Enagas SA
MAD:ENG
Earnings Call Analysis
Q3-2023 Analysis
Enagas SA
At the forefront of energy supply and transformation, Enagás presented a robust performance for the first nine months of 2023 that aligns with its strategic plan outlined for 2022-2030. This plan accelerates investments in security of supply across Europe and in decarbonization initiatives, particularly emphasizing the deployment of renewable hydrogen. The acquisition of a stake in Germany’s Hanseatic Energy Hub and the creation of the Musel Energy Hub in partnership with Reganosa are quintessential examples underpinning Enagás's commitment to enhancing Europe’s energy infrastructure. The company’s strategic pivot towards pivotal decarbonization projects like the Spanish Hydrogen Backbone is a lighthouse for the industry, showing commitment to sustainability and operational efficiency.
Enagás reported a profit after tax of EUR 258.9 million, buoyed by capital gains from the Morelos gas pipeline sale. The profit could have seen a fall without such nonrecurring elements, mainly due to the new regulatory framework. However, thanks to the company's efficiency measures, it is still on track to end the year at the upper end of the projected profit after tax of EUR 310-320 million. The performance has been underpinned by prudent financial management with an average debt cost at 2.6% matching the annual target and a stable net debt close to EUR 3.4 billion. Equally, investments and subsidiaries' robust performance played a crucial role, with significant contributions from TAP and progress in Tallgrass Energy's transformational projects.
Subsidiary TAP delivered EUR 42.4 million in dividends, exemplifying Enagás’s strategic earnings diversity. Furthermore, Tallgrass Energy's solid infrastructure utilization and growth projections, expecting an adjusted EBITDA target between USD 775 million and USD 815 million in 2023, indicate a positive trajectory for group earnings. These performances aid the company's commitment to a stable dividend payout policy, which promises shareholders EUR 1.74 per share in 2023.
Enagás's ambitious goal to achieve carbon neutrality by 2040 reflects its leadership in Environmental, Social, and Governance (ESG) practices. The company's ongoing ESG progress and transparent reporting place it prominently on the global sustainability index. This strategic positioning is not only an ethical imperative but also a driver for Enagás to draw investor confidence in its long-term vision.
As 2023 progresses, Enagás stands firm in meeting its financial goals, eyeing to land at the higher end of its EUR 310-320 million profit after tax target. An expected EBITDA of about EUR 770 million and dividends from subsidiaries ranging between EUR 190-200 million underline potential income stability. With anticipated net investments of around EUR 250 million and a net debt projection around EUR 3.7 billion, Enagás is set to continue its efficient operations. The company remains steadfast in maintaining a funds from operations to net debt ratio above 14%, assuring to meet the expectations aligned with its BBB credit rating and future growth prospects.
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[Interpreted] Good morning, ladies and gentlemen, and thank you very much for attending the results presentation of Enagás for the first 9 months of fiscal year 2023. The results were published this morning before market opening, and they are available at our website at enagas.es. Mr. Arturo Gonzalo, CEO of Enagás, will moderate this conference that would last for about 15 minutes, after which we will open the floor to questions that we will attend to answer as fully as possible. Thank you very much for your participation.
And now give the floor to Mr. Arturo Gonzalo.
[Interpreted] Good morning, ladies and gentlemen, and thank you very much for your attention. I welcome you to this results presentation for the first 9 months of 2023, where I will be joined by Luis Romero, our CFO; Diego Trillo, the General Secretary and Board Secretary; Felisa Martin, General Director of Communications, Institutional Investor Relations; Cesar Garcia, Director of Investor Relations; and Natalia Mora-Gil, Director of Management Control and Business Analysis.
I will organize my presentation in 4 sections. First half, I will review the degree of fulfillment of our strategic plan, with a special focus on the milestones achieved over the third quarter. Secondly, I will explain the key indicators of our financial results reported for the first 9 months of the year. Thirdly, I will refer to our positioning in the ESG field, and I will finish off my presentation by reminding you of our targets for 2023, and then I will draw some conclusions.
