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Wind power developers risk loan default as discoms fail to pay bills

The acquisition was made through Suzlon Energy’s US subsidiary set up to cater to the growing needs of the wind power market in North America. Photo: BloombergPremium
The acquisition was made through Suzlon Energy’s US subsidiary set up to cater to the growing needs of the wind power market in North America. Photo: Bloomberg

  • These payment delays are due to persisting weak financial health of discoms, which deteriorated in 2020 due to lower collections from customers amid the pandemic. Although collections have recovered from the lows of April-June quarter, these remain below pre-pandemic levels

MUMBAI: Risk of non-payment of dues by power distribution companies (discoms) has resurfaced for wind power projects, with four key states--Madhya Pradesh, Maharashtra, Rajasthan and Andhra Pradesh--that act as a counter-party to around 40% of overall wind capacity in India toting up unpaid dues of Rs5,450 crore to 156 renewable projects as of January. That’s a 50% year-on-year increase in dues, an analysis by credit ratings agency Crisil has shown.

The payment crisis, if it continues, could put nearly Rs30,000 crore of corporate debt at risk of default.

Wind power projects, constituting nearly three-fourth of total private renewable (wind and solar) capacity of these four states, have borne a larger share of payment delays because the majority of these are old projects with tariffs of over 4.5 per unit. These tariffs are higher than the average power purchase prices of these states, making discoms unwilling to honour them.

“For wind power projects rated by Crisil, the aggregate receivables period from these state discoms has increased to 9 months from the invoice date, compared with 3-5 months on average at March 2020," Manish Gupta, senior director, Crisil Ratings, said in the report. “For projects in Andhra Pradesh, it has stretched to as much as 18- 19 months."

These payment delays are due to persisting weak financial health of discoms, which deteriorated in 2020 due to lower collections from customers amid the pandemic. Although collections have recovered from the lows of April-June quarter, these remain below pre-pandemic levels.

So far, wind power developers have been able to manage cash-flow pressures on servicing with the help of the Reserve Bank of India’s moratorium on debt servicing and/ or surplus liquidity from the previous fiscal. However, a sustained delay of one more quarter could test the liquidity buffers, typically of 6-9 months in these projects, making them vulnerable to delays.

This could put nearly Rs30,000 crore of debt in 9.5 GW of wind power projects at risk of delays. The remaining 6.5 GW of wind power projects are present in large groups and hence have greater flexibilities to manage delays, given their balance sheet strength and diversity from other counterparties in overall portfolio.

Ankit Hakhu, director, Crisil Ratings, said, “Going forward, we expect the liquidity position of discoms to improve with collection efficiencies coming back to normal, along with the release of state government subsidies, which typically picks up pace towards the end of a fiscal. This should help restore the payment cycle to pre-pandemic levels."

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