Andhra Pradesh’s plan to tweak PPAs puts Rs 21,000 crore debt at risk: Crisil

By: |
Published: July 24, 2019 2:20:31 AM

It wants to fix tariffs of several wind power projects at Rs 2.25 per unit, claiming that shift in market dynamics and technological interventions hardly justified the Rs 4.84 per unit tariff the earlier government agreed to pay.

Their estimated outstanding dues to renewable generators stood at a whopping Rs 2,800 crore at the beginning of FY20.

The Andhra Pradesh government’s move to revise renewable power purchase agreements (PPAs) in the wake of the ‘high tariffs’ could put additional stress on about 5.2 gigawatt (GW) of wind and solar energy projects with an estimated debt exposure of over `21,000 crore, according to a Crisil report. Nearly half of the above capacities are “higher risk of default since they lack liquidity support beyond project level,” the rating agency said.

Analysts had earlier said the PPA revisions would exacerbate the problem of delayed payments by the discoms, crippling the debt servicing capabilities of many projects.

As FE reported earlier, AP discoms, with FY19 losses of `1,563 crore, have already been delaying payments to renewable generators by 6-12 months. Their estimated outstanding dues to renewable generators stood at a whopping Rs 2,800 crore at the beginning of FY20.

The state sourced 18% of its electricity from renewable energy sources in FY19; it houses about 12% of the country’s wind and solar capacity. According to Crisil, projects backed by financially strong companies may get a temporary lifeline, but the rest lack liquidity support beyond project level and would be hurt most by irregular payments. “Any prolonged delay would put about 2.6 GW with nearly Rs 10,600 crore of debt at immediate risk of default in debt servicing as these projects would have no other liquidity support apart from project-level liquidity reserves typically around six months of debt servicing,” Ankit Hakhu, associate director, Crisil Ratings, said.

The new government in Andhra Pradesh has formed a committee to revise “abnormally priced wind and solar” PPAs, saying these might have been inked with “malafide intentions” and could have “resulted in unjustified burden on the consumers of the state”. It wants to fix tariffs of several wind power projects at Rs 2.25 per unit, claiming that shift in market dynamics and technological interventions hardly justified the Rs 4.84 per unit tariff the earlier government agreed to pay.

In an attempt to persuade Andhra Pradesh CM YS Jaganmohan Reddy against revising PPAs, Union power minister RK Singh has asked state to take a cautious approach in this matter, stating that “if an impression goes out that the rule of law does not prevail or the contracts are not honoured, then the investments will dry up and growth will come to a halt.”

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.