Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of Uzbekistan's state-owned power distribution company, Hududiy Elektr Tarmoqlari (HET), at 'BB' with a Positive Outlook. The rating is aligned with Uzbekistan's sovereign rating, as nearly all of HET's debt is either provided by the state or backed by state guarantees.
However, the company's Standalone Credit Profile (SCP) remains significantly lower at 'ccc'. Fitch attributes this to weak cash flow, tariffs that do not fully cover costs, an opaque regulatory system, and insufficient liquidity. The agency notes that over 90% of HET's debt was state-guaranteed as of end-2025, including funds from international financial institutions channeled through the Ministry of Economy and Finance as loans to the company.
If the share of state-guaranteed debt falls below 75%, HET's rating could be notched down two levels from the sovereign. In 2025, HET transferred high-voltage substations and power lines to the state-owned transmission grid operator, Milliy Elektr Tarmoqlari, without any monetary compensation. This resulted in an 11% reduction in fixed assets and a negative equity position. The company is currently discussing with the government the possibility of removing part of the debt related to the transferred assets from its balance sheet.
Fitch views this transaction as indicative of certain corporate governance shortcomings, though it did not lead to a material deterioration in the credit profile. Franklin Templeton, which manages the state's 40% stake in HET through the National Investment Fund, has proposed a plan to restore financial stability and gradually transition to independent financing. The plan includes moving to cost-reflective tariffs, developing a long-term tariff model, reducing electricity losses, improving collection rates, strengthening corporate governance, and reducing reliance on discretionary state support.
Fitch believes successful implementation could improve HET's SCP by several notches, but does not expect this in the near term. Almost all of HET's revenues and about 90% of its costs are state-regulated, making its financial performance highly dependent on tariff decisions. In June 2026, residential electricity tariffs were raised by 8-13% depending on consumption, and by 10% for large enterprises, but the purchase tariff for HET has not yet been adjusted accordingly.
This makes cash flow forecasting challenging. Average EBITDA margin was around 4% in 2021-2025, but with high volatility. Fitch expects profitability to remain low and volatile under the current regulatory framework. The agency also highlights short-term tariff decisions, limited transparency, lack of a clear long-term model, manual allocation of cash flows, and political risks in price setting.
In 2024, HET separated distribution and sales functions within its branches, but the timing and conditions for spinning off sales into a separate legal entity remain undefined. HET's revenues are in Uzbek soum, while most of its debt is foreign-currency denominated. As of end-2024, 46% of debt was in USD and EUR, and 14% in Russian rubles. Hedging opportunities are limited. Fitch expects the soum to depreciate against the USD by an average of about 2% annually in 2026-2028.
As of end-2025, HET had cash of UZS 600 billion and short-term debt of UZS 2.3 trillion. Fitch expects standalone liquidity to remain weak, likely requiring further extensions of state and state bank loans or payment deferrals with affiliated creditors. Almost all of HET's debt is from state or state-guaranteed sources, with the remainder from state-owned Uzsanoatqurilishbank.
The agency expects continued state support through budget subsidies for capex, concessional loans, guarantees on investment loans, and favorable refinancing terms. Fitch's base case assumes HET's capex at about USD 470 million in 2025-2028, with no dividend payments. Tariffs for households are expected to rise roughly in line with inflation in 2027-2028, while those for legal entities may increase slightly slower. Purchase tariffs are expected to follow average retail tariff dynamics.
An upgrade of Uzbekistan's sovereign rating, with state guarantees covering over 75% of debt, could lead to an upgrade of HET's rating. Positive factors for the SCP include transparent multi-year tariffs, improved liquidity, and sustained debt reduction. Conversely, a sovereign downgrade or a drop in state-guaranteed debt below 75% could lead to a downgrade.
For 2025, HET reported revenue of UZS 50.3 trillion, up 5.3%, net profit of UZS 431.7 billion (vs. a loss of UZS 1.12 trillion in 2024), and operating profit of UZS 2.7 trillion (vs. a loss of UZS 44 billion). However, financial position remains strained: assets fell 8.4% to UZS 27.1 trillion, liabilities rose to UZS 27.4 trillion, and equity turned negative at UZS 387.9 billion, mainly due to the transfer of assets to Milliy Elektr Tarmoqlari at prices well below book value.
Source: www.gazeta.uz