The outlook for India’s power sector remains negative due to evident structural challenges, Moody’s Investors Service said on Thursday, while assigning a stable outlook for the power sector in the Asia Pacific, except Japan.
“Moody’s Investors Service says that its stable outlook for the power sector in Asia Pacific (ex-Japan) is underpinned by steady demand, low input costs for most countries and transparent tariff mechanisms for some countries,” the American agency said in a release here.
“However, the outlook for India’s power sector remains negative, reflecting structural challenges,” it said.
“The negative outlook for the Indian power sector reflects the persistent challenges from high, albeit moderating, fuel supply risk, and the limited capacity to pay on the part of financially weak distribution utilities,” it added.
Indian power generators’ capacity utilisation will be limited by the financial weakness of offtakers, in turn constraining off-take electricity demand, despite growing electricity demand and increasing domestic coal production, Moody’s said.
Some Indian private producers are also locked into power purchase agreements (PPAs) that have become unviable, because they do not allow the high costs of imported fuel to be passed through, said the report titled, “Power Utilities – Asia Pacific ex-Japan: 2016 Outlook – Steady Demand, Low Input Costs Drive Stable Outlook”.
It said that for state-run generator NTPC, its unfavorable business conditions are offset by India’s central and state governments, the Reserve Bank of India’s standing agreement to offset high off-taker risk, and the company’s well secured fuel supply sources from domestic and overseas markets.
“The high off-taker risk in India will not be addressed over at least the outlook period, as the financial profiles of off-takers will remain weak,” the report said.
Some state governments have also not paid all subsidies that the distribution utilities are entitled to, thereby constraining the utilities’ liquidity positions, it added.
Moody’s said, overall, 70 percent of rated power utilities in Asia Pacific, except Japan, have stable outlooks, reflecting the stable fundamentals and their adequate financial profiles relative to their ratings.
“Steady demand for electricity in most countries in the region, and low input costs under stable market structures will allow most power companies to recover capex and maintain adequate financial buffers,” said Mic Kang, Moody’s vice president.