Standard & Poor’s Ratings Services revised its outlook on Oman Power and Water Procurement Co. SAOC (OPWP) to stable from negative. At the same time, we affirmed our ‘A’ long-term issuer credit rating on OPWP.
The ratings on OPWP are based on equalization with the long-term sovereign credit rating on the Sultanate of Oman (A/Stable/A-1). The equalization reflects our opinion that there is an “almost certain” likelihood that the government of Oman would provide timely and sufficient extraordinary support to OPWP in the event of financial distress.
S&P said that in accordance with its criteria for government-related entities, the rating approach is based on our view of OPWP’s on the following.
“Critical” role as the monopoly buyer and supplier of bulk electricity and desalinated water in Oman as OPWP was set up by the government in 2005 as an intermediary between electricity producers and distributors. Its legal role is to secure the production capacity and output to meet “all reasonable demands” for electricity, and to secure the production of desalinated water. This includes the critical function of forecasting the demand and supply of electricity and related water in Oman over a seven-year period.”
“Integral link with the Omani government, given the company’s public policy role and 100% state ownership through the Ministry of Finance and government-owned Electricity Holding Co. SAOC (EHC). The government created OPWP specifically to act as a government agency according to Article 14 of the Law for the Regulation and Privatization of the Electricity and Related Water Sector (Sector Law), under which OPWP must remain wholly government-owned. OPWP’s obligations are not explicitly guaranteed, but under Article 67 of the Sector Law, the Ministry of Finance must provide adequate financing to enable OPWP to undertake its assigned activities.”
These strengths are somewhat offset by OPWP’s inherently low profitability, which mainly results from its agency role, seasonal working capital requirements, and a potential increase in counterparty risks as Oman’s distribution companies are privatized.
The stable outlook on OPWP reflects that on Oman. If the ratings on Oman were to change, the ratings on OPWP would change. We currently do not expect our view of OPWP’s “critical” role and “integral” link with the Omani government to change, meaning that the ratings on OPWP will remain equalized with those on Oman. We also anticipate that the tariff regime will remain supportive and that OPWP will not engage in any any regulated activities without approval from Oman’s Authority for Electricity Regulation.
The ratings on OPWP could come under pressure should the company deviate from its current practices and start to engage in long-term borrowing other than that which covers working capital swings. This could lead us to reconsider our view of OPWP’s agency role and, in particular, the likelihood of government support.