Moody's: Outlook for Asia (ex-Japan) power sector is stable in 2014

Moody's Investors Service says that the overall outlook is stable for the power sector in Asia (ex-Japan) in 2014, mainly because of supportive regulatory policies, which result in stable market structures and low probabilities of adverse adjustments to tariff structures or returns.

However, the Indian power sector remains an outlier. Moody's outlook for the Indian market is negative in 2014, due to the structural challenges in the entire value chain. The outlook for India's power sector was also negative in 2013.

On leverage, Moody's expects debt levels in the power industry across Asia (ex-Japan) to be stable over the next 12-18 months, supported by increasing cash flows from capacity additions and stable-to-declining fuel costs, and despite high levels of capital expenditure.

Moody's conclusions were contained in a just-released report titled, "2014 Outlook: Asia (ex-Japan) Power Sector, Supportive Regulatory Policies Drive Stable Outlooks, But India Is an Outlier." The report was co-authored by Mic Kang, a Moody's Vice President and Senior Analyst, Ivan Chung, a Moody's Vice President and Senior Credit Officer, Ray Tay, a Moody's Assistant Vice President and Analyst and Ivy Poon, a Moody's Analyst.

Moody's report says the stable outlook for the power sectors in Hong Kong and Singapore is driven by supportive regulatory policies and a low likelihood of adverse adjustments to tariff structures or returns. In addition, offtaker and fuel supply risks are low.

On the power sectors in China, Indonesia, Korea, Malaysia and Thailand, Moody's report says while the stable outlook for these markets are also owing to supportive regulatory policies, such policies are less predictable than in Hong Kong and Singapore.

According to the report, ad hoc tariff increases or subsidies -- against the backdrop of stable to declining fuel costs -- offset the absence of automatic cost pass-through tariff systems in China, Indonesia, Korea, Malaysia and Thailand. Moreover, execution risks related to the construction and commissioning of new power facilities in these five markets appear generally manageable.

For the Philippine power sector, Moody's report says the limited competition, low risk of margin erosion and manageable fuel-supply risks underpin the stable outlook.

The report points out that India's power sector is the outlier amongst markets in Asia (ex-Japan) because of structural challenges in fuel supply, generation, transmission and distribution and power sales. Moreover, the sector is highly exposed to offtaker and fuel supply risks. Regulatory uncertainties also hinder private-sector investments. Consequently, Moody's outlook on India power sector in 2014 is negative.

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