The Hindu Business Line : Bescom's liquidity position to improve gradually: Icra

THE State-owned power distribution company, Bangalore Electric Supply Company (Bescom), has been projected by a credit rating agency to improve its liquidity position gradually.

In its assessment of the company, Icra has assigned Bescom `LA', indicating adequate safety, to its proposed Rs 100-crore bond programme.

"The rating reflects the strength of the distribution franchise, particularly in the Bangalore Metropolitan Area Zone which provides Bescom with stable and predictable cash flows, a satisfactory regulatory process which has, so far allowed pass through of major cost items at the distribution company level and its steadily improving technical parameters," says Icra.

The rating also draws considerable strength from the support extended by the Government of Karnataka as is clear from Bescom starting operations with moderate debt levels in relation to its net worth and in terms of subsidy payment for supply of power to the agricultural sector, which is expected to continue.

The rating is, however constrained by the high cross-subsidy levels in its tariff structure, Bescom's low proportion of metered sales, its modest, though improving collecting levels, the continuing deficit in coverage of costs through revenues for power sector entities in the State necessitating dependence on subsidy support and its large capital expenditure requirements to improve its service levels and attain the distribution loss reduction targets specified by the Karnataka Electricity Regulatory Commission.However, striking an optimistic note, Icra said the reduction of its distribution losses to 23.34 per cent in 2002-03 as against 28.20 per cent (when it was part of Karnataka Power Transmission Corporation) is an indication of its improving efficiency. However, its relatively low-metered sales at 46 per cent on account of large unmetered segments like irrigation pumpsets and residential (Bhagyajyothi and Kutirjyothi) installations in the rural areas was an area of concern.

Though it inherited a relatively clean balance sheet with only Rs 23.2 crore, it continued to have a cash deficit from its operations with only 90 per cent of its costs being covered by revenues. However, with an improvement in its collection efficiency to 87 per cent in the Bangalore Metropolitan Area,

Bescom had improved its overall performance. This has to a great extent neutralised the low collections from the Bangalore Rural Area Zone to shore up its liquidity.

Icra said going forward, the cash subsidy from operations and hence dependence on the Government subsidy is expected to gradually reduce the declining trend in distribution losses.

Though privatisation of distribution companies is expected to take some more time, Icra said the rating derives comfort from the current Government ownership, relatively low level of business risks in distribution business and the steps being taken by the management to improve its operational efficiencies.

Bescom also has the additional flexibility of retaining the electricity duty collected from consumers, estimated at Rs 14 crore per annum, as an adjustment against subsidy dues from the Government. This also should help in improving its liquidity position.