Rationale

The rating assigned by ICRA takes into account the 100% ownership of Nuclear Power Corporation of India Limited (NPCIL) by Government of India (GoI) and its strategic importance to GoI. The rating also factors in the limited demand and tariff risks because of the presence of long-term power purchase agreements (PPAs) with state distribution utilities for its entire capacity as per the tariff norms notified by Department of Atomic Energy (DAE), GoI. Moreover, the tariffs offered by the operational capacity remain cost competitive in comparison to the average pooled procurement cost (APPC) of the off-taking distribution utilities. Further, ICRA takes note of the established track record of the operating capacity, with majority of the plants operating at higher than normative plant load factor (PLF), leading to stable cash flows. The lower than normative PLF was, however, observed in few plants because of long shutdown for EMCCR1 and EMFR2 and stabilisation period, like in case of Kudankulam Nuclear Power Project (KKNPP). The rating also draws comfort from the strong financial profile of NPCIL, supported by healthy profitability, low gearing levels and comfortable debt coverage metrics. The funding of the ongoing projects is expected to be met through a mix of internal accruals, fresh equity and debt funding at highly competitive rates. These strengths are, however, partially offset by the high counter-party credit risk of NPCIL due to weak financial health of many of the off-taking state distribution utilities. This is reflected from the increase in debtor days in recent years to more than four months, due to significant delays from the state- owned utilities in few states such as Tamil Nadu, Uttar Pradesh and Karnataka (Hubli Utility). However, this risk is mitigated to some extent by the diversity in the off-taker profile and the recent directive from the Government of India to implement payment security mechanism in the form of letter of credit. Further, the rating factors in the execution risks associated with the large under-construction capacity, which entails an annual capital expenditure of about Rs.9000 crore, especially given the past delays in execution. The relatively high capital cost (Rs.12 crore to Rs.20 crore per MW) of these projects would lead to high normative tariff rates, though the blended tariff of the company is expected to remain competitive in relation to APPC of the discoms. In this context, the ability of the company to secure PPAs for the under-construction projects as per normative cost reflective tariff norms remains a key rating monitorable. ICRA also takes note of the liability of Rs.1500 crore in case of any nuclear accident under “The Civil liability for Nuclear Damages Act, 2010”, which is covered by an insurance policy of equivalent amount. Any liability beyond Rs.1500 crore would be borne by GoI.