(Fitch Ratings - Hong Kong - 17 Jun 2025)--Fitch Ratings has affirmed Indonesia-based PT Perusahaan Listrik Negara (Persero)'s (PLN) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB' with a Stable Outlook. The agency has also affirmed the senior unsecured rating on PLN's medium-term note programme, the notes issued under the programme, and the US dollar notes issued by its subsidiary Majapahit Holding BV and guaranteed by PLN at 'BBB'.
PLN's ratings are equalised with those of its parent, the Indonesian sovereign (BBB/Stable), in line with Fitch's Government-Related Entities (GRE) Rating Criteria. The equalisation is based on a very strong likelihood that PLN, as a state electricity company, would receive government support.
PLN's 'bb+' Standalone Credit Profile (SCP) reflects its position as an integrated electricity utility, with a monopoly of electricity transmission and distribution in Indonesia and a strong position in power generation. The SCP also considers the stable regulatory framework and PLN's modest financial profile. We expect PLN's EBITDA net leverage to rise to 4.1x-4.4x in 2027-2028 (2024: 3.3x) as its capex picks up, but to remain adequate for its SCP.
Key Rating Drivers
Strong Links with Government: We evaluate the sovereign's involvement in PLN's decision-making and oversight as 'Very Strong'. The government fully owns PLN, appoints its board and senior management, and directs and approves investments. PLN serves as the nation's electricity company, meeting the state's public-service obligation by selling power at government-controlled prices.
We assess the precedents of support from the sovereign as 'Very Strong'. The government supports PLN through numerous mechanisms, including subsidy reimbursements for electricity sold under the state's public-service obligation mandate. The government provided equity of IDR5 trillion annually in 2020, 2021 and 2022, and guarantees about one-fifth of the company's borrowings.
High Incentive to Provide Support: We view PLN's role in preservation of government policy as 'Very Strong', as it accounts for about 64% of Indonesia's power generation capacity and is its sole power wholesaler. A default would disrupt power supply nationwide as PLN would find it difficult to procure feedstock for generation and power from independent producers.
We assess the contagion risk as 'Very Strong' in a default. A default by PLN would significantly affect the availability and cost of funding for the state and other state-owned companies. We also consider PLN a reference issuer in Indonesia.
Demand Aligned with Economic Growth: We expect Indonesia's electricity demand to rise by about 5% a year in 2025 and 2026, mirroring Fitch's GDP growth forecasts. We expect solid domestic demand, due to public spending on the key social assistance measures and infrastructure projects. We also expect private investment to remain robust, driven by further monetary policy easing, reduced policy uncertainty following the election in 2024, and continued down streaming activities.
Reliance on Subsidies and Compensation: We expect subsidies and compensation income to remain substantial and PLN to remain reliant on state support to sustain operations over the medium term. In 2024, PLN had subsidies and compensation income of IDR177 trillion versus EBITDA of IDR101 trillion. In January and February 2025, the government gave a 50% tariff discount to certain households as part of broader economic stimulus, with PLN to be compensated for the discount provided. Tariffs remain unchanged in 6M25, apart from the temporary discount.
Timely Compensation: PLN, like other Indonesian GREs that receive compensation from the government for selling at controlled prices, has been receiving prompt payments. The compensation payment process was streamlined by the enactment of legislation in 2022 that mandated quarterly compensation payments by the government. Compensation income amounted to IDR100 trillion in 2024, of which IDR81 trillion was received by end-2024.
Leverage to Rise on Capex: We expect capex to go up to IDR100 trillion-140 trillion annually from IDR50 trillion-60 trillion in the past few years, driven by energy transition capex. The capex timing may vary as the plan progresses, but we expect a big acceleration compared with historical levels due to intensified efforts to shift towards renewables. As a result, we expect FCF to remain negative over the medium term due to its large capex resulting in EBITDA net leverage rising to 4.1x-4.4x by 2027-2028 from 3.3x in 2024.
Peer Analysis
Vietnam Electricity (EVN, BB+/Stable) and Korea Electric Power Corporation (KEPCO, AA-/Stable) have state linkages comparable to those for PLN.
