On the basis of the robustness of their structure, coverage ratios and counterparty profile, Ind-Ra expects transmission projects to be generally rated in the 'High Safety' category. That being said, higher rating levels would require specific reserving mechanisms. Ind-Ra also believes that transmission assets may create appetite among investors and it is a class of asset which is expected to deepen the infra bond market, given its stable and availability nature of revenue and a long license tenor.
Though the counterparties including generation utilities and distribution utilities may have stressed financial health, the agency believes that transmission assets may not suffer as significantly as generating companies. This is because transmission charges constitute a small part of power purchase costs. Also, transmission assets have a natural monopoly. Structure of contracts, processes for collection of transmission charges and past track record would be major factors for assessing the counterparty risk.
Power transmission is emerging as an attractive asset category for the private sector. The government, realising the need for investments, has been streamlining policies and processes in the transmission sector. Interstate transmission projects are awarded through tariff-based competitive bidding.
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