Ratings-London-18 December 2008: Fitch Ratings says today in a new report that the credit outlook for the Ukrainian energy and utility sector during 2009 is negative of because of a funding crisis in the state-controlled power generation sector, downward pressure on regulated tariffs due to a severe recession, restricted access to bank lending and debt capital markets, and continued turmoil at NJSC Naftogaz of Ukraine (‘B’/Rating Watch Negative).

The report assesses the impact of a major shortfall in power generation investment, which has not materialised despite rising tariffs. This critical lack of investment is likely to forestall market liberalisation and generate erratic electricity sector policy. Fitch expects an economic recession in Ukraine in 2009 to drive down power demand, providing only temporary respite to falling capacity reserve margins.

Fitch expects liquidity and refinancing risk to remain high for the Ukrainian energy and utility sector through most of 2009, as foreign banks and markets remain effectively closed to Ukrainian issuers. Any energy companies with foreign currency denominated debt but largely hryvnia-based earnings will experience particular difficulty due to a currency crisis affecting the hryvnia that has led to restrictions in the availability of foreign exchange.

Naftogaz will continue to confront major challenges in 2009, including a lack of transparency, potentially insufficient state subsidisation for its loss-making residential business, higher import prices, accumulating gas payables and restricted access to external financing. However, Fitch continues to view Naftogaz as an important strategic asset for the Ukrainian government (Ukraine rated at ‘B+’/Outlook Negative) and factors state support into the company’s rating.
Ukrainian energy and utility entities rated by Fitch include NJSC Naftogaz of Ukraine and DTEK Holdings Limited (‘B+’/Outlook Negative).
The 2009 credit outlook, entitled "Ukrainian Energy and Utilities – 2009 Outlook”,is available on the agency's public website, www.fitchratings.com.