Translated material
Rescue of capitalization
RAO UES is patching up holes in the investment attractiveness of its subsidiaries
The Board of Directors of RAO UES of Russia, against the backdrop of the crisis in the stock market on Friday, diligently increased the capitalization of energy companies, whose shares will soon be sold to private investors. In particular, the management's proposal to appeal to the government with a proposal to develop a bill prohibiting regional authorities from holding competitions for granting the status of a last resort supplier until 2010 was approved - this would allow energy sales companies sold by RAO to have a customer base at least until this date, which , of course, will increase the price of such assets. In addition, RAO continued the practice of getting rid of non-core assets and finally put up for auction 25% plus one share in Russian Utility Systems (RKS). In addition, it was decided to connect new power units to the networks on a paid basis. This will allow, said the head of RAO Anatoly Chubais, to guarantee the delivery of power to the country's Unified Energy System, increase the investment programs of grid companies, and at the same time postpone the commissioning of new power units by a year.RAO sells sales
Auctions for the sale of sales companies in September, as is known, for the most part did not take place. And this despite the fact that there was demand. There are two reasons: the inflated starting price (it was set at the upper limit of the company's valuation) and the situation with the assignment of the status of a guaranteeing supplier. This status, as a rule, gives access to the most desirable segment of the market - the population. According to the law, local authorities must hold a competition to assign this status before January 1, 2008. However, the Ministry of Industry and Energy has not yet developed rules for holding such competitions. “Despite this, in 2007, in a number of regions, at the initiative of local authorities, competitions were announced for the status of a guaranteeing supplier,” says a press release from RAO. -- Most of them were either canceled or the announcement of the date of the competition was postponed until the rules for holding such competitions were released. In the Sverdlovsk region, the competition was announced, but due to the withdrawal of potential participants from their applications, it was declared invalid. The winners were determined only in two competitions announced by the regional administrations of the Nizhny Novgorod and Leningrad regions.” At the same time, in the Nizhny Novgorod region, the winner was a company close to the structures of Oleg Deripaska, when Transneftservice S, which bought the Nizhny Novgorod Sales Company from RAO for huge money in May, found itself de facto with nothing.
Although RAO called the failure of the auctions a “collusion of buyers,” they still recognized the problem of “raiding” in the energy sales business, and were going to announce methods of combating it at a meeting of the board of directors. As a result, it was decided to give sales companies sold at auctions a head start and hold regular competitions for the status of a supplier of last resort in the period from 2010 to 2012. “At the same time, the winner of the first and each subsequent competition will have to begin performing the functions of a supplier of last resort from January 1 of the next year. Guaranteed suppliers who are not subjects of the wholesale market must receive this status and the right to participate in the trade of electrical energy (power) in the relevant territory, subject to the condition of starting work on the wholesale market from January 1 of any year in the period before January 1, 2010 (this is due to that the entry of last resort suppliers into the wholesale electricity market within the regulatory period will require a revision of most tariff decisions). Otherwise, such a company will be deprived of the status of a guaranteeing supplier, and the zone of its activities will be included in the zone of a guaranteeing supplier from among the energy sales companies separated from JSC-Energo,” RAO said in a statement. In addition, it is planned to introduce a simplified procedure for obtaining the right to trade on the wholesale electricity market, simplify the procedure for collecting documents for concluding electricity purchase and sale agreements, and secure the right of unilateral termination by the consumer not only with the supplier of last resort, but also with any energy sales companies.
The introduction of almost all of these measures is possible only by changing laws. The Board of Directors of RAO, in which the majority of seats are occupied by officials, approved management's proposals and instructed the board to develop relevant documents to send to the government (including the concept of developing competition in the retail market). However, it is obvious that before the elections the State Duma is unlikely to have time to consider such serious issues, and at best, amendments to the laws will appear in the spring.
But RAO, as representatives of the energy holding said, will not wait and will continue to sell energy sales companies. The next series of auctions is scheduled for November. And if something fails to be sold, then the board of directors will have to decide what to do with such assets.
Free-floating political project
The RKS project, which RAO finally decided to withdraw from, was for a long time only a burden for the energy holding: investments were required, but there was no return. That is, the situation was the same as in the entire housing and communal services system. Initially, in 2003, RAO wanted to begin to restore order, at least in the financial flows of housing and communal services, since, as Mr. Chubais said, “big energy” depended on this order. According to some information, in general, the RKS project was started by Anatoly Chubais only because Vladimir Putin demanded it in exchange for agreement to continue reforming the electric power industry. But it was not possible to develop the idea: almost all the oligarchs, whom they initially managed to lure into the project, turned away from the project. Only Renova remained, which, together with the Integrated Energy Systems (IES) it owned, consolidated 75% minus one share of RKS, and now de facto RKS and IES are one organization (they even have one director - Mikhail Slobodin).
RAO still had a blocking stake (until this year, however, it was exactly 25%, but during the placement of an additional share issue the energy holding was given the opportunity to purchase one additional share). This stake, as stated in a statement from RAO based on the results of a meeting of the board of directors, will be sold at an open auction in the first quarter of 2008, and the starting price will be determined by an independent appraiser taking into account the market value of the company. It was decided to use the proceeds from the auction “to reimburse the costs of RAO UES of Russia’s acquisition of a block of shares in Lenenergo from the Fortum company (more than 3% of the shares were purchased, necessary to maintain a controlling stake after an additional issue of shares in favor of the administration of St. Petersburg), and also for the formation of a reserve for the purposes of the reorganization of RAO UES of Russia.
