Moody's outlook negative for Indian power sector

Maintaining liquidity buffers will be key for companies’ credit profiles.

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The report dated May 15, however, is silent on the impact of a recent Rs 90,000 crore liquidity infusion programme announced by finance minister Nirmala Sitharaman on May 13.
New Delhi: Moody’s Investors Service has changed its outlook for the Indian power sector to negative from stable on declining power demand, payment delays and an adverse impact from government measures that favor consumers over utility companies.

The report dated May 15, however, is silent on the impact of a recent Rs 90,000 crore liquidity infusion programme announced by finance minister Nirmala Sitharaman on May 13.

“In addition to declining power demand – which will hit short-term power prices and , the utilization of coal-based power plants – state-owned distribution companies that rely on subsidies could delay making payments to power companies, as the government is likely to pivot subsidies towards social and healthcare spending amid efforts to contain the outbreak,” said Abhishek Tyagi, a Moody’s Vice President and Senior Analyst.


“While most of our rated issuers can absorb a degree of increased payment delays, some companies could experience stressed liquidity,” he said.

Furthermore, the government’s measures to reduce the economic impact of coronavirus on consumers, such as prohibiting companies from curtailing power for unpaid dues, might cause a weakening in the credit profiles of power producers and transmission companies, it said.

Maintaining liquidity buffers will be key for companies’ credit profiles. Central government-owned utilities are better placed amid weakening demand and delayed payments, whereas rated renewable energy companies are more vulnerable given their moderate to high financial leverage.
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As per the liquidity package, REC and Power Finance Corp will offer concessional loans worth Rs 90,000 crore to discoms to help them repay the bills of power generating companies.

The government will also ask the central power undertakings like NTPC, NHPC and PGCIL to defer collection of fixed charges on power not drawn by the discoms during lockdown period.
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