Summary of 7th Annual Integrated Rating

Of
State Distribution Utilities

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 Table of Contents

 Assumptions………………………………………………………………………………………………3
 Background………………………………………………………………………………..……………..4
 Parameters…………………………………………………………………………………………...…..4
 Grading Scale Up………………………………………………………………………..……………..5
 State Discom Utilities- Rating
Summary…………………………………………………………………………………………………..6
 Conclusion……………………………………………………………………………………………….12

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Assumptions

 All the facts and figures are taken from Financial statements and tariff
order of the respective state discom utilities
 Comprehensive analysis of state discom utilities has been done and
judgement has been made on that basis
 “About of the company” has been taken from Wikipedia and their official
websites
 Ratings were given as per the 7th integrated annual report of state discom
utilities
 Interest coverage ratio is calculated as= OI/interest expense
 Debt service ratio is calculated as= OI/Total debt

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Background

Integrated Rating Methodology is used to evaluate the performance of State

Distribution Utilities, formulated by the Ministry of Power and carried out on an
annual basis covering 41 state distribution utilities across 22 states with the co-
ordination of Power Finance Corporation. The state power/energy departments
and private sector discoms are not covered under the rating exercise.
Till now, six integrated rating exercises have been carried out covering FY 2012 to
2017. The seventh integrated rating covering FY 2018 was released, where ICRA
and CARE were the designated research agencies, with a modification in power
purchase cost and auditors qualifications.

Parameters

Evaluation of DISCOMs utilities is based on operational, external, reform and

financial parameters. The discoms are rated based on the scores assigned to them
on their performance on various parameters.

Operational Parameter, carrying weightage of 45%, includes AT&C losses, power

purchase and cost efficiency. Reform parameter include Access to supply and RPO
Compliance, and carry a weightage of 7%. External parameter, carrying weightage
of 15% includes regulatory and government support, while financial one includes
ratios, sustainability, payables, receivables and the availability of latest audited
accounts, and carry a weightage of 33 %. Apart from this, non-compliance with
certain parameters carries negative scores. These include the unavailability of
audited accounts (up to minus 12 per cent), non-filing of the tariff petition (up to
minus 5 per cent), and an increase in AT&C losses (up to minus 4 per cent).

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Grading Scale Up

A+ to C grading scale is followed to rate the discoms in descending order of

operational and financial performance, starting with A+ representing very high
operational and financial performance capabilities to C representing very low
operational and financial performance capabilities.

Score Distribution Grade No. of utilities Grading definitions

Between 80 and 100 A+ 7 Very High Operational and
Financial Performance
Capability
Between 65 and 80 A 9 High Operational and
Financial Performance
Capability
Between 50 and 65 B+ 9 Moderate Operational and
Financial Performance
Capability
Between 35 and 50 B 8 Below Average Operational
and Financial Performance
Capability
Between 20 and 35 C+ 5 Low Operational and
Financial Performance
Capability
Between 0 and 20 C 3 Very Low Operational and
Financial Performance
Capability

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 Uttar Gujarat Vij Company Limited (A+)

About the company

Uttar Gujarat Vij Company Ltd. is an electricity company that was incorporated on
15 September 2003 by Gujarat Electricity Board (GEB). The company is involved in
electricity sub-transmission distribution and retail supply in the State of Gujarat or
outside the State. Their mandate is to establish and use a power system network
and to buy and sell electrical energy, and to collect information with an eye
towards further system improvements.

Key Strengths

 Cash collection has grown by 10% from FY 17 to FY 18 (Rs. 45000 crore)

 T&D loss has improved to 16.92% in FY18 from 18% in FY 17
 Timely release of subsidy as per budgetary allocation and regularly
contributing equity and grants towards capex
 Annual finalisation of accounts, filing of tariff petitions, issuance of tariff
orders and implementation of tariff revisions continue to be done in a
timely manner
 Strong financial position as PAT increased by approx. 50% showing
improving in efficiency of the network and reduce thefts and unmetered
sales while revenue is increased by 10%

Key Concerns

 Operating profit is decreased by 10% showing low Interest coverage and

debt service ratio
 Average revenue realized remain stagnant with increase in average billing
rate
 Unpaid subsidy from Government of Gujarat due to mismatch between
actual claims by UGVCL and the budgetary allocation

Key Actionable

 High financial requirement due to large capex plan in distribution and

transmission segments
 Substantial recoveries from GoG and improvement in efficiency level to
decrease financial risk

Gulbarga Electricity Supply Company Limited (A)

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About the company

GESCOM incorporated in 2002 which are licensed to supply electricity in the five
designated areas of the state. GESCOM is licensed to distribute electricity in six
districts of Karnataka namely, Gulbarga, Bidar, Yadgir, Raichur, Koppal and Bellary
covering an area of 43861 Sq. Kms.

