February 23, 2023 (MLN): Fitch Ratings has downgraded Pakistan Water and Power Development Authority's (WAPDA) Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC-' from 'CCC+', the statement issued by Agency said on Wednesday.
Fitch typically does not assign Outlooks to issuers with a rating of 'CCC+' or below due to the high volatility of these ratings.
The downgrade follows the downgrade of Pakistan on 14 February 2023 as WAPDA's ratings are equalized with that of the sovereign and sensitive to any rating action on the sovereign. For details on the sovereign rating.
"Our assessment of the factor is unchanged, based on the government's stable ownership and strong control under the WAPDA Act," it said.
The Act also allows the government to take on WAPDA's liabilities on its loans. WAPDA's policy-driven business serves the public interest and the government maintains a strong influence over its corporate governance, covering budgets, accounts, financing activity, and new investment plans, as the entity is mandated to carry out the government's responsibility of utilizing the country's water and power resources.
WAPDA relies on government funding in the form of grants and loans for most of its completed and ongoing projects.
The agency further stated that the government loans accounted for 61% of adjusted debt as of the financial year ending June 2022 (FY22). The government also guaranteed 20% of WAPDA's debt.
The government sets WAPDA's tariffs at a favorable level that allows the entity to meet its operating cost with a reasonable return on investment. The tariff is mainly based on capacity, which ensures a stable revenue inflow, mitigating hydrological risk.
WAPDA is responsible for the country's hydropower generation, flood control, and water supply. It is the nation's largest hydropower supplier, accounting for 21% of electricity generation and 92% of hydroelectricity generation as of FY22.
Hydropower capacity expansion and stable electricity output with lower costs are of national importance in boosting the nation's productivity amid higher energy prices and supply disruptions. Pakistan is striving to meet its rising electricity demand, making hydroelectricity a more important source, with an increasing share of the power mix.
"WAPDA's ratings reflect our assessment of government linkage and support incentive, resulting in a weighted score of 50, based on our Government-Related Entities Rating Criteria," it noted.
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Posted on: 2023-02-23T11:14:14+05:00
