print
23.04.2008
Credit-Rating: Lending to utility enterprises will weigh on local budgets
Credit-Rating believes that the rising volume of loans granted to utility enterprises for renovation of the infrastructure in 2008, with city councils acting as sureties to these loans, may lead to significant increases in consolidated debts of municipalities, which may prospectively hamper their capacity to repay the direct debt obligations.
Necessity in updating the utility infrastructure has become a primary problem for the majority of Ukraine`s municipalities. The attraction of loans from international financial institutions is one of the ways for solving this problem. Specifically, on March 27, 2008 the International Bank for Reconstruction and Development and the Ukraine`s Delegation negotiated a loan agreement on USD140m, which will be distributed to utility enterprises for funding `Development of Municipal Infrastructure` project.
The guarantees from municipal authorities on the loans empower the utility enterprises to attract relatively cheap resources, yet increasing city`s debt. At the same time, aggravation in the financial state of utility companies, which stems from discrepancies between tariffs for utilities and their prime cost and from population`s non-full payments, may lead to repayment of debt liabilities at the expense of local budgets.
It should be noted that repayment of debt obligations denominated in foreign currencies carry additional charges and risks, namely fluctuations and flexible exchange rates.
According to Yelena Samoylova, head for Credit-Rating`s municipal department, `the municipalities` acting as surety requires consistent policy of debt management and implementation of compulsory tracking nominal debt obligations, as well as planned budget funds for their repayment and servicing.
For more information, please contact:
Information and Communication Department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.com.ua