Key Strengths

 Reduction in distribution loss from 17.33% in FY 17 to 16.39 in FY 18

 Increase in average revenue realized supported by significant increase in
the tariff realised from sale of power and improvement in operating
efficiency
 Annual finalisation of accounts, filing of tariff petitions, issuance of tariff
orders and implementation of tariff revisions continue to be done in a
timely manner
 Subsidy grant to capex asset, equity and security deposits from consumers

Key Concerns

 Negative PAT and operating income both in FY 17 and 18

 High subsidy dependence because of large portion of agriculture
consumers in its license area
 Financial position is constrained by high level of debt leading to high
interest charges

Key Actionable

 Sustained improvement in cost-coverage ratio, couple with reduction in

receivable and payable position
 Improving subsidy dependence on GoK by paying the pending subsidy
claims from government

North Bihar Power Distribution Co. Ltd. (B+)

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About the company

North Bihar Power Distribution Company Limited is a public sector undertaking

(PSU) controlled by the Government of Bihar. It was formed on 1 November 2012
under section 14 of the Electricity Act of 2003, and is the successor to the
erstwhile Bihar State Electricity Board. The company encompasses an area of 21
districts of northern Bihar further divided into 29 divisions: Araria - I, Bagha,
Bairagania, Barauli, Barauni, Barsoi, Begusarai, Bettiah, Chhapra, Darbhanga,
Forbesganj, Gogari, Gopalganj, Hajipur, Katihar, Khagaria, Mahnar Bazar,
Motihari, Narkatiaganj, Purnia, Ramnagar, Revelganj, Samastipur, Sitamarhi,
Siwan, Sonpur, Sugauli, Kishanganj, Madhepura, Raxaul.

Key Strengths

 Annual finalisation of accounts, filing of tariff petitions, issuance of tariff

orders and implementation of tariff revisions continue to be done in a
timely manner
 Improvement in sales growth from 10% in FY 17 to 23% in FY 18
 Improvement in Average revenue realized from FY 17 to FY 18

Key Concerns

 Distribution loss remains at the level of 22% on an average of 5 consecutive

FYs
 Negative PAT and operating income for the 5 years due to high power
purchase cost
 Interest and debt service ratio remain lower to negative
 Average cost of supply remain higher than average revenue realized

Key Actionable

 Improvement in cost structure by tariff hikings

 To reduce distribution loss by proper mechanism like balancing load
between phases
 Improving operational efficiency through technical interventions
 Reliable and fix power supply system

Hubli Electricity Supply Company Limited (B)

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About the company

Hubli Electricity Supply Company Limited (HESCOM) is a power distribution

company in the state of Karnataka serving seven of its districts. It was formed in
the year 2002 under the Companies Act. HESCOM has the sole responsibility for
power distribution in Dharwad, Gadag, Bijapur, Bagalkot, Uttara Kannada, Haveri
and Belgaum districts of Karnataka. HESCOM covers an area of 54513 Sq. Km.
serving a population of over 140 lakhs.

Key Strengths

 Distribution loss reduced to 14.76% in FY 18 from 16.02% in FY 17

 Annual finalisation of accounts, filing of tariff petitions, issuance of tariff
orders and implementation of tariff revisions continue to be done in a
timely manner
 Improvement in Average Revenue Realized due to improvement in cost
coverage ratio

Key Concerns

 Only state discom in Karnataka with negative PAT and operating income for
both FY 17 and 18 leading to lowest interest and debt coverage ratio
 Highest Power Purchase Cost amongst the other state discom in Karnataka
 High subsidy dependence because of large portion of agriculture
consumers in its license area

Key Actionable

 Improve average cost of supply by restructuring Average Revenue

Requirement
 Improving subsidy dependence on GoK by paying the pending subsidy
claims from government
 To improve profitability by improving collection efficiency and reducing
losses

Purvanchal Vidyut Vitaran Nigam Limited (C+)

About the company

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Purvanchal Vidyut Vitaran Nigam Limited having its headquarters at Varanasi is a
co-successor of Uttar Pradesh Power Corporation Limited aimed for distribution
of Electric Power in Eastern area of U.P. The geographical area of PuVVNL covers
the districts of Varanasi, Ghazipur, Chandauli, Jaunpur,
SantRabidasNagar(Bhadohi), Mirzapur, Sonbhadra, Mau, Azamgarh, Ballia, Deoria,
KushiNagar, Gorakhpur, Maharajganj, SantKabirNagar, Basti, SidharthNagar,
Allahabad, Pratapgarh, Fatehpur and Kaushambi.