“This means that our main task from a financial point of view is to carry out the sale in such a way that we fully recoup all the costs that RAO contributed to the RKS company and receive a decent income for the work performed. Not to mention the fact that the very creation and operation of a company in the utility sector, which has grown to an annual turnover of $1 billion, certainly needs to be recognized as a significant result. And, if I understand correctly, the largest result in the public utilities sector in the country,” said Anatoly Chubais.
RAO prefers not to talk about who might be the buyer of the asset.
An investor was found in Nizhnevartovsk
Energy workers have finally completed negotiations with TNK-BP on investments in the completion of the Nizhnevartovskaya State District Power Plant. Initially, it was said that in exchange for investment, the oil company would receive 50% in the joint venture, which would own a new power unit with a capacity of 800 MW (currently 100% of the shares of the power plant are owned by OGK-1). However, now we are talking about the fact that TNK-BP, having invested $320 million, will receive exactly 25% of the shares in the company, which will own the entire power plant (the block built with TNK-BP investments and the already existing two blocks with a total capacity of 1600 MW). “To generate electricity from the new unit, TNK-BP guarantees long-term supplies of gas and the purchase of the electricity produced,” says a joint press release from the oil company and OGK-1. -- Dry stripped, pre-treated gas will be used as fuel for the power unit. Currently, TNK-BP supplies 3 billion cubic meters of gas per year to the two existing units of the Nizhnevartovskaya State District Power Plant, and the new power unit will consume another 1.2 billion cubic meters. TNK-BP will also purchase generated electricity from the third unit.”
As is known, the company's main field, Samotlorskoye, is located in the Nizhnevartovsk region. In addition, according to a TNK-BP representative, negotiations are currently underway that the Anglo-Russian holding will purchase associated gas from Rosneft (more precisely, from Tomskneft, which belongs to it), Russneft, Slavneft and Negusneft » for processing at a joint plant with SIBUR. Therefore, TNK-BP, apparently, will have no competitors in gas supplies to the Nizhnevartovsk State District Power Plant.
The oil company says they got what they wanted. “The main thing is that we will be able to conclude a long-term agreement for the supply of associated gas (for the combustion of which the Ministry of Natural Resources plans to levy high fines), as well as a long-term agreement for the supply of electricity from the third unit at a fixed price,” says a TNK-BP representative. He declined to disclose the price. He also could not say when these agreements would be signed. If the agreements are violated by energy workers who have absolute control over the joint venture, then, according to him, the parties will resolve the problems in court.
“Fine tuning” of investment programs
Anatoly Chubais told investors on Friday that the investment programs of generating companies will definitely be changed. True, he made a reservation that these would not be fundamental changes, but “fine tuning” - as he promised in the spring, presenting the investment programs. It will be caused by the need for OGKs and TGKs to enter into agreements for connection to networks with the Federal Grid Company. “The generating company must pay for the work associated with connecting the capacity under construction to the networks, and FSK, in turn, assumes financial responsibility for fulfilling these contracts on time,” Mr. Chubais said. -- Life forced us to make this decision, because it restores a healthy financial system, a healthy financial basis in the relationship between generation and networks. In order for the networks to be really interested in connecting a new generation facility, of course, it is correct that the work be paid for by those who ordered it, that is, the generating companies... In this case, FGC becomes financially responsible for failure to fulfill the contract on time. This is a way to hedge investor risks... Such a system, in my deep conviction, is the healthiest and most anti-corruption. Just like the system of connection agreements for consumers.”
As stated in the press release of the energy holding, it is planned to calculate the fee for technological connection “as the product of the total length of lines and the standard rate per kilometer, taking into account increasing factors that take into account construction conditions and other costs, while the rates for the construction of 1 km of lines of the corresponding voltage class and coefficients , taking into account construction conditions, rates for fixed costs must be established by the regulatory body in accordance with the methodological instructions of the Federal Tariff Service of Russia.” FSK's liability for failure to meet deadlines for technological connection is established “in the amount of 2% of the contract fee for each month of delay, but not more than 25% of its amount, as well as to compensate for losses not covered by the penalty within the amount of real damage proven in court.”
Mr. Chubais believes that such agreements will allow, on the one hand, to increase the volume of the investment program in relation to projects related to the construction of high-voltage networks, and “on the other hand, apparently, it will have to be somewhat reduced in terms of the volume of commissioning planned before 2010, postponing part of the commissioning of generating capacities for 2011.” “But if you combine the first and second changes, namely an increase in the volume of inputs for power delivery schemes and a decrease in the volumes of inputs for generation, then the total volume of the program will most likely increase slightly in terms of money. These are the consequences of this process, although the most accurate answer will be obtained not even on the basis of our general calculations at RAO UES, but on the basis of the calculations of the company itself, which must be approved by the Federal Grid Company, as we assume, before the end of this year.”