Fitch Affirms Regional Electrical Power Networks at 'BB'

Tashkent, Uzbekistan (UzDaily.uz) — International rating agency Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of JSC Regional Electrical Power Networks (RES) at 'BB'. The rating outlook remains Positive.

The agency equalized the company's rating with Uzbekistan's sovereign rating, noting that as of the end of 2025, more than 90% of RES's debt obligations were backed by state guarantees or provided by the government. Fitch expects this financing structure to persist.

Meanwhile, the company's Standalone Credit Profile (SCP) was affirmed at 'ccc'. According to the agency, this assessment reflects the enterprise's limited ability to generate cash flow due to economically non-viable tariffs, insufficiently transparent regulation, and weak liquidity.

Fitch considers state support a key factor in RES's creditworthiness. The agency notes a high level of state control over the company, including approval of investment programs, tariff regulation, and the provision of financial assistance. In addition to state guarantees on loans, the enterprise receives preferential budget loans, subsidies, recapitalization, and debt refinancing support.

In 2025, the company transferred high-voltage substations and power transmission lines without monetary compensation to the state-owned national grid operator. As a result, the value of RES's fixed assets decreased by 11%, and its equity turned negative.

The company is in talks with the government to remove part of the debt obligations associated with the transferred assets. Fitch views this transaction as evidence of certain corporate governance deficiencies, but does not consider that it significantly worsened the enterprise's credit profile.

The agency also drew attention to a financial sustainability recovery plan prepared by Franklin Templeton, which manages the state-owned stake in RES. The document provides for a transition to cost-reflective tariffs, the introduction of a long-term tariff policy, reduction of electricity losses, improved payment collection, enhanced corporate governance, and reduced reliance on ad-hoc state support.

According to Fitch, implementing these measures could improve the company's standalone credit profile, although the agency does not expect significant changes in the near term.

Fitch notes that RES's financial performance is largely determined by the current tariff regulation system.

Virtually all of the company's revenue and about 90% of its expenses are state-regulated. In June 2026, electricity tariffs for the population were raised by 8–13% depending on consumption volume, and for large corporate consumers by 10%. However, a corresponding increase in the purchase tariff has not yet been approved, which the agency believes limits cash flow predictability.

Average EBITDA margin in 2021–2025 was around 4%, with figures varying significantly year to year. Fitch expects that under the existing regulatory environment, the company's profitability will remain low and volatile.

The agency also points to ongoing foreign exchange risks. At the end of 2025, about 46% of the company's debt was denominated in US dollars and euros, and another 14% in Russian rubles, while most of its revenue is generated in Uzbek soums. In its baseline scenario, Fitch forecasts an average annual depreciation of the national currency of about 2% in 2026–2028.

The agency's baseline forecast also assumes tariff increases for legal entities in line with approved decisions in 2026 and slightly below inflation over the following two years, tariff increases for the population in 2026 with further indexation at inflation levels, purchase tariff increases proportional to end-user tariff growth, capital expenditure of about US$470 million in 2025–2028, and no dividend payouts.

Fitch estimates that RES's rating could be upgraded in the event of an upgrade to Uzbekistan's sovereign rating while maintaining state guarantees on more than 75% of the company's debt obligations. Additional positive factors could include the implementation of a transparent and predictable multi-year tariff regulation system, strengthening of the financial profile, and improved liquidity.

The agency cites a downgrade of Uzbekistan's sovereign rating or a reduction in the share of state-guaranteed debt below 75%, all else being equal, as grounds for a negative rating action.

As of the end of 2025, RES's cash and cash equivalents stood at 0.6 trillion soums against short-term liabilities of 2.3 trillion soums. Fitch expects the company to continue extending loans received from the state and state-owned banks or obtaining necessary covenant waivers from related lenders.

The agency also assumes continued state liquidity support through budget loans, capital expenditure subsidies, state guarantees on investment loans, and preferential refinancing.

JSC Regional Electrical Power Networks distributes and sells electricity in Uzbekistan, purchasing power from the state single buyer Uzenergosotish and supplying it to end-consumers.