The degree of progress in fulfilling our 2022-2030 strategic plan that we presented about 1 year ago is making steady progress, much faster than we have expected. And over the past months, we have fulfilled some key milestones. This strategic plan is based upon 3 key lines of action: an investment plan around the security of supply in Spain and Europe; decarbonization, with renewable hydrogen as a key vector; and operating and finance cost control. At Enagás, we have proven that we are a reliable company that delivers on its word. And over the past quarter, we have provided a good example of that.
As to investments in security of supply, both in Spain and Europe. First of all, and as we announced in June, Enagás formalized a few weeks ago the acquisition of a 10% stake in Hanseatic Energy Hub. That will commission the Stade plan in Germany at floating storage regasification unit or FSRU that will become operational as of January next year. And then the onshore terminal liquefied natural gas plant or LNG, that is going to become operational in 2027. This plant will be ready in the future to use green ammonia, and Enagás will contribute its expertise as a partner as well as operating the plant once it becomes operational. The final investment decision is foreseen by the closing of 2023.
The second milestone in this area is the formalization on September 29 of an agreement between Enagás and Reganosa to create an energy hub in the northeast of the peninsula. As we announced in February through this transaction, Enagás is acquiring the network of 130 kilometers of gas pipelines of Reganosa in the amount of approximately EUR 54 million, whereas Reganosa acquires 5% of the El Musel regasification plant in Gijón, amounting to EUR 100 million. The Gijón regasification plant will now have the name of Musel Energy Hub. The formalization of these transactions is in line with the policy of asset rotation of the company, divesting in international noncore assets, to which we have already extracted in a value as in the case of GNL Quintero and the Morelos gas pipeline. As set forth in the strategic, our priority is investing in assets that may reinforce the security of supply while expediting decarbonization, both in Spain and Europe.
With regard to decarbonization using renewable hydrogen as a key vector, the milestone of this quarter has been the launching of the call for interest for the Spanish Hydrogen Backbone. As we already announced in the prior results presentation on September 14, we launched this key initiative for the development of renewable hydrogen market in Spain. This is an open and transparent process that will also evidence the infrastructure needs around ammonia, oxygen and CO2.
Over 90% of the companies that -- producers, distributors, associations and research centers that are engaged in the hydrogen sector have already shown their support and interest in this process that is being quite attractive to investors. The call is open until November 17, and on the second Day of Hydrogen scheduled to take place on the 31st of January 2024, we shall be presenting the results of this call for interest.
The framework of this initiative is Europe, and it will provide us with an even clearer road map of the future hydrology network in Spain, which will be part of the future hydrology network in Europe connecting supply and demand. As a result, we will be able to adjust the hydrogen infrastructure vision by 2030 and 2040, in line with similar processes that other countries are cutting out in order to integrate the future European hydrogen market.
Another milestone that took place last week was the event where the H2Med corridor was presented. This event was organized at the Spanish embassy in Berlin. This presentation was supported by the governments of Portugal, Spain, France and Germany as well as by the European Commission. During this event, we announced some good news. The German operator OGE has joined REN, Enagás, GRTgaz and Teréga as project promoter. This event that was held in Berlin showed the value of H2Med as an example of cooperation between countries and how it can turn Spain into an international renewable energy hub. This corridor will carry up to 2 million tonnes of hydrogen per year, accounting for 10% of European demand.
During the event that I mentioned last week, great interest was expressed by key European manufacturing players and the German administration that over the past quarter, including H2Med as a key component of Germany's hydrogen strategy for 2030. Hydrogen will see more progress before the closing of this year. The H2Med corridor and the Spanish Hydrogen Backbone are making progress positively in acquiring the project of common interest status. This list will become provisionally known in November.
