Bridge India

SECI gets a significant boost to its credit rating

In a very pleasing development for renewable IPPs, Solar Energy Corporation of India (SECI) has been included as a beneficiary in a tripartite agreement between the Government of India, state governments and the Reserve Bank of India (RBI). The tripartite agreement serves as a payment security mechanism for central government undertakings whereby, in the event of a payment default by any state government undertakings including DISCOMs, they can withhold funds from the centre’s financial assistance to the states. National Thermal Power Corporation (NTPC) has been a beneficiary of this agreement since 2002 and past experience shows that the tripartite agreement acts as a strong deterrent against payment default by state government undertakings.

  • SECI is India’s largest procurer of solar power but it faces persistent concerns about its financial strength despite being owned 100% by the Government of India and a payment security fund being set up;
  • Analysis of previous bids shows that tariffs for SECI tenders are higher by up to INR 0.20 – 0.50 (US¢ 0.30 – 0.75)/kWh in comparison to NTPC tenders;
  • Inclusion in the tripartite agreement is the most decisive and efficient way of dealing with SECI’s offtake risk perception;

NTPC has been a beneficiary of the original tripartite agreement since 2002. On expiry of the old agreement, a new agreement was signed recently and SECI has also been included as a beneficiary entity. As per the last update, 13 of the 30 states had signed the agreement and more are expected to do so in the near future (refer). Inclusion in the tripartite agreement has led ICRA, a rating agency, to enhance SECI’s domestic credit rating from AA- to AA+ (refer).

SECI has emerged as India’s largest off-taker of solar power. It has already completed tenders for 4 GW of utility scale solar capacity and has a mandate to develop an additional capacity of 8 GW under the National Solar Mission. In contrast, NTPC has tendered 3 GW to private project developers and plans to allocate an additional 5 GW. However, as a relatively new organisation with no major operational assets or revenues, SECI has faced persistent concerns about its capability to cope with payment defaults by the DISCOMs despite being owned 100% by the Government of India.

A CEO survey conducted by BRIDGE TO INDIA in May 2016 showed that 50% of the CEOs considered SECI’s off-take risk as ‘not acceptable’ or only ‘fairly acceptable’ (refer). BRIDGE TO INDIA’s analysis of bids in the last eighteen months shows that NTPC enjoys tariff discount of as much as INR 0.20 – 0.50 (US¢ 0.30 – 0.75)/kWh over SECI. To address private developer concerns, the Indian government has been building a payment security mechanism equivalent to 6 months of revenue payments to IPPs (refer).

We believe that the extended tripartite agreement is the most decisive and efficient way of dealing with SECI’s offtake risk perception. It would enable SECI to attract more interest in future tenders and bring down tariffs even lower.

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