FOCUS: Government urges Russian power firms to cut investment in crisis

By Olga Bodrova

MOSCOW, Jan 20 (PRIME) -- Russian Deputy Prime Minister Arkady Dvorkovich has recently urged electric power companies to revise their investment programs amid difficult economic situation. Analysts admitted that investment programs of the majority of power firms are extensive and the companies could partially cut their costs. They also noted that the recently increased interest rates made it more difficult for the firms to borrow to finance their capital expenditures.

“As everybody knows, we are currently in a difficult financial situation, that’s why it is necessary to prioritize investment programs, repair programs of grid organizations in the coming weeks; the same goes for generating companies. It is necessary to do this quickly to define which works and projects can’t be abandoned and where we can wait,” Dvorkovich said.

It is necessary to curb investments until interest rates fall to an acceptable level, he said.

In December 2014, the central bank raised its key rate to 17% from 10.5% after a sharp fall of the ruble.

“At present, ensuring reliable, stable operations of the entire (power) complex, but not a rush for maximum possible investments, is important,” Dvorkovich, who is in charge of the power sector at the government, said.

The request to revise investment programs was sent to power holding Inter RAO and hydropower giant RusHydro, both controlled by the government, he said, adding that the revision should be made in January.

“This doesn’t require approval, they just should give information,” Dvorkovich said.

RusHydro earlier projected investments at 161.5 billion rubles, including 51.6 billion rubles raised through debt. Inter RAO planned to invest 66.9 billion rubles in 2015, mainly in new construction. The company planned to use 35.2 billion rubles of own funds to finance the program and borrow the rest.

Dvorkovich noted that RusHydro’s projects to build hydropower facilities in Kyrgyzstan and Inter RAO’s projects to build thermal power plants in the Kaliningrad Region will be kept.

Power firms did not react to Dvorkovich’s statement, but media reported that the Energy Ministry is concerned with efficiency of investment programs of RusHydro and nuclear power producer Rosenergoatom.

Gazprombank expert Natalya Porokhova estimated that power companies have to borrow 190 billion rubles, including 156 billion rubles by generating companies, to implement their investment programs in 2015. However, it will be now more difficult for the firms to borrow funds with the 17% rate, she said. Dvorkovich said earlier that such a high rate would cause a delay of many new projects.

Deutsche Bank utilities analyst Dmitry Bulgakov believes that investment programs of RusHydro, Russian Grids, Rosenergoatom and partially Inter RAO are indeed too large. Investments of grid companies almost do not repay, as formally the companies are regulated under the RAB, or regulatory asset base, method, which ensures a return of yield on invested capital, but actually the government just adjusts tariffs without ensuring a return, the analyst said. He also said he believed that state companies were now mainly aiming at a size not the efficiency and feasibility of investments.

Bulgakov believes that RusHydro could reduce investments in its thermal power plant projects in the Far East by around 30%. A state expertise body has recently approved the total cost of construction of four power plants in the Far East at 87.8 billion rubles, with analysts saying the amount is excessive and similar construction in the whole world costs much less.

Russian Grids, the Federal Grid Company of Unified Energy Systems (FGC UES), and Rosenergoatom could reduce their investment programs first of all by revising the feasibility of new projects amid no power consumption growth, Bulgakov also said.

Russian Grids earlier said that its consolidated investment program for 2015–2019 was estimated at 1.378 trillion rubles.

Inter RAO could abolish its investments in Kazakhstan and also reduce the program of technical upgrades, Bulgakov said.

“We are not sure that RusHydro will be able to submit an efficient plan of investments reduction very quickly, while Inter RAO, in our view, can do this, as its mandatory investment program is almost fulfilled,” UFS Investment Company analyst Ilya Balakirev said.

“If power companies manage to reduce the volume of capital expenditures for the next few years without increasing accident risk, it may support their shares,” the analyst said.

Veles Capital analyst Alexander Kostyukov believes that power firms could reduce investment programs only on quite a small number of projects, while the newest projects would be just delayed for some time.

“Taking into account current economic situation and difficulties with attracting funds part of projects could be delayed for better times,” the analyst said.

(64.9732 rubles – U.S. $1)

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