Fitch Ratings has affirmed the Ceylon Electricity Board’s (CEB) National Long-Term Rating at ‘BB+(lka)’, stating that the outlook is stable.
The Ratings Agency also affirmed the National Long-Term Rating of CEB’s outstanding senior unsecured debentures at ‘BB+(lka)’.
According to Fitch Ratings, the CEB’s ratings are equalised with the Sri Lankan sovereign rating (Long-Term Local-Currency Issuer Default Rating CCC-) under Fitch’s Government-Related Entities (GRE) Rating Criteria.
“This is based on our assessment that there is a very high likelihood that CEB, the country’s monopoly electricity transmitter and distributor, would continue to receive government support as the government would want to ensure an uninterrupted power supply. The government fully owns CEB, appoints the board and decides on investment strategy. Tariffs are set using a cost-reflective pricing method requiring regulatory approval. Previously, the utility set tariffs based on social objectives rather than commercial ones,” the Ratings Agency added.
Fitch further said it expects prices to fall by 20% in 2024 and 10% in 2025 and that the CEB’s financing costs will also fall amid lower interest rates, adding that the CEB has also reduced tariffs twice in 2024 by a cumulative 44.5%.
“CEB has operated on a cost-reflective tariff mechanism since June 2023, which is revised quarterly to ensure operating costs are covered. Our base case forecast assumes the tariff framework will remain in place, as any deviation is a key risk to CEB’s balance sheet. The quarterly tariff revision due in September 2024 has yet to be finalised, pending regulatory approval,” it said
Stating that the new Electricity Act includes provisions to unbundle CEB’s generation, transmission and distribution into separate entities, Fitch said it believes that the unbundling will improve CEB’s efficiency and competitiveness.
“The utility is already preparing separate financials, maintains separate bank accounts and is in the process of allocating assets and liabilities for the three units. However, we believe the restructuring faces execution risk and may be contingent on the outcome of Sri Lanka’s general election on 14 November,” it pointed out.
Full statement : https://www.fitchratings.com/research/corporate-finance/fitch-affirms-ceylon-electricity-board-at-bb-lka-outlook-stable-11-11-2024 (Newswire)