Contact Your Financial Adviser Money Making MC
1 September 2016
American agency Fitch Ratings said on
Thursday that the success of India's UDAY debt restructuring scheme for power
distribution companies will depend on efficiency gains registered by the
discoms and frequent tariff revisions. The
Total Investment & Insurance Solutions
In a report published from Singapore, the
agency said the Indian central government's Ujjwal Discom Assurance Yojana
(UDAY) has seen a large number of important states signing up for the
programme.
Twenty Indian states and one union territory
(UT) gave in-principle approval for UDAY and 16 have already signed up for the
scheme. The Total Investment &
Insurance Solutions
According to Fitch, the committed states and
UT accounted for almost 77 per cent of the total fiscal in 2014 net cash losses
reported by discoms, and around 58 per cent of the total debt outstanding at end-September
2015. The Total Investment &
Insurance Solutions
"Tamil Nadu stands out among those which
have not opted for UDAY, and accounted for 25 per cent of FY14 net cash losses
of all discoms," the agency said. The
Total Investment & Insurance Solutions
"However, the immediate relief provided
by interest-expense reduction, while beneficial to the cash flow positions of
the discoms, is inadequate to turn these entities profitable," Fitch said.
"Achieving this goal by March 2019 as
per the plan is highly predicated based on the ambitious efficiency
improvements, coupled with tariff increases that are politically sensitive in
India," it added.
UDAY envisages taking over 75 per cent of
discoms' cumulative debt. States would issue loans against the debt at
prevailing market rates. The balance 25 per cent would be issued as sovereign
backed bonds by discoms. The Total
Investment & Insurance Solutions
The scheme also envisages access to cheaper
coal, modernising transformers to cut distribution losses, as well as a
provision to revise tariffs, which has been criticised by the AIADMK government
in Tamil Nadu. The Total Investment
& Insurance Solutions
As per the report, UDAY is an improvement on
previous debt restructuring packages for its four-pronged strategy that targets
not only a reduction in interest burden but also operational efficiency
improvement, reduced cost of power purchased and financial discipline.
According to Fitch, the aggregate technical
and commercial (AT&C) loss in the Indian power sector is very high -
ranging from 11 per cent to 71 per cent.
The Total Investment & Insurance Solutions
"For the majority of states, tariff
increases are required to reach break-even status even after the other savings
to which they are committed," Fitch said The Total Investment & Insurance Solutions
"A meaningful improvement in discoms'
economics will especially benefit power generation companies through higher
utilisation and timely clearance of dues," the report said.
The current low capacity utilisation of power
plants is driven primarily by stressed discoms, which are unable to buy
electricity because of weak financial positions, it added.The Total Investment & Insurance
Solutions
No comments:
Post a Comment