India Ratings maintains negative outlook on infra sector in FY-18

Toll roads, thermal and wind power drag down overall outlook for the sector

Fitch Group's India Ratings and Research agency maintained a negative outlook on the infrastructure sector for the financial year 2017-18 (FY-18) with varied outlooks on the individual sectors.

Toll roads, thermal and wind power continued to pull the overall sector outlook down with the ratings agency predicting a further two per cent fall in plant load factor of thermal power capacity. Also, the agency sees an absence of capacity addition in wind power going forward, owing to the grid parity in pricing being achieved by the solar sector and the surplus power situation in major states.

The ratings agency on Tuesday released a special report with its outlook on infrastructure and project finance for the next financial year. Among the individual sectors, the negative rating was continued for the third consecutive year for toll roads and thermal power, while the outlook for wind energy turned negative from a stable rating in the last two years. The ratings agency has changed its outlook for airports to positive from stable while maintaining a stable outlook for seaports for the third consecutive year.

Presenting a dim view on the thermal power sector in anticipation of a continued pricing pressures in spot and the long-term markets, Senior Director and Head of Infrastructure Ratings at India Ratings, R Venkataraman, maintained that the grid parity achieved by solar power and the continued surplus situation in ten major states would further weaken the thermal power sector.

About 22 percent of the 65 Gw operational thermal power capacity does not have any long-term power purchase agreements (PPAs) and thus is exposed to vulnerabilities, while almost all of the 30 Gw of thermal power projects in the pipe line are not backed by any long-term PPAs, according to the report.

With 20 per cent excess availability at any given point in time in the spot exchanges, the price of spot or merchant power is expected to further face downward pressure as compared to an already low 55 paise margin. Going forward, even the 'must run' status of solar power would also be questioned owing to the fall in power tariffs, according to him.

Coming to the road sector, the agency believes that developers with a reasonable number of operational road and power projects, notwithstanding the projects' credit quality, will bunch the assets under infrastructure investment trusts to deleverage in FY-18. It expects the revenue growth from road assets to range from six-eight per cent across the portfolio in FY-18.