S&P cuts Transgaz’s rating on unrevised tariffs

The rating agency S&P downgraded the gas transmission operator Transgaz by one not notch to BB with negative outlook as regulatory uncertainty and high dividend payments pose a higher financial risk in the near to medium term for the state-owned enterprise.

S&P said that Transgaz is applying tariffs that are unchanged since 2009 and a potential recovery in tariffs remains “highly uncertain”.

The Romanian energy regulator ANRE failed to revise the existing tariff-setting mechanism by July 2012, marking the beginning of the third five-year regulatory period, according to the rating agency.

The regulator announced its regulated revenues for the period from July 2012 to June 2013, but not the new tariff or the amount of lost revenue recovery.

“We do not consider this to be consistent with our previous assessment of the relative supportiveness of the Romanian regulatory environment. Furthermore, it highlights key regulatory risks in a jurisdiction where regulatory determinations are, in our view, not independent of the government,” noted S&P.

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Transgaz operates the gas transmission assets of strategic importance for the country, but the government support seems to be diminishing. The gas operator currently pays 90 percent of its profits in dividends, a move S&P calls “aggressive”. This government decision was implemented in all state-controlled companies.

However, the link with the government will remain strong, although a 15 percent stake in the company will be up for privatization this September.

The credit outlook of Transgaz could be revised to stable if the changing regulatory framework would provide sufficient visibility and credit support to Transgaz’s earning. Otherwise, the company risks a further downgrade.

“This would also be contingent on an assessment that the regulatory remuneration remained sufficiently shielded from negative political intervention linked to changes in the national macroeconomic or fiscal environment,” said S&P.

The net profit of Transgaz fell by 17.6 percent year-on-year to RON 255 million (EUR 57 million) in the first semester.

S&P estimates Transgaz’s operational revenue will amount to around RON 500 million (EUR 111 million) this year, while the capital expenditure stands at RON 200 million (EUR 44.5 million).

Transgaz shares were 1.22 percent off on Wednesday afternoon trading on the Bucharest Stock Exchange.

Ovidiu Posirca