Jun 29 2011
|more articles from|
Fitch Affirms Saudi Electricity Company at 'AA-': Outlook Stable
The affirmation reflects the continued alignment of SEC's ratings with the Kingdom of Saudi Arabia (KSA, 'AA-'/Stable), based on strong legal, operational, and strategic links, in accordance with Fitch's parent/subsidiary methodology. The KSA directly owns 74% of SEC (and indirectly owns another 7% through Saudi Aramco , a state-owned enterprise). SEC is instrumental in executing the kingdom's government policies on electrification and maintaining a stable and reliable electricity infrastructure. The government, through its council of ministers, is responsible for approving the electricity tariffs that SEC can charge its customers. Currently, the electricity tariffs are deeply subsidised.
Historically, the state financial support has been very strong. In 2010, the government approved a SAR15bn 25-year interest-free loan to the company, of which SAR3.75bn was drawn through December 2010. In 2010, the government also extended the moratorium on dividend distributions to the state until 2019. In June 2011, the government approved an additional SAR51bn to finance the future capital projects as the company embarks on a large capital spending programme through to 2015. SEC will spend approximately SAR153bn until 2015 on various segments of the electricity infrastructure in the kingdom. In 2007, the government assumed SAR13.3bn payable by SEC to Saudi Aramco for fuel costs.
SEC's monopolistic position in the electricity transmission and distribution sector and its dominance in the electricity generation segment within the kingdom are also key rating drivers. Rating concerns include low generating capacity utilisation factors, high transmission losses, and limited visibility in the cost structure. Additionally, non-settlement of the subsidised fuel costs to Saudi Aramco creates uncertainty over the long-term cash flow perceptibility and stability.
Fitch assumes that the company will supplement cash from operations with debt to fund its capital program and that it will continue to defer fuel costs payable to Saudi Aramco . Nonetheless, SEC's standalone credit profile under a cost plus tariff regime is significantly lower than the current state support driven rating level.
The five-year capital spending programme is designed to enhance the stability and reliability of the electricity supply by installing new power generating capacity to meet the increased electricity demand and replacement of the aging inefficient generating units. The company plans to retire approximately 10,000 MW from its existing power generation capacity by 2015. SEC also plans to improve the transmission grid interconnection within its four regions from 95% to 97.5%. The company also owns 31.6% of the now completed Gulf Interconnectivity Project, interconnecting the transmission grid of six gulf nations.
Applicable criteria, "Corporate Rating Methodology", dated 13 August 2010 and "Parent and Subsidiary Rating Linkage", dated 14 July 2010, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage Criteria Report
All Fitch credit ratings are subject to certain limitations and disclaimers. Please read these limitations and disclaimers by following this link: http://fitchratings.com/
+44 20 3530 1194
Fitch Ratings Ltd.
30 North Colonnade
London, E14 5GN
Erwin Van Lumich
+34 93 323 8403
+44 20 3530 1079
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: email@example.com
Additional information is available on www.fitchratings.com
© Press Release 2011
© Copyright Zawya. All Rights Reserved.