CERC norms to hit profitability of generation, transimission companies: CRISIL

Tuesday, 17 December 2013 06:42 Suresh Kumar MG
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CRISILThe Central Electricity Regulatory Commission's draft tariff guidelines for power utilities applicable for 2014-2019 have potential to reduce aggregate annual profits of CRISIL-rated utilities by Rs 1,400 crore, or nearly 7 per cent of their profits in the last fiscal.

The rating agency CRISIL, however, believes that the guidelines will not impact the credit risk profiles of these utilities.

According to Pawan Agrawal, Senior Director, CRISIL Ratings, "The guidelines retain the crucial feature of availability-based fixed-cost recovery, which covers debt servicing for these utilities. This will help them maintain stability in cash flows, and therefore, in credit quality." This covers 13 CRISIL-rated power utilities which come under the purview of CERC.

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

The most important stipulation in the draft guidelines is the change in reimbursement of expense on tax relating to return on equity, which will now be linked to actual tax outflow, rather than the applicable statutory tax rates as in the existing guidelines. The guidelines propose that for generation companies, the incentive be calculated on plant load factor, rather than on plant availability factor as in the current norms.

Generators will now have to share a fourth of their incentives with beneficiaries. For transmission companies, the threshold for availing of incentives has been enhanced.

Agrawal said, "These provisions will reduce the power utilities' profits from existing as well as under-implementation projects. Specifically for generators, the shift to a PLF-linked incentive structure can result in significant loss of incentive income, given the fuel availability challenges faced by the sector."

The draft regulations also propose stricter operating parameters such as station heat rate and secondary fuel consumption. This will primarily impact the older plants, which may find it difficult to meet the proposed parameters.

Source- Hindu