Chennai: The total outstanding regulatory assets of thermal power sector across the country currently stands at Rs 76,963 crore, with Uttar Pradesh, Maharashtra and Jharkhand, accounting for around 87 per cent of total assets, a report said.
The proposed bond issuance programme through the securitisation of such receivables will be beneficial to both investors and borrowers, according to India Ratings.
Regulatory assets include receivables from consumers allowed by regulatory authorities. Of the total regulatory assets, nearly 97 per cent have to be collected by State distribution companies, leaving only around three per cent for future collections by private companies.
The rating agency analysed the assets as per the latest tariff orders between FY18 and FY19, and pointed out that the key risks pertaining to the transaction structure involves credit risk of the discom that will act as the primary agent for collecting the regulatory assets from residential/industrial customers.
It further said absence of legal separation of assigned regulatory assets securing the bonds issued from other balance sheet assets, will lead to security enforcement issues in the event of the dicom’s bankruptcy.
“The regulatory assets’ securitisation market in India is evolving, and the issuance of bonds secured by regulatory assets is still in the nascent stage. However, we believe both borrowers and investors would benefit from such transaction,” its senior analyst at India Ratings, Arijeet Maji said.
“Also, there is lack of clarity in the tariff order pertaining to the quantum of regulatory assets approved, the holding costs pertaining to delayed realisation, the period of amortisation of the regulatory assets, and the tariff allocated to the regulatory asset as a proportion of the total tariff billed to end-users of electricity,” Maji said.
“We believe the incorporation of certain additional structural features in such transactions, features that are widely used in developed economies such as the United States, shall support the development of a mature market for Indian regulatory assets,” he added.