Moody's downgraded the outlook for India's power sector

New Delhi, 15 May 2020, Friday

The outlook for the Indian power sector has been downgraded from stable to negative by the international rating agency Moody's Investors Service. The rating outlook has been downgraded in anticipation of a decline in power demand in the country, delays in payments and the recent move by the government to favor consumers rather than utility companies.

Of course, Moody's report is silent on the impact of the Rs 50,000 crore liquidity program for the power sector announced by Finance Minister Nirmala Sitharaman on May 12, 2020. Moody's says the decline in electricity demand will affect power rates in the short term and delay payments to power companies whose subsidy-dependent government distribution companies use coal-fired power plants. This is because government subsidies are likely to cover social and health costs. With this, most rated issuers will digest the increase in payment delays, but some companies will experience liquidity crunch, Moody's said.

Maintaining a liquidity buffer is essential for the creditworthiness of companies. Central government-owned enterprises will be in a better position in the face of these sluggish demand and late payments. While rated renewable power companies will be uncertain about their moderate to high financial leverage. As per the liquidity package, REC and Power Finance Corporation will offer loans to Discom at a concessional rate of Rs 30,000 crore to help pay the bills of power generating companies. The government will ask central power enterprises like NTPC, NHPC and PGCIL to defer collection of fixed charges levied by DISCOMs during the lockdown period.