NEW DELHI: The poor financial condition of state electricity boards could pose a significant business risk to domestic electricity traders, ratings agency Fitch said.
In a report released today, Fitch Rating said electricity traders’ credit risk had become “riskier” due to profitability and liquidity constraints faced by state authorities.
“If these utilities are experiencing liquidity problems resulting in delays or no obligations to electricity merchants, this in turn increases business risk for electricity traders.” Note report.
This can cause investors in power trading companies to seek higher returns on their investments or look for alternative avenues to invest.
Top power traders include and Tata . Electric Trading Company.
It is estimated that over the past four years, the top five trading license firms have controlled more than 80% of the market in terms of volume.
Some state power companies with big losses came from the states of Tamil Nadu, Uttar Pradesh, Madhya Pradesh. These are also the largest short-term buyers of electricity through electricity traders, Fitch Ratings said.
“The financial position of state-owned power companies, the main customers of power traders, has deteriorated with total annual book losses increasing to Rs 295 billion (29,500 crore) in fiscal year 10 from 70 billion Rs (7,000 crore) in fiscal year 6, leading to increased counterparty risk,” the report said.
According to the Planning CommitteeIt is estimated that the total electricity distribution loss was Rs 70,000 crore in 2010-11.
According to Fitch, the largest short-term buyers – SPUs in Tamil Nadu and Rajasthan – face large energy deficits with the largest cash losses on the basis of revenues and subsidies realized.
“As a result, these states will remain net buyers in the short-term electricity market and continue to act as primary partners for electricity traders. This increases the risk significantly for non-multiple power traders. form,” it added.
The report indicates that traders with strong equity backgrounds and high cash balances are better placed as they have a buffer to absorb any increase in working capital cycle in case SPU delays or defaults.
Fitch Asia Pacific U.S. Director of Utilities Salil Garg said the agency expects larger merchants to face low business risk due to a variety of factors, including advantages of scale and facilities. diverse customers.