S&P: NTPC Rating Unaffected by Plant Shutdown.

HONG KONG--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/30/98-- National Thermal Power Corp. (NTPC), India's government-owned electric power utility, has shut down its 1,600MW Farakka plant because of mounting receivables from the West Bengal State Electricity Board (WBSEB). Standard & Poor's believes that NTPC's action will not threaten its long-term credit rating (double-'B'/Stable/--) in the near term. The rating was recently revised as a result of the downgrade of the Republic of India (foreign currency rating: double-'B'/Stable/single-'B'; local currency rating: triple-'B'/Stable/single-'A'-3). However, if the shutdown continues for several months, Standard & Poor's believes that the fixed charges associated with the Farakka plant, without any compensating revenues, could have a negative impact on the company's cash flow.

NTPC is India's largest power generating company and supplies around 25% of the country's total electric energy. As a supplier of wholesale power to nearly all the state-owned State Electricity Boards (SEBs), NTPC has long suffered from the SEBs' chronic credit problems. This has resulted in mounting accounts receivables, which have occasionally caused cash flow problems for the company. NTPC continues to rely upon various measures to reduce arrears, including direct deductions from central government plan allocations to the states. However, these measures have not been adequate in keeping accounts receivable at manageable levels. First, the ceiling placed on deductions from the central government plan allocation only allows for a slow paydown over a number of years. Second, the current payment record of the eastern states has slowed, thus worsening the situation.

Receivables from the eastern states--including Orissa, Bihar, and West Bengal--have been particularly troublesome, and have mounted to between seven and nine months of average billings. NTPC's efforts to improve the situation resulted in a closure notice to these states, which caused Orissa and Bihar to establish a schedule for liquidating outstanding liabilities. The lack of any positive action by WBSEB led NTPC to begin curtailing the state's supply from its 1,600MW Farakka plant. NTPC's action is an indication of its firm stance in dealing with errant customers, and the action appears to enjoy the backing of the central government. WBSEB's response to this curtailment has been to increase its efforts to collect dues from consumers to pay NTPC. However, the situation is still evolving and needs to be followed to determine the implications on NTPC's creditworthiness.

Other customers like Uttar Pradesh SEB and Madhya Pradesh SEB have indicated additional power requirements of as much as 1,200MW. However, NTPC only has limited ability to wheel power to other regions because of inadequate transmission capacity. Thus, NTCP will likely be prevented from finding viable alternatives to WBSEB over the medium term.

The shutdown of the Farakka plant for a short period is unlikely to affect NTPC since the company may increase generation for the rest of the year to achieve the stipulated plant load factor of 63%, thereby fully recovering its fixed charges. However, a longer shutdown of the Farakka plant, which accounts for as much as 10% of the utility's total installed capacity, could affect NTPC's ability to cover its fixed costs associated with the plant, and perhaps erode the margin of safety currently enjoyed by NTPC's creditors. Standard & Poor's will continue to monitor developments.---CreditWire