"Our outlook for the Indian power sector remains negative, because the industry faces persistent challenges, mainly resulting from high, albeit moderating, fuel supply risk, cost
over-runs at some plants operated by independent powerproducers (IPPs), and the limited capacity to pay on the part of financially weak distribution utilities," Moody's said in a
press release today.

Some independent power producers (IPPs) are also locked into power purchase agreements (PPAs) that have become unviable because they do not allow the high costs of imported
fuel to be passed through, it said. For India’s NTPC, its unfavourable business conditions are offset by the Indian central and state governments’ and the Reserve Bank of India’s standing agreement to offset high off taker risk, and the company’s well secured fuel supply sources from domestic and overseas markets.

Low commodity prices will benefit Indian IPPs by making power more affordable for offtakers. However, the offtakers’ weak financial profiles pose a risk to timely payments to IPPs under PPAs. Meanwhile, the high offtaker risk in India will not be addressed over at least the outlook period (next 12-18months), as the financial profiles of offtakers will remain weak.

 As a result, we expect that these generators will see a gradual increase in capex to secure water, to avoid a decline in capacity utilization rat," it said. Moody's stable outlook for the power sector in Asia Pacific (ex-Japan) is underpinned by steady demand, low input costs for most countries and transparent tariff mechanisms for some countries.

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