Now in the European scenario, exactly 2 weeks ago, I had the possibility of participating at a meeting with European Commission President, Ursula von der Leyen; and Executive Vice President, Maroš Šefcovic; and representatives of the hydrogen chain. And at that event, it was made evident that Europe supports green hydrogen as a key energy vector in the future and the key role that hydrogen infrastructure plays. President von der Leyen mentioned during her speech that the European regulatory framework for hydrogen is almost complete and that very shortly, we shall have clear-cut rules in order to drive the market, providing clarity and visibility to investments.
As to the third strategic axis and that is the implementation of our efficiency plan, the company has been able to keep recurring operating expenses steady since 2022, minimizing the effects of inflation on our financial results. Besides Enagás' debt structure with more of this debt -- with 80% of this debt tied to fixed rate hedges us against any interest rate variations. The company has taken a prudent approach in its financial projections. So by factoring in the final result of 2022 and the current estimates of interest rates for both debt cost and remuneration of deposits, the foreseen net financial expense for 2022-2026 is in line with what we included in the strategic plan.
And before we analyze the key financials for the first 9 months of this fiscal year, let me share with you some data that show the good progress of the Spanish gas system and how it's working with the highest robustness in 2023. The system had an availability of 100% and is still highly flexible. So far in 2023, it has received LNG from 16 different sources. In addition, in August -- for the very first time in its history in August, Spain was able to fill in 100% of its underground storage facilities. As for LNG tanks, the average storage level for the first 9 months of the year reached 61%, and as at September 30, 2023, 46% of LNG stored in Europe was found in Spanish plants.
Spain plays a key role for the security of supply in Europe, and over the past 9 months of the year, it has increased total gas exports by 32%. In line with other figures in Europe, the total transported amount that we find in the Spanish gas system reached 6.9% less due to a fall in conventional demand and, above all, due to demand for electricity generation. Nonetheless, we see a change in trend. And in Q3, a strong rally of manufacturing demand took place with an increase of 25.4% led by the refining, chemical, pharmaceutical and cogeneration sectors.
Let me now discuss the key financials of our results. These results are on target in order to close off this fiscal year on the upper end of the company's annual PAT objective that we announced in our strategic plan, and that is EUR 320 million. Profit after tax totaled EUR 258.9 million and includes net capital gains coming from the sale of the Morelos gas pipeline in the amount of EUR 42.2 million. For comparative purposes, talking about profit after tax in 2022, we should take into account the nonrecurrent accounting impacts, including those of last year that are related to Tallgrass Energy and the capital gains arising from the sale of GNL Quintero and the entry of other partners into Enagás Renovable. Without factoring in those nonrecurring elements, the net profit over the period would have fallen by 16.4%, mainly due to the application of the 2021-2026 regulatory framework.
Now the factors that account for the positive evolution of these results and that make us optimistic to close off this year in the upper range of our annual PAT target. I would like to highlight 3 reasons: the effectiveness of the efficiency plan that I have already mentioned, the positive performance of Enagás' subsidiaries. Without considering GNL Quintero's results in 2022, this asset made no contribution in 2023. The result of our affiliates this year has improved compared to the first 9 months of 2022. In addition, the company's financial result continues to perform well, thanks to Enagás' prudent debt structure. The average cost of gross debt stands at 2.6% at the closing of September. That is right on target according to the budget for the year.
As for cash flow generation and the evolution of our borrowings, once we have paid out the interim dividend for fiscal year 2022 in July and after the closing of asset rotation transactions, net debt at the closing of September remained very stable compared to 2022, standing at EUR 3.406 billion according to the target set by the end of the year. The company is leveraging, and its extraordinary liquidity position with EUR 3.316 billion are compatible with the ratios required by rating agencies in order to keep our BBB rating.
As to our subsidiaries, I would like to underscore how well they have performed over the year. In the first 9 months of the year, TAP has contributed dividends in the amount of EUR 42.4 million according to our targets in order to reach the final goal of EUR 70 million by the end of the year. Tallgrass continues to make steady progress in converting the Trailblazer gas pipeline into a CO2 transportation infrastructure, which will be the first key decarbonization project for the company. We are also making satisfactory progress in obtaining the necessary permits for its construction, financing and in order to maximize the project's long-term contracts.
