Improving economic conditions in Romania plus electricity market deregulation have given a boost to the business risk prospects of hydro utility Hidroelectrica in the eyes of credit ratings agency Standard and Poor's (S&P).

The agency has raised its long-term corporate credit rating on Hidroelectrica, and added that the outlook was positive, especially given its relatively low-cost hydro power asset base.

Next year the government is expected to list Hidroelectrica on the Bucharest stock exchange, which should lift the utility’s liquidity from its relatively weak position, S&P said.

However, given Hidroelectrica’s exposure to fluctuations in generation volumes and market prices, S&P added that the utility’s cashflow remained inherently volatile – and would be especially so in the face of lower prices or increased hydrological risk.

S&P’s view on the credit profile comes as the utility is planning to take on more debt for a refurbishment programme. Though its balance sheet would be weighed by the debt, there are opportunities for increased earnings from growing demand as well as the phase-out of the remaining regulated power sales deals, noted S&P.

The agency further noted that while the utility’s low cost base and improving market conditions together with sales opportunities held some potential for a further upgrade of the credit rating, it cautioned that general business difficulties could cause the outlook to slip – as could the divestment of hydro power plants. S&P emphasised that the hydro power assets were considered to be core to the utility’s operations.