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Structural Imbalance in India's Power Sector Cannot Last: Moody's

  • However, power companies are well-placed to face these challenges rated by Moody’s.India's power sector is facing an unsustainable structural imbalance, which is having a detrimental impact on a number of players in the sector, says Moody's Investors Service in its report - "Indian Power Sector: Watt next?".The report has further highlighted that the creditworthiness of NTPC and privately-owned Tata Power has remained largely insulated from the sector's woes.
  • "India's policy of providing all communities with power has reached a stage where the low tariffs paid by consumers have resulted in a massive build-up of losses at some of the country's state-owned power utilities, which are bearing the brunt of this policy," said Alan Greene, a Moody's Vice President and Senior Credit Officer."In FY2011, losses on power sold by state-run utilities were estimated at $18 billion. We expect further pressure on power purchase costs,” he added.
  • Greene was speaking at the launch of a special report on the Indian Power Sector, which he authored.According to the report, companies that are more exposed to large projects, or those with weak power purchase agreements, will face credit risks. The lack of sufficient domestic and foreign funding is also a concern."The growth in bank lending to the power sector is showing signs of slowing and foreign lenders are wary of involvement, due to the glaring structural credit weaknesses in the industry," Greene said.
  • However, power companies are well-placed to face these challenges rated by Moody’s. NTPC benefits from good fuel supply agreements and robust power purchase pacts under the so-called Tripartite Agreement, where payments from customers, predominantly State Electricity Boards, are ultimately supported by the Reserve Bank of India.Similarly, Tata Power has sufficient fuel supplies for its current capacity, including its imported coal arrangements, and its power purchase agreements are largely with the State Electricity Boards with better payment records, said the report.

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