Furthermore, the traditional business of Tallgrass continues to be very robust, with a high degree of usage of its infrastructure. We should highlight there will be gas pipeline that is contributing very significant growth. We have 1 more quarter to go. TGE believes that it will deliver its adjusted EBITDA target between USD 775 million and USD 815 million in 2023, according to the targets contained in its business plan until 2026.
On the other hand and with regard to GSP arbitration proceeding, everything is evolving as scheduled, and the arbitration court believes that a final ruling will be issued before the closing of the year as we already announced and communicated to the [ CMV ] as a relevant event.
Regarding our positioning and performance in the ESG area, we continue to make steady progress towards delivering on our commitment, and that is to become a neutral carbon company by 2040. Besides, we continue to drive our transformation plan with a focus on people, seeking to reinforce internal talent by developing new skills, promoting new values and work environments that increasingly more inclusive. As you can see in the presentation, we continue to occupy leading positions in the main sustainability indexes in the world, thanks to our progress in all ESG areas, environmental, social and governance, doing it or with the highest transparency.
Based on these results for the first 9 months of the year, I confirm that we are right on track in order to fulfill the targets that we announced for the whole fiscal year, and that is to earn profit after tax between EUR 310 million and EUR 320 million. We believe that we are going to be in the upper range. We believe that we will achieve EBITDA amount of EUR 770 million, receiving total dividends from our subsidiaries between EUR 190 million and EUR 200 million, making a net investment of around EUR 250 million, closing the fiscal year with a net debt around EUR 3.7 billion, shrinking our recurrent operating expenses in line with those of 2022, maintaining our funds from operations, net debt ratio above 14% and, therefore, in line with our BBB credit rating. And finally, fulfilling our dividend payout policy that in 2023 means that we will pay EUR 1.74 per share to our shareholders.
Now let me close off by drawing 7 conclusions. We continue to execute our strategic plan 2023-2030, going beyond our goals. Over the past quarter, we formalized 2 key agreements. We have entered in Germany through the Stade LNG project and the creation of the El Musel Energy Hub together with Reganosa, therefore, building the groundwork for the construction of an energy hub in the north east of the peninsula in 2023.
We see a key year for hydrogen. We launched the call for interest process for the first axes of the Spanish Hydrogen Backbone, and the German OGE TSO has also joined H2Med that we presented in Berlin last week, with the highest institutional and business support. And the gas system is working in 2023 with great robustness in order to contribute to the security of supply in Spain and Europe, therefore attaining European decarbonization targets.
Our efficiency plan continues to deliver results. Recurrent operating expenses and financial expenses are on target. And therefore, we are going to keep on containing them over this period.
ESG criteria are a well-consolidated pillar supporting our strategy, and Enagás has leading positions on the main world indices. And over the past 9 months of 2023, Enagás has delivered results in line with the objective set in order to be within the upper range of the goals set for the whole year.
Thank you very much, and we are now ready to answer any questions you may have.
[Interpreted] [Operator Instructions] The first question comes from Javier Suarez from Mediobanca.
[Interpreted] I have 3 questions. First is about the arbitration or the arbitrations because of the assets in Peru. And the question is, you said that you expect to have the award on the GSP arbitration before the end of the year. What are the implications for the TGP award? Do you expect that to come also before the end of the year due to maybe having more visibility in the second one, too?
The second question has to do with the H2Med project and the presentation you carried out in Germany. You said during the presentation that you expect to have the PCI status during the month of November. And the question is, do you think that other infrastructures that can supply hydrogen from the south of Europe could also have been awarded that PCI status in November? And what would be the implications for the other infrastructure in which you have an important stake?
And the third question is about the publication of the strategic plan. It seems that the construction or the investments related to the development of H2Med will not start before 2026. Could you tell us when does the company think that you will be ready to give us an update on the business plan that would also include the best estimate on the CapEx that the company will have to carry out? And also, when do you think the rules of the game will be set in order to have visibility about the returns on investments? When do you think we will have those rules?
