PLN's rating lowered as crisis goes on

JAKARTA (JP): The country's sole rating agency, Pefindo, has downgraded the rating of state-owned electricity company PLN's bonds from AA+ to AA- with a negative outlook as the current monetary crisis is severely affecting the company's financial performance.

Pefindo said in a statement sent to The Jakarta Post Saturday that the downgrade reflected PLN's declining cash flow and rising financial costs resulting from the current monetary crisis.

Pefindo said the negative outlook it attributed to PLN also reflected uncertainties over PLN's current efforts to adjust electricity tariffs, fuel prices and to renegotiate power purchase contracts with independent power producers.

PLN has announced that it will suffer a Rp 1.3 trillion (US$430 million) loss this year due to the monetary crisis, since its revenue is in rupiah but it pays for fuel and power from independent power producers in dollars.

"Delay or adverse outcomes in these key adjustments could lead to a further downgrading of PLN's credit rating," Pefindo said.

Pefindo predicted industrial demand for electricity would decline amid the monetary crisis, while PLN dollar-linked costs would sharply increase.

Based on a Rp 5,000 per dollar exchange rate, PLN's dollar- linked costs account for more than 50 percent of total costs, consisting of fuel costs (30 percent), private power cost (20 percent) and maintenance costs.

"With further depreciation and with no tariff relief, PLN will experience a negative cash flow at an exchange rate of Rp 8,000 per dollar," Pefindo said.

PLN is expected to benefit from the recent accord between the International Monetary Fund (IMF) and the government to increase electricity tariffs and make the power privatization program more transparent.

But, given the sociopolitical reality, Pefindo was doubtful that PLN would be able to smoothly adjust its tariffs for low- income households, the company's fastest growing customer group.

PLN largely subsides the household segment at present.

According to Pefindo, PLN has a total outstanding debt of Rp 17 trillion as of the end of last year, including foreign currency loans worth US$300 million. About Rp 1.8 trillion of the loans will mature this year.

PLN's foreign exchange exposure is expected to increase as the government will reduce its soft loans to the company, Pefindo said.

With Rp 1 trillion in hand at the end of last year, PLN would still be able to cope with the decrease in operating income this year as well as meet its increased interest payments. But, it would need to refinance its maturing debts, Pefindo said.

Pefindo, however, believed the government would continue supporting PLN by rolling over its Rp 1.8 trillion loan to PLN, converting loans into equity and providing liquidity through state banks and government pension funds.

PLN data say the company issued a series of bonds worth Rp 2.9 trillion in total from 1992 to 1996 to finance its expansion. (jsk)