S&P raises Paiton Energy bond rating
Friday, September 12 2003 - 08:14 PM WIB
According to the agency the rating action reflects improvement in the financial profile of offtaker PT Perusahaan Listrik Negara (PLN). Since 2002, PLN has been successful in obtaining government approval for a 6% increase in tariff each quarter. Combined with the stronger Indonesian rupiah to US dollar exchange rate and the successful restructuring of several large power purchasing agreements (PPAs), PLN's cash flow from operations has reversed from a negative position to Rp1.6 trillion in 2002.
"The improvement in PLN's financial position should reduce its reliance on government subsidies, which in the past has not always been timely, and strengthen its ability to service its PPA obligations in a prompt manner," said Standard & Poor's credit analyst Erly Witoyo. "Nevertheless, the credit profile of PLN continues to be very weak, characterized by poor operating performance and low profitability and cash flow protection measures."
Paiton also faces material country risk, reflecting the continued economic and political uncertainties in Indonesia following the Asian financial crisis in 1997/1998.
Offsetting these risks are the relatively strong PPA structure, which provides stable cash flow generation, evidence of strong support provided by committed shareholders, strong electricity demand in Indonesia, and adequate operational performance of the power plant over the past two years.
The stable outlook reflects the expectation that PLN's financial profile will not deteriorate in the near term, and that the risk of non-payment to Paiton will not increase significantly. Moreover, the expected electricity shortage in Indonesia should enhance the importance of Paiton in the Java-Bali grid. (alex)