[Interpreted] Thank you very much for your questions, Javier, and let me answer them. First, about the arbitrations in Peru. We keep the same time estimates that we announced to the market in the past. We believe, as we have been told by the arbitration court, that the GSP award will be received before the end of the year. And we keep up our expectation to have a favorable result based on our lawyers' opinions. And this award will not have a direct impact on the arbitration process of TGP, which we hope will lead to an award at the end of the year 2024.
We are still convinced in that case that we will also have a positive result because that's the opinion of our lawyers. So everything continues as expected, except that the GSP award, we expect, will be delivered in the near future before the end of the year.
With regard to H2Med, as you know, there is a high number of projects that were presented to the PCI assessment. But I think H2Med is a very relevant project and a unique project of all the ones presented. H2Med is the first large green hydrogen corridor in Europe. And in fact, if we look at its planning, including also -- or inclusion of OGE in Germany and the PCI projects presented by OGE in Germany, we can see that the infrastructure will start -- its layout will start in Portugal and reaching the Czech Republic, with branches in the Portuguese, Spanish, French and German territory.
I really think that H2Med is the backbone of the future European green hydrogen network and backbone. And that's why it's receiving the institutional support and the interest of the future recipients of that hydrogen. We therefore believe that other PCI infrastructures will also be needed. We believe the European hydrogen market will be built based on H2Med and other complementary corridors.
Please remember H2Med will transport 10% of the demand that Europe expects to consume by 2030. So therefore, we do not expect to have competition amongst projects, rather complementarity because we believe that H2Med because of its maturity, because of its backbone nature throughout the continent could be a structuring element for the rest of the network. Therefore, having other projects will, in fact, be positive for H2Med because in the end, what we want to have is to have a European-wide market with high liquidity, high volumes and with a large infrastructure that can be used as an element of security of supply.
As to the dates for H2Med, the calendar that we have announced over the last year is maintained. We expect that the provisional PCI list will be made public by the European Commission, and it will be ratified at the European Parliament and cancel in the month of November. The final list will be published on the official gazette of the EU in January or February, and we'll be able to present the project during the investment request to the agency in charge of that in the EU.
Once we get the green light for that, we will be ready to attend the first window of the Connecting Europe Facility, which is the large financial instrument for these pan-European structures within the European Union. If everything goes as expected, we should be able to make a final investment decision by the end of 2025 and start, as you have said, constructions work in 2026.
So the final or decisive element to ensure that all of this takes place is the publication of the European list of PCIs in January/February 2024. And after that, we will update, without a doubt, our strategic plan and financial outlook during the first semester of next year.
With regards to the rules of the game or the set of rules that we will have, what's key is the approval of the European directive of decarbonized gas and hydrogen as well as the methane emissions regulation. According to the European presidency of the EU, that will take place before the end of the year. So by 2024, we will have the legislative framework that would allow us to transpose the European framework to national legislation.
So I believe the rules of the game, the legislative framework is just around the corner. And we have already a large visibility about the expected result of this decision-making process for the rules of the game.
[Interpreted] The next question is by Ignacio Doménech from JB Capital.
[Interpreted] Just 2 questions. First, about a potential asset rotation. I would like to know if you expect any like this -- do you expect the sale of any asset before the end of the year? Or quite the opposite, should we wait for the new strategic plan to be made public next year?
And the second question is if you could remind us the range of the financial costs included in the strategic plan, given the level of debt, which is over 80% of that fixed rate.
[Interpreted] Thank you, Ignacio. As for the potential asset rotation, we maintain the position that we announced over the last year. We are attentive to any opportunities to capture value in nonstrategic asset rotation, if we believe the circumstances are right. Once we have extracted as much asset as possible from those assets and once the market is mature for a potential divestment. And when those assets are needed, so the company can fund the future cycle of investment on hydrogen that will start over the next few years. So along those lines, last year, we divested in GNL Quintero. We allowed new partners in Renovable, and we have divested from Morelos. We have no divestments expected in the immediate future, not at all.
