The Hindu Business Line : Highest safety rating for PowerGrid bonds

The rating reflects PowerGrid's strategic role in the country's power sector as a sovereign-owned monopoly responsible for developing inter-State transmission network and National Grid management, the low level of business risks in its core operations, a cost-plus transmission tariff structure and superior operating efficiency as indicated by an `availability factor' of over 99 per cent.

These strengths, according to ICRA, are partially offset by the weak financial position of most of its customers, namely, the State power utilities, which has resulted in a build-up of receivables.

This is despite cash collections having shown distinct improvement following the tripartite agreement for securitisation of dues, which has increased the payment discipline among State power utilities.

However, the Central Electricity Regulatory Commission (CERC) has proposed certain changes in the draft tariff norms for the 2004-09 period, which, if finalised, are expected to result in lower cash accruals and profitability.

This is likely to result in a higher dependence on debt funding for the corporation's substantial expansion plans.

However, ICRA is of the opinion that despite this, PowerGrid's debt servicing ability is unlikely to be impaired, given the availability of development surcharge and the `advance against depreciation' (AAD) facility and the low business risks that it is exposed to.

Although the transmission sector has been opened to the private sector, PowerGrid is likely to maintain its predominant position arising out of the highly capital-intensive nature of the business, its strong existing network and dedicated links for evacuating power from major generating stations.

During the 10th and 11th Plans, the corporation proposes to significantly increase its transmission capacities with a total capital outlay of over Rs 50,000 crore.

With the proposed revision in the tariff structure for the 2004-09 period, which includes a reduction in return on equity from 16 per cent to 14 per cent and more stringent norms for operations and maintenance, PowerGrid's dependence on debt financing will increase, resulting in an increase in gearing.

Viewed against this backdrop, the success of the securitisation exercise in ensuring settlement of past dues and binding the State Electricity Boards (SEBs) to make prompt payments against current bills assumes critical importance.

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