Rating agency Fitch has affirmed the long-term Issuer Default Rating (IDR) of Romanian natural gas transmission system operator Transgaz at BBB- with a stable outlook.
The affirmation of Transgaz is supported by its solid business profile as a concessionaire and operator of the gas transmission network in Romania and our expectation of regulatory continuity into the new regulatory period from October 2024. This is in the short-term term offset by a transmission tariff freeze, increased dividend distribution, growing investment ambitions and gradual contraction of its “north-to-south” gas transit business in the medium term.
At the same time, Fitch views the regulatory framework in Romania as less mature than many western European regimes, with considerable earnings and operating cash flows volatility. The stable outlook reflects our expectations that funds from operations (FFO) net leverage will be structurally maintained below negative rating sensitivity of 4.7x.
Transgaz’ business profile is progressively moving towards a pure regulated gas transmission service operator (TSO), allowing better predictability to its cash flows. This is mostly due the Romanian Energy Regulatory Authority’s (ANRE) recognition of the company’s historical (T1/T2 pipelines), recent (BRHA) and expected (Moldova and Black Sea) inter-connections projects within its regulatory asset base (RAB). Transgaz’ indirect reliance on gas transit is now limited to its monthly fixed settlement agreement with Gazprom related to the early termination of the historical T3 Ukraine-Bulgaria gas-transit contracts, which is estimated at around 7 % of its 2022-2023 revenue (0 % thereafter).
For 2022 Transgaz’ gas needs for technical consumption and to cover network losses have been secured at a reasonable price of 49 euros/ MWh. The regulation provides for cost and revenue adjustments but which are ex-post and therefore do not prevent annual cash flow volatility, a negative differentiator from many peers. An adjustment for past revenue over-collection to substantially erode 2022 operating profit and cash flow is expected, and for this effect to be smoothed out thereafter. In view of the Russian gas export cuts to the EU, the risk of gas curtailments in Romania is mitigated by the fairly high share of domestic gas production.
Following recent amendments to the Offshore Law and Europe’s need of an alternative gas source, the start of the construction of Podisor interconnection, which will link the large black sea gas reserves to BRHA pipeline, is more certain. The formal commitment of the involved exploration and production developers is still required for the start of the work, which if granted soon should see commissioning in late 2025 or early 2026.