We make the most of opportunities that come up and that have to do with our strategic focus in Europe and Spain. As I have said, we have carried out the transaction of Reganosa in Spain. We have acquired an additional 4% in TAP. We have come -- participated into the Stade plant and have become partners of Hanseatic Energy Hub. So we continue as expected in the strategic plan, and we continue to be attentive to any circumstances that come up. There are no changes versus our plans. And when we update the strategic plan next year, we will be continuing giving shape to the view I have presented.
As for the financial costs associated to the net debt in the company, we have guidance for this year 2023 of financial costs of EUR 110 million. Over the last few months, we have fulfilled strictly that guidance. It is true that the interest rate increase has some effect on our financial costs versus what we initially expected. We believe that change -- the effect is EUR 19 million, but this is offset with the remuneration that we obtained from our cash deposits, which account for about EUR 18 million.
Therefore, the fact that we have a high percentage of our debt at fixed rate, 80% of it, and the balance between greater interest rate costs but also greater remuneration in our deposits means that we can be optimistic. In fact, we believe that we will obtain a net financial result that will be more positive, and we believe we'll be closer to EUR 100 million in financial costs rather than EUR 110 million. Therefore, we believe that this situation in terms of interest rates is perfectly under control with the elements that I've already mentioned.
[Interpreted] The next question comes from Javier Garrido from JPMorgan.
[Interpreted] First, regarding the H2Med project, I think you have clearly expressed why the demand is therefore guaranteed with the participation of OGE. But there are other issues that are being spoken about supply or volumes available for -- by 2030, and there have been some comments made along those lines. I would like to know your opinion about the possibility that the infrastructure, even though it is needed and even if it receives the PCI status, may suffer delays in construction and may not be commissioned by 2030, and it will be commissioned later on.
And second question has about a comment that you made about the legislative framework. You've spoken about the European regulatory framework and the hydrogen TSOs. Could you give us an indication or your opinion about how do you expect the regulatory framework to be developed in Spain for the large operators and whether you believe this will go hand in hand with reforming the gas transport networks? Or do you think the Spanish legislator may anticipate remuneration, may bring it forward for new hydrogen infrastructures given that there will be a process of approval for the green hydrogen plants?
[Interpreted] Thank you very much, Javier. With regards to the first question about H2Med, yes, the inclusion of Germany, its government, the largest German TSO to the project strengthens the demand side of the project. The other day, in Berlin, we had large German offtakers present. For instance, we had the CEO of ThyssenKrupp in Germany, who stated, "Do not worry about the demand. Demand is not an issue," he actually said. ThyssenKrupp by 2031 will need 300,000 tonnes of green hydrogen per year. So therefore, the German figures are an essential element of the green hydrogen puzzle in Europe. As per the strategy presented by the German government by 2030, Germany will require 3.9 million of green hydrogen tonnes per year, and between 50% and 70% of those will have to come from imports.
The most mature and largest capacity project that we have is, in fact, H2Med. However, as you have said, Javier, we also have to be careful with the supply. We are convinced that the supply side will meet the transport capacity demands with which H2Med has been designed, and I have to comment about this. First, the call for interest that we are carrying out in Spain is an important issue. We believe that sources will appear with projects with hydrogen production volumes that will meet the necessary scale in order to make sure that H2Med will be operating at design capacity.
So we are waiting for the call for interest in January. We will have a clearer view of this, but we believe that and consistently with our Hydrogen Day in line with the updated proposal for the National Energy Plan, [ the European IC ]. And according to the possibilities of hydrogen production in the Iberian Peninsula, we believe that the demand will be met. With a large hydrogen production in Spain to be consumed by our own industry, the national demand will be met first, and we'll have a surplus that will be exported through the H2Med corridor.
