OREANDA-NEWS. Fitch Ratings has published an updated report on the analytical features of Finnish not-for-profit electricity generation companies (gencos), where the agency describes how it applies its rating approach for Finnish gencos operating according to the so-called Mankala principle.

The arrangement whereby a Mankala genco sells power to its shareholders at cost differs from a traditional power offtake agreement. The shareholders' responsibility to honour their commitments, including debt service, is stipulated in the articles of association of a Mankala genco. The strength of the Mankala principle lies in its strong track record of continuous support from shareholders even when electricity market prices are low. There have been no non-payment events of interest or debt repayments in any of the Mankala companies since the inception of the principle in the 1960s.

However, it is Fitch's view that the provision for debt service stipulated in the articles of association is less legally binding than debt guarantee or well-documented power offtake agreements, especially in insolvency.

Fitch analyses the parent and subsidiary relationship of Mankala companies by evaluating the stability and diversity of the shareholder base, the value creation for shareholders through the purchase of electricity at a lower cost than the market price and the extent to which fixed and variable costs are covered by shareholders, including debt instalments.

A further rating consideration for Mankala companies with large investment projects in the construction phase is prudent debt and liquidity management. This is because the project under construction does not receive cost coverage by shareholders until production begins, meaning a large emphasis is placed on refinancing risk and adequate liquidity.