Bangkok--27 Feb--Fitch Ratings
Fitch Ratings has today said in a special report, "Thai Power Sector: Stable Business Environment, but Margin Pressure" that the credit outlook for the Thai power sector is generally stable for 2009. This is based on limited market competition, a stable regulatory environment and high government ownership and support for the industry. However, the agency notes that the uncertainty about the timely pass-through of costs increases into tariffs, and a significant budget for the expansion of power generation, transmission and distribution in the medium term are key credit concerns for the industry.
The agency says that the strong level of government ownership will continue to dominate Thailand's power utilities, and remains a key rating support for the Thai power sector. Given the importance of the sector to the country's energy security and development, the government is likely to continue to be involved in setting the sector's strategic direction and approving investment plans, and in providing implicit support for the state power utilities.
The report also notes that, although Thailand's electricity tariff formula is set to reflect the operating and investment costs of operators being passed through to consumers, any tariff adjustments are still highly regulated, largely dependent of the regulator's discretion. Non-adherence of the tariff formula could adversely affect the financial performance of the Thai electricity industry, especially the state-owned Electricity Generating Authority of Thailand (EGAT).
The agency notes that EGAT's 2008 margins and cash flow are likely to weaken as the company was not permitted to pass on all of its higher fuel procurement costs, in a bid to limit the price increases borne by consumers. However, this concern should be alleviated in 2009 due to the downward trend in fuel prices since H208 and Fitch's belief that the regulator is likely to maintain or gradually increase the tariff. On the other hand, private operators face far fewer fuel price and demand risks due to favourable power purchasing agreements with EGAT, which allow the companies to pass on increases in fuel costs and exchange rate fluctuations and help secure their revenue via minimum off-take capacity agreements.
EGAT's capex plan will be more aggressive for the next three years. According to Power Development Plan 2007, EGAT plans to invest around THB218bn in generation and transmission during 2008-2011, or around THB55bn per year, significantly higher than the THB16bn-THB25bn per annum for 2005-2007. However, given a wider reserve margin in 2008 and lower demand growth in 2009, EGAT may defer some projects, and revise its investment plan accordingly.
Fitch sets out an overview of the Thai electricity sector, including demand and supply balance, fuel mix, the role of the private sector generation companies, and investment plans in the report.
"Thai Power Sector: Stable Business Environment, but Margin Pressure" is available at www.fitchratings.com.