NRSS29 is 100% subsidiary of Sterlite Grid 2 Limited (SGL2). SGL2 is 100% owned by Sterlite Power Grid Ventures Limited (SPGVL, ‘IND A-’/Stable). NRSS29 is implementing a transmission line project, allocated through tariff based competitive bidding. Phase I of the project consists of a 400kV double circuit line (134km) between Jalandhar (Punjab)-Samba (Jammu & Kashmir) and Phase II consists of a 400kV double circuit line (5.84km) between Uri-Wagoora and a 400kV double circuit line (285km) between Samba-Amargarh, both in Jammu & Kashmir. Phase II also consists of a 7x105MVA, 400/220kV gas insulated switchgear substation in Amargarh, Jammu & Kashmir. The project cost of INR30,000m is being funded in a debt:equity ratio of 75:25.
KEY RATING DRIVERS
Rapid Construction Progress: The rating reflects the rapid pace of project’s physical progress and completion of Phase I one year ahead of schedule (targeted completion: June 2017). Revenue from Phase I would be utilised for debt service reserve creation and for funding equity for Phase II, before distribution is allowed. According to lenders’ engineer, 35% progress was achieved in the Samba-Amargarh line (Phase II) as of March 2016 and land for Amargarh substation was already in possession of NRSS29. For Phase I, completion certificate from Central Electricity Authority is awaited to commence the billing of transmission charges, which is about INR1,060m/year.
Engineering, procurement and construction contracts have been awarded to SPGVL in the form of fixed-price, time-certain split contracts. Responsibility for obtaining right of way lies with the contractor. Forest clearance for Phase II has been received and the company is in the final stages of obtaining wildlife clearance. The company has informed that there is significant support from the state Jammu & Kashmir, since the project would address the state’s energy deficit and energy security issues.
Sponsor Experience Lends Strength: Experience of the sponsor in building transmission infrastructure provides significant comfort. Sterlite group has commissioned five transmission projects so far. Both SPGVL and SGL2 have provided cost overrun undertakings. SPGVL has also undertaken to assure timely debt service for NRSS29. Equity infused so far is 31% of the requirement. NRSS29 is employing new methods such as helicopter stringing to complete the project on time. That being said, disturbances due to extreme weather conditions and political events cannot be ruled out because of the mountainous terrain involved and part of the project being located in Jammu and Kashmir, respectively.
Less Revenue Risk: The rating reflects the minimal price risk in the project. A tariff stream for 35 years has been discovered through competitive bidding and Central Electricity Regulatory Authority has already approved adoption of tariff. Levellised tariff is INR4,377m and it involves less than 1% of escalable component. Tariff payments to the project are linked only to the availability of assets and not with the quantum of power flow, thus avoiding any volume risk based on transmission line utilisation. Though transmission assets across the country have demonstrated higher than normative availability (98%), NRSS29 has higher operational risk because of the terrain of the project. However, any impairment in operations due to major adverse natural events and political disturbances would be under the purview of force majeure and this will not affect receipt of tariff.
Moderate-to-high Operational Risk: Ind-Ra believes that the project would experience moderate to high operational risk. Though the company has planned for preventive maintenance and could involve drone surveillance of the lines, access to the transmission lines during adverse weather conditions and winters may be difficult. According to the company, the route for the Samba-Amargarh transmission line has been chosen specifically to avoid the landslide prone zone of Pir Pachal mountains, so that power supply to Kashmir region is not affected during winters. Additionally, a contingency and maintenance reserve of INR500m has to be maintained from the third year of commissioning, which would be available for addressing any eventualities.
Low Counterparty Risks: Ind-Ra attributes low counterparty risks for interstate transmission assets, given the revenue sharing mechanism notified by Central Electricity Regulatory Commission,, which assures stable revenue collection from distribution utilities. Power Grid Corporation of India Limited carries out the co-ordinating function, wherein it collects interstate transmission tariff, determined through the point of connection mechanism, due from each distribution utility and passes it on to transmission utilities. Any shortfall in aggregate tariff collection from distribution utilities is shared among all transmission utilities, according to their respective share of transmission revenue in the aggregate transmission tariff.
Debt Structure: The project’s debt structure offers protection to senior lenders and includes a security package, waterfall mechanism prioritising debt service, and other standard default covenants. The debt service reserve equivalent to six months’ debt service provides comfort to tide over short-term stress scenarios. About 88% of debt is amortising in structured quarterly repayments and a bullet payment of INR2,800m is due in FY31. Ind-Ra’s analysis indicates comfortable debt service coverage ratios (above 1x) during the operations even in stress cases.
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