Fitch does not anticipate major operational issues during India's pandemic lockdown, as electricity supply and coal mining are classified as essential services.
The credit profile of regulated Indian power utilities such as NTPC will remain largely unaffected despite delays in collecting cash during the coronavirus pandemic. The rating of these entities is due to favorable regulatory frameworks that ensure stable operating profits, according to Fitch Ratings.
“We believe any delays in recovering accrued revenue will be recouped with interest costs, in line with slated regulations,” the rating agency said in a statement..
The assets of NTPC Limited (BBB-/Stable) and Adani Electricity Mumbai Limited (AEML) obligor group (US Dollar Bonds: BBB-) are based on the cost-plus tariff. This gives regulatory certainty until March 2024 by the central regulator and until March 2025 by the Maharashtra regulator, at the end of the current five-year tariff period.
These arrangements also cover most of the projects of Power Grid Corporation of India Ltd (POWERGRID, BBB-/Stable) and Adani Transmission Limited (ATL, BBB-/Stable). There is no price risk in return-based frameworks, so if there are temporary tariff cuts, the losses will be recovered in the next review, Fitch said.
Transmission assets at POWERGRID and ATL which are not covered by the framework are granted in the context of tariff-based competitive bidding (TBCB), with prices fixed for a period of 25 to 30 years.
Revenue under both the cost-plus and TBCB frameworks is based on system availability and is not subject to volume risk. The incentive income of NTPC is linked to load factors, but is less than 1%.
Total revenue.
The strong operating performance of rated utilities in excess of regulatory benchmarks promotes long-term revenue visibility. TBCB project returns are less protected than those under the cost-plus tariff model,
However, overall profitability should remain stable in the light of low operating costs.
Fitch does not anticipate major operating issues during India's pandemic-related lockdown, as electricity supply and coal mining are classified as essential services.
However, the cash collection of the rated utilities is likely to suffer. Most NTPC, POWERGRID and ATL customers are state-owned power distribution utilities. Their (power utilities) operating and financial profiles will be weakened by a drop in electricity demand and payment concessions to end-users in the light of India's lockdown
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Adani Electricity Mumbai Ltd has direct exposure to retail customers in Mumbai, India's commercial hub. AEML 's cash collection will also be affected by the partial payment moratorium offered by Maharashtra 's electricity regulator to commercial and industrial customers, albeit minimally, the rating agency added.
