TRIS Rating affirms the issuer rating on Electricity Generating Authority of Thailand (EGAT) at ?AAA?, with a ?stable? rating outlook. The rating reflects EGAT?s integral linkage with the Thai government and its status as a major state-owned enterprise (SOE) playing a critical role in securing electricity supplies for Thailand. The rating factors in EGAT?s dominant position as the country?s largest power generator and sole owner of the high-voltage power transmission system in Thailand, its solid financial profile, and strong government support under the EGAT Act B.E. 2511.
KEY RATING CONSIDERATIONS
Integral relationship with government
We assess EGAT to be integrally linked with the Thai government. The government has full ownership and tight control of EGAT. EGAT was established as an SOE under the EGAT Act B.E. 2511. It comes under the supervision of the Ministry of Energy (MOE) and the Ministry of Finance (MOF). The board of directors and governor are approved by the Cabinet. EGAT?s current strategic plan was formulated in accordance with the National Strategy Plan (2018-2037), National Energy Plan 2022, and the Power Development Plan 2018 (PDP2018 Revision 1). The strategic plan was reviewed by the State Enterprise Office (SEO) under the MOF. EGAT?s capital expenditure and investment plans are subject to the approval of the MOE, the Office of the National Economic and Social Development Council (NESDC), and the Cabinet. EGAT?s debt service and borrowing plan must be submitted to the Public Debt Management Office (PDMO), under the MOF.
EGAT?s statutory status underlines the strong support from the Thai government. Under the EGAT Act B.E. 2511, the Thai government will provide extraordinary support to EGAT in the event that EGAT?s revenue is not sufficient to cover its expenses, including interest expenses and debt repayments.
Crucial role in Thailand?s power sector
We believe that EGAT will continue to play a critical role in the electricity industry in Thailand. Under the enhanced single buyer model adopted in Thailand, EGAT is the sole SOE responsible for sourcing electricity supplies in bulk for the nation, via its own power plants and purchasing from private power generators, domestically and abroad. EGAT sells about 72% of the generated and procured electricity to Provincial Electricity Authority (PEA) (rated ?AAA/stable?) and 27% of electricity to Metropolitan Electricity Authority (MEA) (rated ?AAA/stable?) through the national transmission network (national grid). EGAT is also the sole owner and operator of the national grid. It operates the National Control Center (NCC) to ensure electricity supplies meet electricity demand for the whole country at reasonable prices. All power plants connected to the national grid come under the supervision of the NCC for their power generation schedule.
At the end of March 2023, the contracted capacity in EGAT?s system was 49,510 megawatts (MW). EGAT owned and operated 53 power plants with a total capacity of 16,920 MW, representing 34.2% of total capacity in EGAT?s system. The remainder was purchased from private power producers in Thailand (53.2%) and imported from the Lao People?s Democratic Republic (Lao PDR) and Malaysia (12.6%).
Cost-plus tariff structure to protect investment return
EGAT?s electricity tariff is designed to recover investment costs plus a return for investing in its power plants and transmission network. The electricity tariff also enables EGAT to pass through the fuel cost and the cost of purchasing electricity to end users via the fuel adjustment charge (Ft) components. However, the electricity tariff is regulated by the Energy Regulatory Commission (ERC), who approves and publishes Ft every four months. The Ft to end users is based on ERC?s discretion as to the timing and magnitude of adjustment, which may differ from the actual Ft calculated under the tariff structure. Therefore, the stream of cash that EGAT receives from selling electricity may not match the fuel expenses during the same period. The cash received from selling electricity can be less than EGAT?s revenue, if ERC delays its adjustment of Ft to end users during a period of rising fuel prices, and vice versa.
Rising financial leverage to support government?s policy
EGAT?s financial position has deteriorated since the second half of 2021 due to the mismatching of Ft adjustment and rising fuel cost. For 2022 operation, EGAT?s net cash flow from operation (adjusted for dividends received and interest paid or received) was recorded a loss of about THB26.7 billion, compared with a surplus in net operating cash flow of about THB60-THB80 billion during 2019-2021. Based on the electricity tariff structure, EGAT charged the electricity tariff at about THB4.0 per kilowatt-hour (unit) in 2022 to PEA and MEA reflecting a rise in fuel and purchasing electricity costs. However, ERC allowed EGAT to charge the electricity tariff at about THB3.27 per unit to PEA and MEA, with the aim of relieving inflationary pressure on the Thai public. A tariff shortfall of about THB0.73 per unit in 2022 and about THB0.20 per unit in 2021 had translated into the accrued Ft revenue of about THB166 billion by the end of 2022. The accrued Ft revenue gradually decreased to about THB151 billion by the end of March 2023, as ERC allowed EGAT to recover the Ft shortfall by THB0.14 per unit in electricity tariff for the first three months of 2023.
EGAT funded the accrued Ft with borrowings of about THB110 billion. At the end of March 2023, EGAT?s adjusted debt increased to THB469.6 billion from THB360 billion at the end of 2021. EGAT?s debt to capitalization ratio increased to 45.6% at the end of March 2023, from 41.4% at the end of 2021.
