Poor cash flow and credit profiles of power distribution companies (discoms) of Telangana and Andhra Pradesh have adversely affected the financial health of many renewable energy projects, India Ratings and Research (Ind-Ra) has said.
In its first report on the renewables sector, the rating agency said the soaring receivables from the discoms of the Telugu states have weakened the internal liquidity of many projects in the fledgling renewable market and kept them hostage to state utilities. The rating agency said state support becomes critical when discoms report high losses and when they fail to revise tariffs at crucial junctures, terming the trend “a significant credit concern”. “ The soaring receivables from Telangana and Andhra Pradesh distribution companies have not only weakened the internal liquidity of many projects but also necessitated a reduction in their debt service reserve accounts (DSRAs) or support from sponsors,” said India Ratings.
India Ratings said projects with resourceful sponsors and adequate internal liquidity are likely to withstand the emanating stress and ride over this difficult period.
“However, projects with partially or fully depleted DSRAs would face a rating action. Therefore, the importance of adequate internal liquidity is coming to the fore again. In 2016, the state power utilities of Telangana and Andhra Pradesh paid ahead of time and availed rebates,” said Ind-Ra. “In view of the surge in receivables now and other underlying issues such as tariff non-revision, the power utilities of these states have become fallen angels.”
The rating agency said though project developers acknowledge that counterparty delays are common, increasing instances and prolonged period of non-payment cause serious concern.
Southern Power Distribution Company of Andhra Pradesh Limited (APSPDCL) and Eastern Power Distribution Company of Andhra Pradesh Limited (APEPDCL) have not sought any tariff hike for FY20, and the same has been approved by Andhra Pradesh Electricity Regulatory Commission. FY20 is the second successive year without any tariff hike.
The increasing dependence on subsidy has rendered the discoms vulnerable to state finances, said the rating agency, terming the trend a “significant credit concern, considering delayed payments to the discoms could lead to a huge cash flow gap for the discoms.”
Further, Ind-Ra said, “lack of clarity about timely funding of subsidy continues to pose uncertainty over the cash flow position of the discoms,” apart from posing uncertainty over the cash flow positions “of projects that sell power to the discoms.”
