Fitch upgrades Saudi Electricity to 'A'; stable outlook

Saudi Electricity Co.'s building

Fitch Ratings upgraded Saudi Electricity Co.'s (SEC) long-term issuer default rating (IDR) and senior unsecured rating to 'A' from 'A-', with stable outlook.
 

The revised standalone credit profile (SCP) reflects the timely implementation of the sector reforms, announced in November 2020, Saudi Press Agency reported. 

The telco's SCP eflects its scale in revenue and power generation capacity, its dominant market position in the power-generation sector, and its monopoly position in transmission and distribution.

The reforms improved SEC's business-risk profile by introducing the regulatory asset base (RAB) methodology for setting tariffs for transmission, distribution and generation, and a clear formula for allowed revenue calculation, including pass-through items in tariffs (eg fuel and electricity costs, licence and inter-connections fees, and taxes) and a revenue-correction mechanism, all of which insulate SEC from volume risk.
 

Continuation of the balancing fund and elimination of the payment of government fees under the reform will improve SEC's profitability.

The balancing fund covers differences between notional allowed revenue by the regulator and actual revenues, including gaps left by the government's subsidies for certain customers.