We forecast that EGAT?s accrued Ft revenue will gradually decrease during 2023-2025. The recent adjustment of Ft for the May-August 2023 period indicated a recovery of the Ft shortfall by THB0.2782 per unit. If ERC continues to allow the Ft adjustment at this rate, EGAT should fully recover the Ft shortfall by August 2025. As the fuel cost has the tendency to decline in the near future, it should relieve the pressure on the electricity tariff. Therefore, we believe that ERC will gradually adjust the electricity tariff to compensate for the Ft shortfall accumulated during 2021-2022. We forecast EGAT?s debt to capitalization ratio to improve to 35%-40% by 2025 from about 46% at the end of 2022.
We observed MOF?s strong support for EGAT in implementing the government?s policy to relieve pressure on the cost of living for the Thai public. The Cabinet approved for MOF to guarantee EGAT?s debts of up to THB85 billion to support EGAT?s financial liquidity. As of March 2023, EGAT had fully raised guaranteed debts of THB85 billion.
Strong financial profile
EGAT?s financial profile remained strong, although deteriorating in 2022. EGAT?s earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 11% year-on-year (y-o-y) to THB140.6 billion in 2022, mainly reflecting an increase in electricity sales and in dividend received from associated companies. For the first three months of 2023, EGAT?s EBITDA continued to grow by 4.7% (y-o-y) to THB35.8 billion. EGAT?s debt to EBITDA ratio also slightly increased to 3.3 times as of March 2023 from 2.8 times in 2021. We forecast EGAT?s debt to EBITDA ratio to increase to about 4 times in 2023 before descending to 3.0-3.5 times by 2025, assuming accrued Ft revenue to be received within 2025.
EGAT has a satisfactory liquidity profile. As of March 2023, its sources of liquidity comprised cash on hand of THB131.4 billion and undrawn credit facilities of THB27 billion. We also forecast EGAT?s funds from operations (FFO) of around THB80 billion for the next 12 months. We assess EGAT?s sources of liquidity, including FFO, to comfortably cover debt due over the next 12 months of about THB28.4 billion, including short-term loans.
Prudent financial policy
EGAT has adopted a conservative financial policy. It has a policy to maintain a minimum cash balance of THB45 billion and has internal guidelines to ensure financial discipline. Key financial guidelines include maintaining a debt-to-equity ratio of less than 1.5 times, a self-financing ratio of more than 25%, and a debt-service coverage ratio of more than 1.5 times.
Gradually transforming electricity industry in Thailand
We observe that the electricity industry in Thailand is undergoing a gradual transformation arising from the ?4D1E? trend (decarbonization, digitalization, decentralization, deregulation, and electrification). Decarbonization is leading the way for more electricity supplies from renewable sources while digitalization technology is allowing end users to produce their own electricity and connect to each other via a smart grid. These trends are seeing the electricity supply model evolve from centralized power generation toward more widely distributed power generation. Deregulation will enable peer-to-peer electricity trading over the long term. Another important trend is the electrification of vehicles and transportation, which could prove key driver for future electricity consumption.
We foresee these trends as impacting EGAT?s role as the main electricity producer in the country over the long term. Despite our view that the importance of EGAT?s role as an electricity producer may be diluted to some extent in the long term, we believe that EGAT will continue its critical role in securing electricity supplies for the country and maintaining the stability of the national electricity supply system.
BASE-CASE ASSUMPTIONS
? Electricity sales to grow by 1%-2% per annum during 2023-2025.
? EBITDA to be about THB120-THB125 billion per year during 2023-2025.
? Capital expenditure and investment to be about THB185 billion over 2023-2025, THB134 billion to be spent by EGAT, and the rest by its subsidiaries.
? Debt to EBITDA ratio to remain at around 3-4 times during 2023-2025.
RATING OUTLOOK
The ?stable? outlook reflects TRIS Rating?s expectation that EGAT will continue its critical role in Thailand?s power industry.
RATING SENSITIVITIES
A credit downside case may arise if EGAT?s SOE status or its role in the Thai power industry weakens as a result of changes in the government policy.
COMPANY OVERVIEW
EGAT was established in 1969, under the EGAT Act B.E. 2511, through the merger of the three SOEs responsible for supplying electricity in the country. Currently, EGAT is an SOE under the supervision of the MOE and the MOF.
EGAT is responsible for securing electricity supplies for the whole country. At the end of March 2023, EGAT owned and operated 53 power plants, with a total capacity of 16,920 MW, accounting for 34.2% of total capacity in EGAT?s system. The remaining 65.8% was produced by private power producers or imported from neighboring countries, who sell electricity to EGAT under the enhanced single buyer model used in the Thai power industry.
RELATED CRITERIA
- Corporate Rating Methodology, 15 July 2022
- Key Financial Ratios and Adjustments for Corporate Issuers, 11 January 2022
- Government-Related Entities Rating Methodology, 30 July 2020
Electricity Generating Authority of Thailand (EGAT)
Company Rating: AAA
Rating Outlook: Stable