The Central Electricity Regulatory Commission (CERC's) draft tariff regulations for five years between FY2019-2024 will be favourable for power generators, as the regulator has maintained the status quo on most of the parameters, says India Ratings (Ind-Ra). According to the rating agency, CERC's move to tighten the working capital norms by lowering the normative inventory and receivable period and allowing a change in the rate of interest on working capital will be beneficial to the generators.
In the new draft, CERC has lowered the normative inventory and receivable period by 10 days and 15 days, respectively, and allowed a change in the rate of interest on working capital to one-year MCLR + 350 bp as against the earlier guideline of SBI base rate + 350 bp. "The annual fixed cost is expected to decline by 1.4 per cent, as per the new guidelines, largely driven by the changes in the working capital norms," Icra said.
Additionally, CERC has lowered the arbitrage available to generators on the late payment surcharge by lowering the late payment surcharge rate to 1.25 per cent from 1.5 per cent. "However, there will be an increase in the billable energy charge rate, driven by an increase in normative auxiliary energy consumption and allowance in transit losses, apart from an allowance of additional 85kcal/kg GCV loss on account of variations during storage at generating stations," it said. Ind-Ra also expects the energy charge rate to increase by 6 paise per unit under the new tariff guidelines.
The agency further said CERC's move to reduce the normative availability to 83 per cent from 85 per cent, is likely to improve fixed cost recovery. "However the basis of the declaration has been changed to quarterly from annually. As per the guidelines, under-recoveries in a quarter cannot be recovered in the later part of the year," it said.
As against the earlier expectations of an increase in the leverage ratio of generators on account of an expected the decline in return on equity, EBITDA and increase in debt-equity ratio, Ind-Ra expects no major impact on the leverage profile as the overall impact on EBITDA remains neutral with no change in the proposed ratio. "Any decline in aggregate revenue requirement due to working capital changes are likely to be offset by higher energy charges as allowed under the new guidelines," it added.
(With inputs from agencies.)