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Moody's changes power sector outlook from negative to stable

Economic Times:  January, 2017

Kolkata: Moody's Investors Service and its Indian affiliate, ICRA predicts stable outlook for the power sector over the next 12-18 months reflecting sustained improvement in domestic coal availability, as well as the Indian government's policy initiatives, which is likely to lead to improvements in financial positions of state-owned electricity distribution companies in the next two to three years.

Abhishek Tyagi, a Moody's vice president and senior analyst said: “In fact, we changed the outlook for the Indian power sector to stable from negative, because increased domestic production of coal will ease constraints on fuel supply.”

Moody's also says that the Indian government's debt restructuring of the financially weak distribution utilities —under the Ujwal Discom Assurance Yojana (UDAY) implemented by 17 states so far — will likely improve the companies' financial capacity to make timely payments to power generators.

"These distribution utilities will also benefit from the lower cost of power purchases, due to improved domestic coal availability, the subdued tariff level of short-term traded power, and flexibility provided by the government to generating companies for the optimal utilization of coal," said Sabyasachi Majumdar, an ICRA Senior Vice President.

ICRA pointed out that an improvement in domestic coal availability has substantially mitigated coal supply risk and the risk of under-recovery in fuel costs — due to a reliance on costlier coal imports — for thermal independent power producers (IPPs).

ICRA also said that the improving financial profile of distribution utilities — which are key off-takers — will benefit IPPs through a reduction in the receivable cycle, and a modest improvement in the plant load factor over the next 18 months.

In addition, ICRA noted that the uncertainty as to the timing of tariff compensations for affected thermal IPPs, given that the relevant authorities have yet to decide on the timing of such compensations for imported coal-based projects affected by changes in regulations in Indonesia.

Moody's says that renewable generation could act as a complementary source of power, rather than a competitor to thermal energy.