Kazakhstan Electricity Grid Operating Co. (JSC)

The stable outlook on KEGOC reflects our view of a high likelihood of extraordinary state support, sizable cash balances, and existing headroom in the metrics within the rating. These are to some extent offset by the weak tariff system characterized by interventions and not guaranteeing full cost pass-through. We further note increasing capex needs to modernize aged assets, although the program is not yet finalized and can be financed with cash on balance and flexibility in reducing dividends payouts. Under our base case, FFO to debt should remain at least above 30%, compared with the 20%-30% we view as commensurate with the current rating. We could take a negative rating action if KEGOC's liquidity becomes stressed or if its debt

...The tariff regime for Kazakhstan Electricity Grid Operating Co. (JSC) (KEGOC) lacks transparency and is subject to regulatory interventions, as demonstrated in 2021 and 2022. The existing tariff framework for KEGOC is designed to be long term and incorporates a certain rate of return on approved expenses and investments. However, it doesn't allow for full cost reimbursement through an automatic pass-through and leaves the company exposed to electricity transmission volume volatility, while the profit component of the tariff calculation is not transparent. Moreover, the tariff rates are exposed to an opaque approval process and regulatory intervention, which reduce visibility over KEGOC's future earnings and cash flow generation. This is demonstrated by the 2021 example when the regulator only approved a new five-year tariff in October, even though the company submitted the draft on time. As a result, for nine months, in accordance with the law, the company had to operate tariffs that did...

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