Business, Energy or Environmental regulations or discussions

Business, Energy or Environmental regulations or discussions

http://www.bne.eu/dispatch_text14591

Renaissance Capital

Event: Speaking yesterday (29 March) in Moscow, Minister of Energy Sergei Shmatko accused investors of "double standards" in their approach to the Russian power sector. According to Shmatko, investors need to become more socially responsible, in light of the development of (generation) markets that have led to price increases of 30-80% in some regions. If investors do not understand this, "...we don't need them. They are just speculators." Among other comments, Shmatko said that it would be illogical for the government to adopt a blanket ban on privatisation (of distribution businesses) if suitable investors are forthcoming.

Action: Negative for the power sector generally, in our view.

Rationale: In our view, Shmatko's remarks were primarily intended for the mass audience in Russia and may not necessarily reflect the minister's considered view. Nevertheless, we think it was unfortunate for the minister to suggest that genco proprietors such as Enel, E.ON and Fortum should willingly accept administrative caps on prices in new generation markets in order to subsidise Russian businesses and Russian society. As Prime Minister Vladimir Putin himself has commented, the highest tariff increases have been in regions where consumers were previously provided with hugely subsidised electricity at very low prices. The minister's comments on MRSK privatisation were less alarming for the investment community, but they still seem to imply that privatisation should be the exception, rather than the rule.

Vladimir Sklyar

Analyst meeting with Energy Minister Shmatko on electricity sector

http://www.bne.eu/dispatch_text14591

Troika Dialog

Energy Minister Sergei Shmatko yesterday held an analyst meeting attended by RusHydro CEO Evgeny Dod. The main goal was to establish a dialog and get feedback from the investment community on its perception of the government's recent statements on electricity sector regulation and tariff growth, in particular concerns affecting sentiment and how they might be addressed. Such meetings can hopefully become regular occurrences in the future.

In our view, the fact that the minister is not indifferent, is showing interest in investors' thinking, concerns and reactions, and seeks to hear the other side generally sends a positive signal to the sector.

Tariff growth and priorities. Shmatko reiterated that the electricity tariff hikes for 2011 of 40% and up to 80% (as in some sectors and regions) are not feasible, but noted adherence to sector self•regulation and a long•term approach, as well as that the government is not ready to use shock therapy. It is important to incentivize cost• cutting and attract long•term financing (infrastructure bonds) in addition to tariff sources. He approved of the idea that the government should already start talking about the expected tariff growth in 2012 (i.e. addressing long•term expectations).

It remains to be seen whether tariff growth of 15% could be sustained in 2012, which is an election year.

MRSKs. Regarding potential privatizations, this might initially involve a transfer under management, but movement in that direction is acceptable.

We reiterate that privatizations would take operating and capex optimization to a more extensive level and help cover MRSK Holding's R500•800 bln financing gap, unlike management contracts. It is positive that the government does not seem to be ruling out privatizations down the road.

RusHydro. Regarding privatization of the state's stake, there was no heated discussion in the government. There will be no large capacity commissioning at RusHydro (PSPPs are needed though), and capacity modernization will be carried out. Dividends will be tied to the potential privatization, as the government is interested in growing market capitalization.

The emergence of a strategic investor in RusHydro would support the stock, in our view.

Potential tax benefits. The Energy Ministry is in talks with the Finance Ministry to potentially ease the tax burden on the sector.

If this refers to the profit tax, we estimate that it would be positive for gencos and generally neutral for MRSKs (both of the latter's costs and top line would decline).

Alexander Kotikov

http://www.bne.eu/dispatch_text14591

Metropol
March 30, 2011

Russian Transportation Ministry simplified charter flight rules, allowing airline to fly charter flight without approval from airline, which is appointed for regular flight to the same destination. This rule will be applied to 28 countries, which are most popular for the Russian tourists.

Rules liberalization could result in increasing number of charter flights from small and medium airlines especially in summer month high season. Due to that we expect increasing competition among medium and small airlines and charter flights passenger yields decrease.

At the same time we expect that charter airlines could gain part of regular passenger turnover from the largest airlines. However, given strong passenger turnover growth outlook, we believe that it will not result in passenger turnover decrease at largest airlines. Moreover, largest airlines could increase its charter flights to keep its market share stable. Given that, we believe that news is neutral for largest Russian airlines in the long-term.

Andrey Rozhkov

http://www.bne.eu/dispatch_text14591

Renaissance Capital

Event: Vedomosti has reported that yesterday (29 March) an expert committee provided an interim report to Prime Minister Vladimir Putin on Russia's development strategy for 2012-2020, including the reform of the railway transportation industry, as part of broader regulation of natural monopolies. According to the newspaper, the committee favours a return to greater government regulation of transportation, even in currently deregulated segments of the railway industry, which would affect railway car operators. The committee has reportedly suggested setting a price range for cargo transportation, and prefers government regulation to further development of "artificial" competition in the industry.

Action: Currently neutral for Globaltrans and Transcontainer, in our view.

Rationale: The government has yet to make any decision on these proposals. However, the news increases uncertainty regarding the future of this industry, and could create negative sentiment for railway transportation companies. We think that regulated tariffs and the loss of price flexibility are potentially negative for large market players, which could offer a wider range of services and thus distinguish themselves on non-price terms.

Ivan Kim

InterRAO seeks to sell state's OGK5 stake to Enel

http://www.bne.eu/dispatch_text14591

Renaissance Capital

Event: During a meeting with analysts and media representatives yesterday (29 March), Ilnar Mirsiyapov, InterRAO's head of strategy, disclosed that his company is in talks with Italy's Enel over the possible sale of 26.4% of OGK5. InterRAO is expected to acquire this stake from the Russian state in return for InterRAO shares. Mirsiyapov said that InterRAO wants to "monetise the stake." However, InterRAO's current thinking is that an asset swap with Enel or, preferably, a partial purchase of the stake by Enel are the most likely outcomes.

Action: We reiterate our BUY investment rating on OGK5's shares.

Rationale: Acquisition of the stake would take Enel's shareholding in OGK5 to 78%. In our view, this would encourage Enel to pay higher dividends from OGK5, which we judge will be forthcoming once OGK5 has completed its current round of expansion capex in mid-2011. Moreover, we believe that acquisition of the stake by Enel would further reduce the already-small potential for politically motivated interference in OGK5, and would increase the influence of the remaining minority shareholders.

http://www.steelguru.com/raw_material_news/Russian_coal_output_falls_2pct_in_Jan_to_Feb_amid_softer_demand/198154.html

According to preliminary data, in the first two months of this year Russia total shipments of coal to the domestic market amounted to 37.9 million tonnes up by 1.4%YoY including 6.3 million tonnes of coal for coking needs down 3.6%YoY.

In January, Russia exported 5 million tonnes of coal down 31%YoY. The share of exports in the overall domestic coal output volume in January this year decreased to 18.3% from 27.5% in January 2010. Export contract prices for Russian coal increased in January this year by 33.1%YoY.

In February this year, the producers' coal price index in Russia increased by 9.4% compared to December 2010 with coking coal prices rising by 7.6% respectively.

(Sourced from SteelOrbis)
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Novolipetsk Steel reveals long-term investment plans

http://www.rbcnews.com/free/20110330113400.shtml

      RBC, 30.03.2011, Moscow 11:34:00.Novolipetsk Steel (NLMK) intends to invest some $5bn until 2018, the steelmaker's President Alexey Lapshin told RBC Daily in an interview published today.

      NLMK intends to raise investments to around $2bn in 2011, up from $1.5bn in 2010.