What is the role of France in this? France plays a key role. But with regards to H2Med, its role is only to transport the hydrogen. In H2Med, France is neutral in terms of impact. It's an infrastructure that will allow France to add volume to the hydrogen pipeline but also meet their own demand from the hydrogen pipeline. It will be an axial hydrogen pipeline that will go from south to north, going through the eastern part of France that will meet their own demand. But the net balance, we believe it will not be adding large volumes to the final destination markets or -- and more specifically Germany. We do not expect delays in the infrastructure construction so far. We wanted to be operational by 2030.
The key element of a large backbone infrastructure is that the different pieces after being in operation in a timely manner. If there is a problem with one large segment or section of that backbone, you will not -- or we will lose operability. And so we are convinced that our infrastructure will be ready to be commissioned by 2030. So the capillary infrastructure that will supply the hydrogen to those consumption markets can be designed. For instance, in Germany, the first hydrogen infrastructures will be executed in the period '26, '28, even though the large backbone infrastructure will be in operation in 2032. Therefore, we believe that H2Med perfectly fits in those -- with that time line. And our commitment is that it will be operational by 2030.
With regard to the regulatory framework in the different member states, to a certain extent, these will be done through the transposition of the European directive. If the EU directive is published and comes into force before the end of the current mandate of the European Commission and Parliament, then the transposition will be carried out in the different member states, more specifically in Spain. There are different legal ways to transpose the directive. It will be the role of the government to present their options to the parliament. The most immediate and easier transposition will be modifying the current law on hydrocarbons that will be effective in Spain, and this will depend and will affect -- well, it will depend on how the parliament sees this.
But we believe we need to have a framework before the end of the current regulatory gas framework. And we -- one option would be to define the regulatory framework specific for hydrogen in line with the next gas regulatory framework. But that's -- if you allow me, that's the best estimate that we can present, and the initiatives and specificities of this will be done to the government, to the parliament, to the Senate and to the CNMC in terms of remuneration and regulatory aspects. Thank you very much.
[Interpreted] There are no further questions in the Spanish channel. Now let me move on to the questions in the English channel.
We will now begin the questions in English. The first question today comes from the line of Arthur Sitbon from Morgan Stanley.
The first one is on the cash that is restricted in Peru. I was wondering if you get a better rate, better income on this cash and if this is impacting positively your results. And thus, well, would that impact it negatively when the cash becomes unrestricted if it becomes unrestricted at some point?
The second question linked to that is, I noticed that you have at the moment on your balance sheet around EUR 800 million of cash. And a large part of that, if I understand well, is locked in, in Peru, about half. So which means that there is only around EUR 400 million of cash left at the Spanish level. Are my calculations correct? And does that mean that you may have to raise more debt at an expensive cost in the coming months in that context?
And the last question is on the GSP arbitration. I was wondering if you could walk us through the process, if ever the Peruvian government were to appeal on the award decision. Could that delay the moment where Enagás gets the cash on its balance sheet? And how would that work?
Thank you very much for your questions, Arthur. Concerning Peru, first of all, concerning the cash that we currently have blocked in the country, which is providing some remuneration as I already stated, would it be negative if and when this cash is unblocked? Well, I must say that the effect will be very clearly very beneficial for Enagás. We will be able to reduce our debt. And so those revenues that we stop receiving from that cash will be compensated because we will reduce our debt costs correspondingly. So this is going to be very beneficial because also it's going to be very supportive of our rating metrics just as we have estimated in our financial projections in our strategic plan. So we expect everything to follow the strategic plan with a very positive effect for our financial projections.
I'm going to let the CFO, Luis Romero, to elaborate a little bit more on this and also on our cash and the expected potential refinancing needs of the company, which I anticipate that are not unplanned because, as you know, we don't have any maturities this year and everything is going as planned, but I let the CFO to answer in more detail.
Thank you, Arturo. I think in terms of the cash that nowadays, I think, we are -- is being remunerated in dollars, as you have mentioned, is to that nowadays, I think we are obtaining around 4.5% to 5% of financial remunerations in dollars, knowing that deposits of this around $400 million that we have in our accounts in Enagás Internacional in Peru. And this, I think, when we -- this block, that amount, I think the idea is to amortize the debt that we have some maturity next year. So I think in some way is going to be neutral in terms of the financial remuneration for the company. So the financial revenue is going to be compensated with the financial cost.
