RAO UES develops additional share issue terms for wholesale and territorial generating companies (WGCs/TGCs) RAO UES of Russia has developed basic principles for agreements between the Non-profit-making partnership Trading System Administrator (TSA) and generating companies. They will become a mandatory condition for WGCs and TGCs to conduct additional share issues. Industry experts call these agreements flexible. They stipulate that generating companies may delay fulfilling their investment programmes for delivering new capacity for at least one year. On Friday, the RAO UES Board of Directors changed the terms of the share sale and purchase agreement for two generating companies: WGC-4 and TGC-1 (See Kommersant, 30 July). The management of the holding company approved the conclusion of agreements on the provision of new capacity for the wholesale electric power market between WGC-4 / TGC-1 and TSA / CJSC Centre for Financial Settlements. The agreement will be a mandatory condition for the placement of the additional share issues of WGC-4 and TGC-1, as well as any other WGC and TGC intending to hold an additional issue. RAO UES has already drafted the basic principles of this document (they are available to Kommersant). The new document will be called Agreement on the Provision of Capacity for the Wholesale Market. Under such agreement, a power company will be bound to provide the market with power generated by its new equipment built in accordance with the schedule of the investment programme. The company must provide new capacity starting from the date of commissioning every new unit in accordance with the investment programme and until 31 December, 2021. Apart from providing new capacity, for failure to comply with the agreement the company must pay TSA the costs incurred by it when purchasing lacking power in the market. At the same time, "the generator shall not be deemed to have failed to perform or to have improperly performed its obligation for the provision of capacity unless it fails to commission new generating equipment within one year upon the deadline." In other words, TSA will pay the company new capacity during one year after the date whereon the equipment is commissioned. The price at which TSA will buy it will first be established in accordance with the current tariffs of the Federal Tariff Service and it will be market-based when the capacity market is launched. When the first year of delay passes, the generating company will be able either on its own to purchase lacking power in the market or to compensate for TSA expenses. Sergei Pikin, director of the Energy Development Foundation, believes that this term is convenient for the investor. "That a company will be allowed on its own to buy lacking power from another supplier in the market not only allows it not to worry about the need to meet investment programme deadlines, but also to make use of this," believes he. Such term can make it profitable to purchase existing power in the market and delay the construction of new capacity, in Mr Pikin's view. "In order to understand that existing facilities are cheaper than new ones, suffice it to recollect that the highest price at which a RAO UES subsidiary has been sold is $700 per 1 kW of installed capacity. Meanwhile, any new construction project costs $1,000 per 1 kW or more," emphasises Mr Pikin. The terms of the agreement may be changed, according to the document. They may concern changes in WGC and TGC investment programmes or "change of objective conditions such as inflation rates and electric power market liberalisation rates." At the same time, the agreement cannot be terminated by agreement of the parties and will only terminate upon expiry. Dmitry Terekhov, an analyst with Entente Capital Investment Company, also believes the agreement to be flexible. "A delay in delivering capacity that is shorter than one year will not be a breach of contract, which is a great pro," says he. "It is obvious that deadlines may not be met, but it is quite possible to keep within a one year's delay." He believes that this agreement is another attempt by RAO UES head Anatoly Chubais to fulfil his promise to President Vladimir Putin that all investment programmes will be implemented. WGC-4 and TGC-1 told Kommersant that they will try to complete the construction of new power plants on time. OJSC Federal Grid Company (FGC) which is to install power lines to new facilities yesterday gave Kommersant assurances that all deadlines for building grid and generating assets have been finalised, "while the indication of connection deadlines for facilities is an integral part of the agreement with generating companies." TSA also supports the new agreements. Yesterday, it said that the agreements will allow solving the problem of power deficiency. The agreement with TSA does not apply to those companies that have already conducted their additional share issues. For example, WGC-5 which was in June sold to the Italian company Enel told Kommersant yesterday that no proposals to enter into an agreement like that have so far been received. |
