RPT-Fitch: Portuguese Tariff Deficit Plan More Credible than Spain's
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Sept 10 (Reuters) - (The following statement was released by the rating agency)
Portugal's plans to eliminate its electricity tariff deficit (TD) are more credible than Spain's, Fitch Ratings says. Portugal's plans benefit from a deadline for TD elimination, a detailed agenda and supervision process, and regulatory independence. These elements are either absent from, or less well developed, in Spain's roadmap.
Both Portugal and Spain have set out policy measures over the past two years aimed at making their electricity systems more sustainable.
Portugal has set itself a target of fully eliminating TDs by 2020.
Implementation of its package of energy sector reforms is subject to quarterly monitoring by the "troika" (EU, ECB and IMF), which agreed the reforms with the Portuguese government in 2011.
In Spain, where the latest batch of reforms was released in July, no concrete target and deadline to eliminate TDs have been publicly announced.
Both countries' electricity systems are exposed to demand volatility. However, while the Portuguese regulator is independent from the national government, Spain's exposure to demand volatility may have been amplified in the past by having an electricity regulator that lacked sufficient independence to ensure that system costs were kept under control (the final TD of EUR5.6bn for 2012 is much higher than the target of EUR1.5bn). The creation of a new, larger regulator in Spain via recent legislation aims to rectify this, for example by saying that regulatory decisions can only be appealed in the courts. It remains to be seen whether such measures deliver real regulatory independence.
We believe the Spanish measures announced in July will help to control and potentially reduce the size of the TDs outstanding, but will wait until end-2013 system liquidation reports are available to evaluate their impact.
Electricity markets in both Portugal and Spain can be made sustainable in the long-term, albeit from different starting points (outstanding TDs in Portugal were 45% of electricity system total revenues at the end of last year, compared with an estimated 83% in Spain, equivalent to 1.7% and 2.6% of each country's GDP). But this will depend on various drivers such as the level of supply and demand liberalisation and achieving an affordable mix of energy sources inclusive of renewables.
Also, we believe that if economic weakness constrains electricity demand for a long time, both TD reduction deadlines and system sustainability goals may be extended.
We have a Rating Watch Negative on all ratings of utilities with large exposure to the Spanish electricity sector, which we expect to resolve as we assess the implications of the July reforms. These include reducing regulated earnings through lower returns on electricity transmission and distribution assets.
Meanwhile, the two main rating risks to the seven Iberian TD securitisations that we rate are a failure to address financial imbalances in the electricity system and legal intervention that hinders regulatory independence.
Spain's Fondo de Titulizacion del Deficit del Sistema Electrico, FTA (FADE) has outstanding bonds worth EUR20.8bn at present, and its first maturing series is due on 17 September 2013 (Series 5, worth EUR2.0bn). FADE maturities beyond 2013 include EUR2.7bn and EUR4.6bn in 2014 and 2015 respectively, which we expect will be met with collections plus new debt roll over issuance, as long as market conditions permit.
For our full assessment, see Electric Shock: Iberian Tariff Deficit Comparison, published today and available at www.fitchratings.com.
Link to Fitch Ratings' Report: Electric Shock: Iberian Tariff Deficit Comparison
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