I think in terms of the maturities that we expect for next year, in the -- and I think it's true that we don't have a very significant maturity. I think the debt is going to be matured. It is around $400 million that we expect to amortize with the cash coming from Peru. In any case, if it suffers some potential delay, the idea of the company is to refinance with the revolver credit facility that we have. So probably for the next year, our expectation is that the cost of the debt is going to be very close to the current financial cost. So I think we will be around 2.7%, 2.8% for the expectations in 2024. So I think we are maintaining a very comfortable situation in terms of the financials, maturities during the following months.
Thank you, Luis. Concerning Arthur, your third question on GSP, we don't know if the Peruvian government would consider presenting an appeal to the award. It could be -- really, it's very, I would say, exceptional that such an appeal is eventually considered by the arbitration tribunal. It could be. But in most cases, this appeal doesn't stop the award being firm and up to be executed. However, we have maintained our willingness to establish, in that case, a dialogue with the government of Peru to try to agree on the conditions of the fulfillment of that award and to agree on a payments plan that also suits to the circumstances of the Peruvian government.
So we are not anticipating what the Peruvian government can do. We expect that we are going an award that is not going to be blocked because of that, and we maintain our attitude of establishing a frank dialogue with the Peruvian government to agree on the fulfillment of the award. Thank you.
The next question comes from John Campbell from Bank of America.
So I wanted to ask quickly about sort of your discussions with the Spanish regulator for the next regulatory period related to your traditional gas transmission business. One of the other Spanish-regulated utility peers recently mentioned that they expected a higher allowed return the next review versus January 2026. And that would seem to be at odds with the current regulatory framework, which is very backward-looking when it comes to the allowed ROE. So any discussions you've had with the regulator on the topic of allowed returns, inflation indexation, work in progress remuneration?
And then perhaps a second question related to -- I understand the GSP dispute is ongoing. But what about the Castor gas storage? I believe you had a dispute there. Do you have any updates on that topic?
Thank you, John, for your questions. Concerning the first question, there are a number of elements in our regulation framework and our remuneration framework that are common with other regulated entities such as the electricity transmission system operator. And we are asking for similar elements than those that have been put on the table by other regulated entities.
Definitely, we consider that we must be able to include in our remuneration, the evolution of the interest rates and of inflation. We think that the current situation cannot be prolonged into the future, not having this updating of our remuneration framework with these elements. We also think that work in progress has to be included. Although it's true that the situation is more urgent for other regulated entities that have ongoing a much more important investment program currently, but when the moment comes that we have to intensify our investment looking at the hydrogen infrastructure, definitely, we will be requesting a similar work in progress inclusion in our remuneration scheme.
So we are going more or less in parallel with the electricity regulation scheme. Although they go always 1 year earlier because their regulated period, as you know, it goes always 1 year earlier, but we are defending very similar aspects, similar to those that are being requested by the electricity regulator, although we still cannot be more specific on which could be the final outcomes that will depend on the proposals that, at due time, the regulator submits to public consultation.
Concerning Castor, for us, Castor is an account receivable, which we expect to receive in 2024 or 2025. For the time being, we don't expect receiving this account in '23, but I have to say that the working capital is behaving very well in terms of the revenues from the gas system. The fees paid by storage in plants and unloading of ships in our plant is very much compensating or exceeding even the decrease in the fees that is established in the regulation framework. So we trust that the upside in the working capital because of the revenues of the gas system are going to more than compensate the effect of delaying the account receivable of Castor until next year or 2025.
Thank you very much, John, for your question. We are prepared for the next one, please.
There are no more questions in English. I give the floor back to the management team.
[Interpreted] Thank you very much for your attention, and we shall be available to answer any further questions at our Investor Relations department should any other questions arise. Thank you very much, and have a very nice day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]