AES-3C Maritza East 1 Ltd., the Bulgarian subsidiary of The AES Corporation AES, entered into a Heads of Terms Agreement (“HTA”) with Natsionala Elektricheska Kompania (“NEK”). NEK is the state-owned wholesale power company in Bulgaria.
Per the HTA, both AES-3C Maritza and NEK will able to amend an existing power purchase agreement (“PPA”), which allows the former to sell its electricity to the latter. Through the PPA Term, NEK’s capacity payment to AES-3C Maritza has been reduced by 14%. NEK, in turn, will pay full outstanding receivables, worth around $236 million as of Mar 31, 2015, to AES-3C Maritza. Upon customary approvals, signing of a binding agreement is expected in third-quarter 2015.
Despite obtaining outstanding payments, the agreement will impact AES Corp.’s adjusted earnings by around 3 cents annually due to the reduction in capacity payment.
With the latest announcement, AES-3C Maritza and NEK have successfully attained a framework to resolve the former’s outstanding receivables.
During its fourth-quarter 2014 earnings call, AES Corp. lowered its 2015 adjusted earnings guidance in consideration of several factors, including currency and commodity movements, and contract negotiations at the Maritza facility, Bulgaria.
Previously, AES-3C Maritza had faced delays in the collection of outstanding receivables due to NEK’s liquidity issues. In Nov 2013, Maritza and NEK inked a rescheduling agreement for overdue receivables as of Nov 12, 2013.
In Feb 2015, AES-3C Maritza signed a Memorandum of Understanding with the Bulgarian government to begin negotiations on proposed amendments, including the payment of all outstanding receivables, to the existing PPA with NEK.
In 2014, AES Corp.’s operating cash flow from European operations decreased by $180 million mainly due to lower collections from the Maritza facility.
AES-3C Maritza currently has a 15-year PPA with NEK, scheduled to expire in 2026, under which the former sells output from the 690-megawatt (“MW”) coal-fired Maritza facility. Maritza operates under AES Corp.’s Europe strategic business unit (“SBU”).
In addition, in Bulgaria, AES Corp. has an 89% ownership interest in the 156-MW St. Nikola wind facility. The company sells the output to NEK under a 15-year PPA. The company’s Bulgarian operations contributed 12.6% to the total Europe SBU generation capacity.
AES Corp. currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector include Public Service Enterprise Group Inc. PEG, Alliant Energy Corporation LNT and DTE Energy Company DTE. Public Service Enterprise sports a Zacks Rank #1 (Strong Buy) while Alliant Energy and DTE Energy hold a Zacks Rank #2 (Buy).
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