Continuation of the Payment Security Mechanism (PSM) is credit positive for NTPC, Moody's Investors Service said.
The Payment Security Mechanism is based on tripartite agreements between the central government, state governments and the Reserve Bank, and these agreements ensure payments to NTPC in the event of default by state-owned distribution companies, Moody's said in statement.
Current agreements with various states expired in October 2016 and the Centre has given approval for their extension, NTPC had announced recently.
Moody's said NTPC has enjoyed a good track record of timely and full payments from state-owned distribution companies over the last 12 years since the payment security mechanism has been in place, despite the weak financial health of the distribution companies.
The root problems affecting the distribution companies' credit quality remains a poor network infrastructure and the distortion caused by the supply of subsidised power to certain sectors, which will gradually improve, it added.
Most states have agreed to be part of the extended scheme. NTPC will have to sign the agreements with these participating states individually for the extension of the mechanism to take effect, it said.
As per NTPC's management, there are no changes in the terms and conditions of the new agreement.
However, it said that the tenor of the agreement with different states will vary. NTPC is planning to complete the signing of agreement with individual states in December 2016.
NTPC Limited is engaged in the construction and operation of power plants. It is the largest power generating company in India, with an installed generation capacity of 47,228 megawatts (MW) as on November 30, 2016.
As of end-November 2016, it had a nationwide presence through its coal-based (35,085 MW), gas-based (4,017 MW), hydro (800 MW), renewables (360 MW) and joint-venture projects (6,966 MW).
Disclaimer: No Business Standard Journalist was involved in creation of this content
