generation, transmission, and distribution businesses of the erstwhile Maharashtra State Electricity Board were transferred to four successor companies, namely MSEB Holding Company, Maharashtra State Power Generation Company, Maharashtra State Electricity Transmission Company, and Maharashtra State Electricity Distribution Company.
The report recommended that the DISCOMs resolve serious audit qualifications and maintain a low level of AT&C losses. The report also recommended the DISCOMs for the timely receipt of subsidy dues from the state government.
The Southern Power Distribution Company of Telangana, the erstwhile Andhra Pradesh Central Power Distribution Company, operates in Telangana, covering 15 districts and catering to over 9.2 million consumers.
The rating of the Southern Power Distribution Company of Telangana was downgraded to (B) from the (B+) rating in 2019, and the rating for Northern Power Distribution Company of Telangana was downgraded to (C+) from (B).
The report recommended the reduction in AT&C losses and improvement in collection efficiency, and the timely receipt of subsidy from the state government. The report also recommended the timely filing of tariff petition, reduction in receivable and payable days, and cost coverage to be improved through suitable tariff revision and cost rationalization.
The Tamil Nadu Electricity (Reorganization and Reforms) Transfer Program 2010 issued by the Government of Tamil Nadu, the erstwhile Tamil Nadu Electricity Board, was reorganized into TNEB Limited, Tamil Nadu Generation and Distribution Corporation, and Tamil Nadu Transmission Corporation.
The credit rating of the Tamil Nadu Generation and Distribution Corporation was downgraded to ‘C’ from a rating of (B).
The AT&C loss levels below the benchmark aided by rising billing and collection efficiency x receivable days remained consistently low and stood at 47 days in FY 2020.
The report suggested removing deficiencies in audited accounts to continue to reduce AT&C losses, focusing on billing efficiency, long-term plan to achieve a financial turnaround, timely filing of tariff petition, and improving the cost coverage and interest coverage ratio. The report also proposed a reduction in power purchase cost and reduced the dependency of the Government of Tamil Nadu, which increase credit risk.
The DISCOMs owed ₹124.2 billion (~$1.66 billion) to renewable energy generators (excluding disputed amounts) in overdue payments across 193 pending invoices at the end of May 2021, according to data released by the Ministry of Power.
In July this year, the Union Cabinet approved a reforms-based and results-linked revamped distribution sector program. The program aims to improve the operational efficiencies and financial sustainability of DISCOMs and power departments (excluding private sector DISCOMs) by providing conditional financial assistance to DISCOMs to strengthen supply infrastructure. The financial aid will be provided based on the pre-qualifying criteria and achievement of basic benchmarks by the DISCOMs. The program will have an outlay of ₹3.04 trillion (~$40.89 billion) with an estimated gross budgetary support of ₹976.31 billion (~$13.13 billion) from the central government.
Rahul is a staff reporter at Mercom India. Before entering the world of renewables, Rahul was head of the Gujarat bureau for The Quint. He has also worked for DNA Ahmedabad and Ahmedabad Mirror. Hailing from a banking and finance background, Rahul has also worked for JP Morgan Chase and State Bank of India. More articles from Rahul Nair.