Moody's rates Oman Power & Water Procurement Company A2

OPWP is the fully regulated, wholly government-owned sole bulk supplier of electricity and related water in the Sultanate of Oman.

Consequently, ratings reflect the company's mandate, underpinned by the stability of a
cost-plus framework which eliminates any commercial risk under normal circumstances by allowing full recognition of procurement costs.
Furthermore, the applicable Sector Law provides OPWP with a clearly defined and restricted remit.

"OPWP buys electricity and related water in bulk from licensed generation and desalination companies under long term contracts and sells this on to licensed electricity suppliers and water authorities under cost-plus tariffs", says Dubai/DIFC based Philipp Lotter, a Senior Credit Officer at Moody's and lead analyst for OPWP. "Its mandate is clearly defined and
limited to its regulatory obligations, and any market or counterparty risk is minimal, thus underpinning its very low-risk business", Lotter
adds.

Moody's regards OPWP as a central component of Oman's electricity and water sector, which over recent years has undergone significant restructuring. Today the sector is organised in fully unbundled entities with the exception of the rural and southern regions of the country,
which are still managed by integrated utilities. Within the current framework, OPWP acts as the sole buyer of capacity and output from
licensed production facilities and sole supplier of this same capacity to the licensed electricity suppliers and water authorities under a cost-plus tariff.

Market risk is addressed by providing OPWP full reimbursement of all reasonable costs, while counterparty risk is minimised via a statutory
obligation on behalf of the government to provide adequate finance to any wholly-owned entity in the sector.

Moody's views OPWP as a government-related issuer given its 100% government ownership through Electricity Holding Company, and supported by the statutory provision that OPWP must remain wholly government owned at all times. High exceptional government support is factored into OPWP's ratings given Moody's view and indeed the statutory obligation that the
government of Oman would lend direct or indirect financial support to OPWP in all circumstances.

Whilst this would normally provide uplift to
the company's ratings, this is not the case for OPWP, as its fundamental credit quality (baseline credit assessment) is already at the A2 level of the Omani sovereign, reflecting its "agency-like" function. The rating
also factors a high degree of dependence between OPWP and the Omani government, given the high shared economic risk between the two entities,
and the fact that OPWP is entirely reliant on domestic revenues through licensed electricity suppliers and water authorities, which remain
heavily state-subsidised.

The outlook of OPWP's ratings is stable. As long as OPWP's activities remain limited predominantly to its regulatory obligations, and continue to achieve full pass-through of procurement costs under normal circumstances, its ratings are likely to move in sync with Oman's sovereign ratings. Ratings also expect OPWP to remain wholly government owned and thus its vehicle in the electricity and water sector, thereby benefiting from the statutory provision of financial support from the government.

Ratings also assume that OPWP will not be raising any debt, other than for small short term liquidity purposes to cover potential time lags between cash inflows and outflows. Given the continued reliance of Oman's licensed suppliers on the government for subsidies, Moody's ratings anticipate the continued timely payment of these subsidies for as long as required, thus mitigating any counterparty risk for OPWP. Whilst still fairly new and untested, Moody's regards the present regulatory
regime as sound and does not expect OPWP's role and duties to change significantly over the medium term.

Oman Power & Water Procurement Company S.O.A.C., headquartered in Muscat in the Sultanate of Oman and wholly-owned by the government through
Electricity Holding Company, acts as the sole buyer of bulk electricity and water capacity which is subsequently sold on to licensed electricity suppliers and water authorities for distribution to customers. Total revenues at year-end 2006 were OR 200 million (USD 519 million).