The Ministry of Industry and Trade has decided to cut electricity tariffs for certain customers by 10 per cent for the next three months to support economic activities amid the coronavirus pandemic. Fitch expects some delays in EVN's cash collections as well. Fitch also assumes electricity sales volume growth of only 4 per cent in 2020 in its rating case, compared with 9 per cent last year.

“We estimate that the proposed tariff cuts will raise EVN's 2020 leverage, as measured by funds from operations (FFO) adjusted net leverage, to 4.5x from our previous forecast of 3.9x. The leverage will increase to 4.9x should receivables stretch to 35 days from around 5 days historically,” Fitch said, noting it would revise EVN's SCP down if leverage is above 6.0x for a sustained period, indicating it has considerable headroom.

Under Fitch's Government-Related Entities Rating Criteria, EVN's ratings will be equalised to that of the sovereign in case of any weakening in its SCP given the company's strong linkages with the State. EVN's SCP is constrained at 'bb' due to the lack of a longer record of tariff adjustments that reflect cost changes.

Under the regulatory framework introduced in August 2017, EVN is entitled to increase or decrease tariffs every six months in line with its production costs. However, automatic adjustments are limited to 5 per cent. Price increases between 5 per cent and 10 per cent require approval from the Ministry of Industry and Trade, and larger increases need sign-off from the Prime Minister.

According to Fitch, EVN's financial profile can be significantly affected if tariffs are not adjusted regularly as it faces major hydrology, currency and demand risks, in Fitch’s view.