The ratings firm said that it expects the Andhra Pradesh government to face vigorous challenges from the operators of renewable power projects and the Central government.
Accordingly, Fitch said it will treat the "successful renegotiation of the power purchase agreements (PPAs), if any at all, as event risk in our credit assessment of rated bonds issued by restricted groups (RGs) of Indian renewable companies".
The development comes after the Andhra Pradesh government earlier this month formed a high-level committee to renegotiate wind and solar PPAs in the state, citing high tariffs that state distribution companies pay under the contracts.
The Central government has cautioned the state against proceeding with the plan, but a recent statement by the principal advisor to the Chief Minister shows the Andhra Pradesh government is set on its path.
"Fitch believes the state government will need to appeal to state regulators and then seek consent from the courts to overturn the existing PPAs. The attempt to renegotiate or cancel PPAs previously approved by state regulators is likely to face legal challenge from renewable operators and the Central government.
"Indian state distribution companies in other states, including Karnataka, Uttar Pradesh, Gujarat, Tamil Nadu and Madhya Pradesh, have previously tried to renegotiate PPAs to capitalise on falling solar and wind tariffs, according to press reports. However, the Central government, supported by legal judgements, has instructed the companies to abide by the PPAs," the ratings firm said.
( With inputs from IANS )