ICRA Nepal has reaffirmed the long-term rating of [ICRANP] LBB- for Maya Khola Hydropower Company Limited’s (MKHCL) long-term loan worth NPR 1750 Million. ICRA Nepal has also reaffirmed the short-term rating of [ICRANP] A4 for the company’s short-term loans worth NPR 75 Million (fund based).
The ratings remain constrained by the significant execution risks of the 14.9-MW Maya Khola Hydroelectric Project (HEP) being developed by MKHCL. While the project’s revised required commercial operation date (RCOD) is mid-July 2020, only ~40% physical progress had been achieved till January 2020 with some contracts yet to be awarded. Though the experience of the promoters in hydropower development provides some comfort, significant delays in project completion would lead to high penalties as well as loss of tariff escalations. The ratings are also impacted by the high evacuation risks as the Baneshwor substation (under the Koshi corridor), where the power is to be evacuated, has achieved only a moderate level of construction. This could push the project commissioning and hence increase the project costs, leading to modest debt coverage and return indicators, given the fixed tariffs.
However, the presence of higher penalty clauses is likely to create pressure on the Nepal Electricity Authority (NEA) for the timely completion of the transmission line project. As the revenues are linked to the units generated, the inability of the plant to achieve its design operating parameters in case of weak hydrology could further pressurize the debt coverage metrics. The timely infusion of the remaining equity also remains a concern, given the weak financial position of one of the company’s largest promoters. Nonetheless, the regulatory and offtake risks remain low because of the firm offtake arrangement and stringent penalty terms (for delays by the off taker as well as the developer).
Going forward, MKHCL’s ability to commission the project in a timely manner and within the estimated cost would remain the key rating sensitivity. Additionally, the timely availability of the NEA’s evacuation structures, the achievement of the design operating parameters as well as interest rate volatility in the market would be the key drivers for determining the project return metrics and coverage indicators.
Incorporated in May 2010 as a private limited company, Maya Khola Hydropower Company Limited (MKHCL) was converted into a public limited company in December 2016. MKHCL is developing the 14.9-MW Maya Khola HEP in the Sankhuwasabha district of eastern Nepal. The current estimated cost of the project is NPR 2,502 Million, which is to be financed at a D/E ratio of 70:30. As of March 1, 2020, the company’s paid-up capital, including advances, was ~NPR 385 Million (out of the required equity of NPR 752 Million), which was 100% promoter held. The project is a run-of-the-river (R-o-R) type and is being developed at a 40% probability of exceedance (Q40). The PLF of the project is ~62% with an annual production capacity of~82 GWh of energy. The dry energy mix of the project in the overall energy is ~15%.
Source: ICRA Ratings Nepal