Key Strengths

 Power Purchase cost is optimal, 80% of ARR

 Good solar irradiation to the tune of approx. 400KW/h per m^3 on an
average annual basis
 Richness in renewable energy resources such as biomass, solar and bio-
fuels

Key Concerns

 High level of receivables due to inefficiencies in billing and collection

 Over consumption of unmetered consumers due to lack of awareness in
safe and efficient use of electricity
 Low cost tariff for rural residential and agricultural consumers due to lack
of income and affordability to pay

Key Actionable

 Cost recovery and financial sustainability in rural electricity supply

 Reducing accumulated losses by reducing illegal connection and tapping of
electricity
 Improve investment in power distribution infrastructure
 Annual finalisation of accounts, filing of tariff petitions, issuance of tariff
orders and implementation of tariff revisions continue should be done in a
timely manner

Manipur State Power Distribution Company Limited (C)

About the company

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Manipur State Power Company Ltd. (MSPCL) as a deemed transmission licensee
for the State of Manipur will undertake the function of transmission of electricity
and also discharge all functions of the State Transmission Utility (STU). Further,
MSPCL will act as the Holding Company for the State Government’s investments
in Power Sector and will undertake overall co-ordination & planning for the power
sector in the State of Manipur, be the authorized representative of the State
Government for development of hydroelectric power potential in the State of
Manipur and perform such other functions as may be entrusted to it by State
Government from time to time.

Key Strengths

 Improvement in distribution losses and collection efficiency in the past 5

years
 Detection and disconnection of unauthorized consumers and spot
collection of revenue are in full swing
 Outstanding dues to different government departments have been
collected at source

Key Concerns

 Power theft led to shortage of electricity supply

 Inadequate Organizational structure and manpower skills
 High Aggregate Technical and Commercial (AT&C) losses were impacting
the commercial viability of the utility especially with increases in power
purchase costs and poor revenue recovery
 weak transmission and distribution network was impacting the reliability
and quality of supply

Key Actionable

 Improve efficiency level by focusing on an integrated feeder-wise

performance monitoring system
 Improving O&M performance and working on establishing preventive
breakdown maintenance systems
 Restructuring cost adjustment to make it more operational

Conclusion

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In 7th Annual Integrated Ratings of State Discom, seven out of 41 utilities covered
in the report were rated “A+”, in which four were from Gujarat, followed by
Karnataka with 2 discom in A+ graded list and then Uttarakhand with one utility.

There was a major increase within the range of utilities that were rated ‘A.’ Last
year, only two utilities that received associate in nursing ‘A’ rating – this year a
complete of 9 DISCOMs have been rated ‘A.’ The new additions during this list
were DISCOMs that belonged to province, Haryana, Himachal Pradesh,
Maharashtra, Andhra Pradesh, Madhya Pradesh, and Punjab. Of the remaining 25
DISCOMS, nine were rated B+, eight received a rating of B, five utilities received
C+ rating, and seven DISCOMs were rated C.

On the basis of financial parameters, 19 discom showed low financial position due
to low interest and debt coverage ratio. While for regulatory parameters, 7
discom utilities either had not issued tariff order or their audited accounts had
not been submitted. In case of accumulated losses, 28 discoms showed
improvement while 8 showed deterioration.

Despite the encouraging growth trajectory in the energy space over the last few
years, the Indian Power sector has still not been able to induce and sustain the
required capacity addition matching the ever growing power demand of the
country. A robust and sustainable credit enhancement mechanism for funding in
Energy Sector needs to be put in place and regulators need to be sensitized to the
challenges faced by the sector and policy framework needs to be crafted and
enforced to ensure a win-win situation for all the stakeholders. This will create
the initials for the foundation of sustainable energy growth that India should
pursue.

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