Care Ratings has revised credit watch to ‘negative’ on borrowing programmes of 26 renewable power generators selling electricity to power distribution companies in the state of Andhra Pradesh (AP DISCOMs). Aggregate installed capacity of these generators is 1.57 GW.
These generators were earlier placed on credit watch with ‘developing implications’ on account of the Government of Andhra Pradesh setting up a high-level committee to review the high priced wind and solar power purchase agreements and to negotiate with the developers selling electricity to state DISCOMs to reduce the prices.
The revision in ratings comes on account of the significant delays in receipt of payments from the State DISCOMs, which stretch to the extent of one year.
Said Care Ratings senior director Amod Khanorkar, “Revision in credit watch and ratings reflects increased political and counterparty risk and weakening in the liquidity position of these generators owing to significant delays in the receipt of payments from the off-takers. These power generators are facing a delay of close to one year of pending bills due from AP DISCOMs.”
“Traditionally political risk has proven to be a difficult to address risk in the infrastructure space. Typically the life of an infrastructure project spans over multiple decades and can see changes in political establishment in the geographies where they operate. Reopening of contracts entered into during a previous political regime by the new incumbent set-up poses a challenge that’s difficult to build-in. With most of the infrastructure projects setup on a project finance basis, principally the cash-flow from the project is the only mode for repayment of debt taken to fund the project,” he added.
Timely resolution of the dispute on the tariff and collection of payments from the off-takers would remain crucial for the entities’ overall credit profile in the near term.
“Ratings may be downgraded if there is a persistent delay in resolving the tariff related dispute or any adverse revision in the tariffs by the Andhra Pradesh Electricity Regulatory Commission (APERC) and/or continued delays in receipt of payments from AP DISCOMs. The rating watch negative shall be removed on resolution of the above dispute and commencement of timely collections from AP DISCOMs in a sustained manner,” according to Care Ratings.
While issuing the revised ratings CARE noted developments such as the order by the Andhra Pradesh High Court quashing the committee formed to review the PPAs stipulating that the decision on review of tariff rested with the state regulator APERC and that the PPAs for which tariff had been set by the APERC should not be revisited.
For other PPAs, an interim rate of Rs2.44 per unit for solar energy and Rs2.43 per unit for wind energy prevails until a final decision is taken by APERC.
The state utilities have a weak liquidity profile with the AP DISCOMs reporting an aggregate loss of Rs119.330 billion in FY2018-19 (vis-à-vis Rs41.3 million in FY2017-18). Mounting losses and non-receipt of tariff subsidy in a timely manner has pressurized the liquidity profile of AP DISCOMs. Out of revenue subsidy of Rs60.52 billion for the two AP DISCOMs for FY2018-19, the utilities received around 50% by end of April 2019.
CARE also noted the interim funding arrangement being made by these utilities with borrowing from the state owned financing entities, viz, Rural Electrification Corporation, Power Finance Corporation and Indian Renewable Energy Development Agency Limited to fund the interim payment at a rate of Rs 2.44 per unit.