2016年-世界发展银行全球_Financial_Standing_of_the_Power_Sector_in_Armenia_10页_353kb

Summary of the Financial Standing of the Power Sector in Armenia

Core Content

This report provides an analysis of the financial standing of the power sector in Armenia, focusing on the state-owned and private entities, and highlights the challenges and potential solutions to improve the sector's financial sustainability.

Main Points

A. Background

• The Armenian power sector achieved significant improvements during the first decade of independence (1991–2003) through policy, legal, regulatory, and institutional reforms.
• The sector became financially sustainable with tariffs that recovered reasonable expenses and near-complete collection of sales.
• Subsidies were eliminated, and the largest sector companies were among the top taxpayers in the country.
• Over 70% of the sector's assets were denationalized (privatized or transferred to Russian ownership).
• Since 2010, the financial performance has deteriorated, with state-owned companies and ENA accumulating large commercial debts and facing potential bankruptcy.

B. Sector Financial Situation

• As of February 1, 2016, state-owned power generation companies (ANPP and YTPC) had a cash deficit of AMD51 billion (0.9% of 2015 GDP) or 80% of their total estimated revenues.
• Commercial loans and payables have increased significantly:
  • Short-term and expensive commercial loans: AMD6.5 billion
  • Payables: AMD37 billion
• The interest expense from these loans was AMD0.7 billion per year.
• Receivables from ENA reached AMD17.4 billion as of February 1, 2016.

C. Financial Situation of State-Owned Power Sector Companies

a) Armenian Nuclear Power Plant (ANPP)

• Operating margin declined from 24.9% in 2012 to 10.56% in 2019.
• Net margin dropped from 21.8% in 2012 to 13.55% in 2019.
• Debt-to-equity ratio doubled from 0.10 in 2011 to 0.36 in 2019.
• Debt service coverage ratio fell to 0.21 in 2019, indicating poor ability to service debt.

b) Yerevan Thermal Power Centre (YTPC)

• Operating margin dropped from 3.4% in 2011 to 1.59% in 2019.
• Net margin fell from 25.8% in 2011 to 3.40% in 2019.
• Debt-to-equity ratio increased from 15.64 in 2012 to 5.25 in 2019.
• Debt service coverage ratio decreased from 10.00 in 2012 to 0.49 in 2019.
• Debt-to-assets ratio rose from 0.83 in 2012 to 0.64 in 2019.

c) High Voltage Networks of Armenia (HVEN)

• Operating margin fluctuated significantly, from 27.9% in 2011 to 1.23% in 2019.
• Net margin varied from -5.3% in 2011 to 16.46% in 2019.
• Debt-to-equity ratio increased from 0.85 in 2011 to 7.59 in 2019.
• Debt service coverage ratio dropped from 1.15 in 2011 to 1.57 in 2019.
• Debt-to-assets ratio rose from 0.38 in 2011 to 0.77 in 2019.

Key Reasons Behind Financial Distress

1. Non-core business related borrowing and lending:

   • State-owned companies were used to fund non-core activities such as the Nairit and Vanadzor chemical plants.
   • Total outstanding debt to these chemical plants was AMD35.6 billion as of February 1, 2016.
   • YTPC took an AMD2.6 billion loan to fund the Nairit chemical plant.

2. Non-payment by ENA:

   • ENA, the sole buyer in the power market, failed to make timely payments, increasing receivables for state-owned companies.
   • ENA's debt to state-owned companies reached AMD17.4 billion as of February 1, 2016.

3. Below-cost recovery tariffs:

   • Tariffs did not cover all costs, particularly due to inflation and uncompensated gas cost fluctuations.
   • Gas costs accounted for 85% of total costs for thermal power plants, but the tariff was fixed in US$, leading to losses when the AMD/US$ exchange rate fluctuated.

Key Steps for Improvement

1. Prohibit non-core expenses, borrowing, and lending:

   • The Government should legally prevent state-owned companies from engaging in non-core financial activities.

2. Improve ENA's financial standing:

   • Allow recovery of AMD24 billion in accumulated losses.
   • Revise the tariff-setting methodology to reflect actual losses and prevent future mismatches.

3. Revise tariff-setting methodology:

   • Adjust tariffs to include losses from natural gas purchase due to exchange rate fluctuations.

4. Refinance commercial loans:

   • Refinance AMD6.5 billion in short-term commercial loans with longer-term and lower-interest funding.
   • This would reduce annual interest expenses from AMD0.7 billion to AMD0.4 billion during the grace period and AMD1.4 billion annually thereafter.

5. Settle non-commercial debts:

   • Implement a series of write-offs to settle debts to Vorotan HPP.

6. Liquidate Haigasard SPV:

   • Liquidation is necessary to prevent misuse of funds for non-core purposes.

7. Legal recovery of debts from Nairit and Vanadzor chemical plants:

   • Initiate legal processes to recover AMD35.6 billion in outstanding debts.

Conclusion

The Armenian power sector has faced a significant reversal of earlier financial achievements, leading to substantial debt accumulation and financial distress. The sector's sustainability is under threat, and urgent measures are required to address the root causes of financial instability, including revising tariff structures, improving ENA's financial health, and stopping non-core financial activities. These steps are essential to restore reliability and quality of power supply and attract future investments.