EVN and PLN have 'Very Strong' assessments for decision-making and oversight, as they are wholly state-owned entities and their strategies, operations and investment are highly controlled and influenced by the respective governments. The assessment is 'Strong' for KEPCO as the sovereign owns around 51% of the company and is less involved in business and policy decisions.
EVN and KEPCO are assessed to have 'Strong' precedents of support. EVN has received guarantees, step-down loans, loans from state-owned banks at preferential rates, project subsidies and tax incentives. The government has directed banks to provide liquidity to KEPCO, and we believe direct support from government will be likely if needed. In comparison, PLN is assessed at 'Very Strong', as the Indonesian government supports PLN through various mechanisms, including subsidy reimbursements for electricity sold under the state's public-service obligation mandate.
The 'Strong' assessment of EVN's preservation of government policy role considers that a default could disrupt continued provision of electricity in the country, a key public service. PLN's and KEPCO's 'Very Strong' assessments reflect their significant majority in electricity generation in their respective countries and their ownership of the entire transmission and distribution network. Hence their defaults would severely disrupt the entire energy value chain in their respective countries.
The 'Very Strong' assessment of contagion risks for all three entities reflects our expectation that a default would affect the availability and cost of financing for the state and other GREs, as all three companies are key borrowers in their respective countries.
State-owned PT Pertamina (Persero)'s (BBB/Stable) ratings are also equalised with those of the Indonesian sovereign. Pertamina, Indonesia's national oil company, has a near-monopoly in refining and retailing petroleum products and accounts for a significant share of the country's crude output. Pertamina performs a government-directed public-service obligation by selling refined products at below-market prices set by the state, in a similar way to PLN. We assess Pertamina as 'Very Strong' under each sub-factor of the GRE criteria, similar to PLN.
Key Assumptions
Fitch's Key Assumptions within Our Rating Case for the Issuer
-Electricity sales to increase by around 5% annually
-Cost of coal at the lower of Fitch's price deck or the Indonesian government's price cap for domestically purchased coal
-Average tariff to increase slightly in 2025 and stay flat thereafter
-Continued appropriate reimbursements for selling electricity below cost
-Annual capex to average IDR100 trillion-140 trillion
-Annual dividend payout ratio around 15%
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
-Negative rating action on the sovereign.
-Significant weakening of the likelihood of support from the government, including weaker government links or lower government reliance on PLN for policy implementation, although we see this as a remote prospect in the medium term
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
-Positive rating action on the sovereign.
For the sovereign rating of Indonesia, the following sensitivities were outlined by Fitch in our rating commentary of 11 March 2025:
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
-Public Finances: A material increase in the overall public debt burden closer to the level of 'BBB' category peers, resulting, for example, from a substantial rise in fiscal deficits, or materialisation of contingent liabilities.
-External Finances: A sustained decline in FX reserve buffers, resulting, for example, from outflows stemming from deterioration in investor confidence or large FX interventions.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
-Public Finances: A marked improvement in the government revenue ratio closer to the level of 'BBB' category peers, including from better tax compliance or a broader tax base, which would strengthen public finance flexibility.
-External Finances: A material reduction in external vulnerabilities, for instance, through a sustained increase in FX reserves or lower exposure to commodity price volatility.
-Structural: Significant improvement in structural indicators, such as governance standards, closer to those of 'BBB' category peers.
Liquidity and Debt Structure
PLN's cash balance of IDR62 trillion at end 2024, along with its robust access to funding, was adequate to meet its short-term debt maturities of around IDR37 trillion. PLN also benefits from well-spread-out debt maturities, with average annual maturities of below IDR45 trillion. We expect PLN to generate about IDR80 trillion-90 trillion in annual cash flow from operations during 2025-2028, but to remain reliant on external funding for its large annual capex plan. We believe it can secure adequate funding due to its close links with the sovereign.
Issuer Profile
PLN is Indonesia's integrated electric utility company and is wholly owned by the state. It has a monopoly over power transmission and distribution, and accounts for about 63.8% of the country's total installed generation capacity of 76GW as of end 2024. The company also purchases power from independent producers for distribution across the country.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings of PLN are directly linked to the credit quality of its parent, the Indonesian sovereign. A change in Fitch's assessment of the credit quality of the parent would automatically result in a change in the rating on PLN.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)
