Fitch: Thailand's power sector stable as demand grows
Fitch Ratings says the outlook for the power sector is stable, thanks to steady demand growth supported by relatively low per-capita energy consumption, limited competition and a stable regulatory environment.
However, the credit-ratings agency reported the highly regulated tariff mechanism obstructed the financial performance of the industry."Although the tariff formula is set to reflect operating and investment costs of operators passed to consumers, tariff adjustments are still highly regulated by the government," Lertchai Kochareonrattanakul, team director for energy and utilities at Fitch Asia-Pacific, said in a report. "The lack of an effective adjustment amid sustained high fuel prices has adversely affected the financial performance of the electricity industry, especially the Electricity Generating Authority of Thailand (Egat)," Lertchai added. The report noted state-owned utilities - which still dominate the sector - benefit from strong implicit support, due to their strategic importance. "The government will continue to be involved in setting strategic direction and approval of investment plans. Meanwhile, the utilities obtain financial support from the government in the form of government guarantees when issuing bonds," it said. A study of the four major power producers shows declining operating margins for state-owned producer Egat. This is because it was forced by the government to absorb rising fuel costs in 2005. However, Fitch expected its profitability would recover last year, because tariffs were increased then to reflect the actual rise in fuel costs. By contrast, private power producers continued to report strong cash flows in 2005 and 2006 as a result of the favourable terms and conditions of their long-term power-purchase agreements with Egat. "Capital expenditure plans will be more aggressive during the next five years and largely debt-funded," Lertchai said. "Consequently, the credit metrics and financial flexibility of the four major power producers are expected to decline following positive free cash-flow positions and generally lower debt balances over the past three years." The Power Development Plan 2004 shows that Egat plans to invest about Bt330 billion in new capacity and to augment the transmission system between now and 2011, or Bt66 billion per year. The figure is much higher than the Bt16 billion it spent in fiscal 2005. - thenation
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