Business Standard

Monday, December 23, 2024 | 02:25 PM ISTEN Hindi

Notification Icon
userprofile IconSearch

New power rate regulations could hit companies: CRISIL

However, the draft guidelines will not weaken credit profiles of these companies

BS Reporter New Delhi
The new draft power rate regulations announced by the Central Electricity Regulatory Commission could dent the profit of generation and transmission companies by Rs 1,400 crore, according to CRISIL However, the draft guidelines will not weaken the credit profiles of these companies, the ratings agency said.

If implemented in the current form, the guidelines will reduce aggregate profits of 13 Crisil-rated power utilities by nearly 7 per cent of their profits in the last fiscal, the agency said in a statement.

“The guidelines retain availability-based fixed-cost recovery which covers debt servicing for these utilities. This will help maintain stability in cash flows and credit quality,” said Pawan Agrawal, senior director, Crisil.
 

The guidelines have proposed a change in the manner of reimbursement of tax, a stringent incentive structure and stricter operating norms for utilities. The adverse impact of these provisions is only marginally offset by benefits such as higher escalation rate for operation and maintenance expenses and increase in late payment charges.

The ratings agency said the most important proposal in the guidelines is change in reimbursement of expense on tax relating to return on equity. This will now be linked to actual tax outflow rather than the applicable tax rates in the current norms.

“The change in the incentive structure will reduce utilities’ profits from existing as well as under implementation projects. Specifically for generators, the shift to a PLF-linked incentive structure (from Plant Availability Factor-linked structure) can result in significant loss of income, given the fuel availability challenges being faced by the sector,” Agrawal said.

The guidelines propose the generators will share a fourth of their incentives with distribution companies.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Dec 17 2013 | 12:31 AM IST

Explore News