Proposed NPDC imperative to bring structural changes in power distribution, says India Ratings

By: | Published: June 27, 2018 5:55 PM

The proposed national power distribution company is imperative to bring structural changes in power ecosystem, India Ratings and Research (Ind-Ra) said today.

FY2016-17, state, technical, schemes, power, distribution, national, discoms, national power, companyAt present, the credit ratings of existing power projects are capped at a certain maximum level by credit rating agencies, considering the weak financial position of state discoms and delays in payables to generators.

The proposed national power distribution company is imperative to bring structural changes in power ecosystem, India Ratings and Research (Ind-Ra) said today. The central government is reportedly contemplating on forming a national power distribution company (NPDC) to streamline the ailing power distribution network in the country, which is currently operated by state distribution companies (discoms), the ratings agency said in a statement.

The proposed NPDC’s scope may complement technical and implementation capabilities of discoms, specially in implementing central government schemes in the power sector, it said. The NPDC can co-exist with state discoms and own networks, and distribute power, forcing state discoms to increase their operational efficiency and doing away with political influences.

A central government-backed counterparty will enable many existing power projects, including small scale, to access the capital market and avail fixed-interest bonds for a long tenure, Ind-Ra observed. It will address counterparty-related risks and help generation companies in gaining better credit ratings at a standalone level.

At present, the credit ratings of existing power projects are capped at a certain maximum level by credit rating agencies, considering the weak financial position of state discoms and delays in payables to generators.

The proposed NPDC would help in developing an alternative to these state-owned discoms for power generators and will uplift the whole sector sentiment. As the power ministry has increased the renewable purchase obligation (RPO) target to 21 per cent by 2022 from the current 17 per cent, the presence of an NPDC would lead to greater central control around the RPO compliance.

According to the latest market reports, the outcome of Ujwal DISCOM Assurance Yojana (UDAY) until FY2016-17 has been mixed. Of the 31 states and UTs that signed up for the UDAY scheme, only six states and one union territory have reported to have met the respective FY2016-17 targets to reduce aggregate technical and commercial losses. Also, only 10 UDAY entities managed to narrow the gap between their revenue and costs until FY2016-17.

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