Fitch Ratings has affirmed Uzbekistan-based Regional Electrical Power Networks JSC's (Regional Networks) Long-Term Issuer Default Rating (IDR) at 'BB' with a Positive Outlook.

Regional Networks' rating is equalised with that of its sole parent, Uzbekistan (BB/Positive), reflecting that almost all of the company's debt is provided by the state or secured by government guarantees. We expect this to remain the case.

The Standalone Credit Profile (SCP) of 'ccc' reflects weak cash flow generation amid non-cost-reflective tariffs, opaque regulation leading to very limited cash flow visibility and poor standalone liquidity.

Key Rating Drivers

Rating Equalised with Uzbekistan: Over 90% of Regional Networks' debt at end-2025 was guaranteed by the state, leading to the rating being equalised with the state's under Fitch's Government-Related Entities (GRE) Rating Criteria. We treat funds from international financial institutions, which the Ministry of Finance on-lends to the company, as equivalent to government guarantees. State-guaranteed debt falling below 75% of total debt would lead to the company's rating being notched down two levels from the sovereign rating under our GRE Rating Criteria.

Assets Disposal Without Compensation: In 2025, Regional Networks transferred high voltage substations and network lines to the national electricity transmission operator, which is also fully state-owned, without cash or other compensation. As a result, the company's fixed assets at end-2025 decreased by 11% year on year and equity capital became negative. Regional Networks are in discussions with the government regarding deconsolidation of a portion of debt related to the assets transfer. We treat the transaction as evidence of some deficiencies in governance, even though it does not lead to a significant weakening of the credit profile.

Franklin Templeton's Action Plan: Franklin Templeton, which is the trustee and manager of the state's share in Regional Networks, proposed an action plan to restore the company's financial sustainability and transition to standalone funding. It includes implementation of cost-reflective tariffs, developing the long-term tariff framework, programmes for loss reduction and collections improvement, strengthening of governance and reduced reliance on ad-hoc government support. In our view, successful execution of the plan may lead to a multi-notch improvement of the SCP, although not in the near term.

Regulatory Decisions Key: Almost all of Regional Networks' revenue and about 90% of its costs are regulated, making regulatory tariff decisions a key driver of the company's financial profile. In June 2026, the government raised energy tariffs for households by 8%-13%, depending on consumption volume, and by 10% for large corporates. However, the corresponding increase in the purchase tariff has not yet been approved, making cash flow visibility very limited. Average EBITDA margin was about 4% in 2021-2025, but volatility was high from year to year. We forecast Regional Networks' profitability to remain low and erratic under the current regulatory regime.

Weak Regulation: The poor regulatory framework weighs on Regional Networks' business profile. It is characterised by low, short-term tariffs, limited transparency, the absence of a clear framework, manual cash-allocation mechanisms and political risk to tariff setting. In 2024, the company internally separated distribution and supply functions within its branches. The timing and details of the potential spin-off of supply activities to a separate legal entity remain unclear.

FX Mismatch in Revenue/Debt: Regional Networks is exposed to foreign-currency risk, with 46% of its debt at end-2024 denominated in US dollars and euros and 14% in Russian roubles, while its revenue is in Uzbek soum. FX hedging instruments are limited in Uzbekistan. Fitch expects the soum's depreciation against the dollar to be modest at about 2% per year over 2026-2028.

'Very Strong' Responsibility to Support: Under the GRE criteria, we assess both decision-making and oversight and precedents of support as 'Very Strong'. The state has strong influence on Regional Networks' strategy and operations through the approval of its investment plans and the setting of electricity sale and purchase tariffs. It directly provides or guarantees nearly all of the company's debt on top of equity injections, subsidies, below-market-rate loans and favourable refinancing terms.

Incentive to Support: We assess preservation of government policy role as 'Strong' as the company's default may temporarily endanger the continued provision of services due to its social function, large workforce and infrastructure renovation programme. Contagion risk is 'Not Strong Enough' as most debt is directly from the state or state banks. The company is not present in the eurobond market.

Peer Analysis

Regional Networks is similar to Uzbek peers Thermal Power Plants Joint Stock Company (BB/Positive, SCP: ccc) and UzbekHydroEnergo JSC (BB/Positive; SCP: b+), as more than 75% of its debt is provided or guaranteed by the state, which justifies rating equalisation with the sovereign.

On a standalone basis, Regional Networks has a substantially weaker business profile than Kazakhstan Electricity Grid Operating Company (BBB/Stable, SCP: bbb-), a transmission operator in Kazakhstan. This reflects the latter's stronger regulatory framework, less depreciated asset base and materially stronger financial profile than Regional Networks, underpinned by stronger liquidity, higher profitability, lower leverage, lower FX risk and more established financial policies.