TEXT-S&P report on EEMEA Utilities

(The following statement was released by the ratings agency)

Aug 6 - In a report published today, titled, "After Strong Performance, Will EEMEA Utilities Withstand The Coming Challenges?", Standard & Poor's Ratings Services said that the overall rating performance of utilities in Eastern Europe, Middle East, and Africa (EEMEA) has been positive since October 2007. The outlook for ratings performance over the next one-two years is, however, clearly less favorable.

"We have upgraded four issuers on the back of mergers and acquisitions, parental support, and strong performance in 2007--and there have been no downgrades," said Standard & Poor's credit analyst Eugene Korovin.

Three of the four upgrades were from speculative grade to investment grade, so that now 14 out of the 23 utilities in Standard & Poor's Ratings Services rated EEMEA portfolio have investment grade ratings of 'BBB-' or above.

Since October 2007, there have been several downward outlook revisions and CreditWatch placements with negative implications, which tilt the balance of rating outlooks to negative. This reflects the significant challenges faced by a number of companies in our portfolio, which may put pressure on the ratings in the short to medium term.

Key challenges ahead include worsening macroeconomic environments and increasing input cost inflation (due to significant increases in the cost of oil and gas), which in a number of cases has not been passed through in end-user tariffs. Government-led sector restructuring, which may be credit-dilutive, increasing investments, and more difficult access to liquidity resulting from ongoing credit crunch, will also test many of the companies' mettle.

Although compared with other economic sectors, utilities are relatively well positioned to withstand macroeconomic challenges, sector-specific risks such as restructuring, increasing investments to ensure secure energy supplies, and mounting fuel costs that cannot be passed through in tariffs in a timely manner may put some pressure on the sector's credit quality.