Cores out­look re­mains neg­a­tive

The Pak Banker - - 6BUSINESS -

Barcelona: Global rat­ing agency Fitch has as­signed Cor­po­ra­cion de Reser­vas Es­trate­gi­cas de Pro­duc­tos Petro­lif­eros (Cores) Long-Term for­eign and lo­cal cur­rency rat­ings of ‘BBB’, and a Short-Term rat­ing of ‘F2’. The Out­looks on the Long-Term rat­ings are Neg­a­tive. The rat­ings also af­fect the EUR1,816m fi­nan­cial debt.

Cores rat­ings are credit linked to the Span­ish government (‘BBB’/Neg­a­tive/’F2’) un­der Fitch’s pub­lic sec­tor en­tity cri­te­ria. The link to the sov­er­eign is due to the strate­gic mis­sion of Cores in main­tain­ing and con­trol­ling en­ergy safety re­serves. The rat­ings also take into ac­count the strong con­trol from the cen­tral gov- ern­ment and the abil­ity to in­crease at any time its rev­enue so that it cov­ers its op­er­at­ing cost.

Cores was cre­ated in 1995 with the mis­sion of con­trol­ling and main­tain­ing Spain’s strate­gic re­serves of oil and gas. Oil is cru­cial for domestic en­ergy sup­ply, rep­re­sent­ing more than half of the en­ergy con­sumed and al­most its en­tire con­sump­tion of oil is im­ported. Even if the sup­ply is ge­o­graph­i­cally di­ver­si­fied, there is still a po­lit­i­cal risk, which was ev­i­denced dur­ing the 1970s due to the dis­rup­tion caused by the var­i­ous con­flicts that took place in Mid­dle East. Any dis­rup­tion in oil sup­ply would have a dra­matic con­se­quence on the Span­ish econ­omy. As such, the Span­ish cen­tral government has since 1972 es­tab­lished min­i­mum strate­gic re­serves, which in 1982 be­came an obli­ga­tion with the Euro­pean Union. Re­gard­ing oil prod­ucts, min­i­mum re­serves are es­tab­lished at 92 days of con­sump­tion.

Although the cen­tral government is not a stake­holder as Cores is a type of pub­lic sec­tor en­tity with­out eq­uity gath­er­ing oil and nat­u­ral gas op­er­a­tors in Spain, we con­sider its con­trol over the ac­tiv­ity of Cores as very strong. It is largely present in Cores’ board of direc­tors, the key gov­ern­ing body of Cores, and its pres­i­dent, who is di­rectly ap­pointed by the Min­istry of In­dus­try En­ergy and Tourism, has a veto right. It has never hap­pened, il­lus­trat­ing the strong con­sen­sus within the board of direc­tors.

By law, op­er­a­tors in nat­u­ral gas and oil distri­bu­tion need to pay a fee to Cores, and are also re­spon­si­ble for main­tain­ing Cores’ fi­nan­cial cred­it­wor­thi­ness. Their an­nual fee is es­tab­lished by min­is­te­rial or­der un­der the pro­posal of Cores’ board of direc­tors. It could in­crease at any time, if Cores’ cred­it­wor­thi­ness re­quires it. The fee, which is paid on a monthly ba­sis, rep­re­sents only 0.3% of the re­tail price of a litre of oil, and Fitch con­sid­ers that an ex­tra­or­di­nary rise on the fee would have lit­tle im­pact on the vol­ume of sales.

Cores fi­nan­cial re­sults are pos­i­tive and by law the fees paid from the op­er­a­tors must cover Cores’ op­er­at­ing costs (stor­age fa­cil­i­ties, in­ter­est pay­ments, struc­tural cost). Its fi­nan­cial debt, es­ti­mated at EUR1,816m, rep­re­sents about 85% of to­tal as­sets which are es­sen­tially made of oil in­ven­to­ries. Due to the neg­a­tive trend in oil con­sump­tion, largely due to the down­turn of the na­tional econ­omy, in­ven­to­ries held by Cores ex­ceeded its re­quired re­serves by 13% in 2011. The sale of re­serves must be al­lo­cated to debt re­pay­ment, and are or­gan­ised through auc­tions, as oc­curred in 2010 and in 2012.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.