Moscow. June 3. INTERFAX - Yet another delay in the launch of the power market may jeopardize the fulfillment of investment obligations undertaken by the new owners of generating companies, some of the largest investors in the Russian power engineering industry told Interfax. The power market that must ensure the return on investments in generation assets was originally due to be launched from January 1, 2008. This date was moved to April 1, and then to July 1. However, at the interdepartmental meeting on Friday the resolution on the power market was returned for further revision due to disagreements that arose between the Federal Tariffs Service (FTS) and RAO UES of Russia (RTS: EESR). The power market envisages the organization of auction for the right to sign contracts for the use of generation companies' capacity. Currently payments are made as per the tariff fixed by the FTS, but this tariff can not compensate for investments in modernization. Vladimir Kiryukhin, General Director of En+ Development, a company in charge of developing the power business of En+, believes that postponing the deadline for the power market launch not only significantly undermines the attractiveness of the Russian power engineering for investors, but also impedes the development of power companies and the industry as a whole. "The launch must be effected without further delay. this is due to the fact that the electric power market allows the payback of current expenses of power companies, while the main load for capital expenses payback falls on the power market", he told Interfax. "Unfortunately, in absence of the operating power market and the retail market reform investors have no economic incentive to invest. If the launch of the market is delayed, then, due to a natural shift, investments will be attracted to subsequent projects", Mikhail Slobodin, head of CJSC IES, told Interfax. He also noted that the facilities in the industry are 80% obsolete, and in order to have a new power generating plant in 4 years, it is necessary to prepare the site and make a feasibility study today. "The money obtained during IPO for new capacities construction for investors is more of a burden that a happy chance to increase the value of invested capital. This money is not secured by actual normal payback because income and expenses do not match, and this investment money will run out in two years", he explained. Bernd Dubberstein, member of the E.ON Russia Management Board in charge of production and investment projects, agrees with Mr Slobodin in that the delay in the launch of the power market will have a negative effect on the construction of new capacities. "Besides, until the power market is launched, the wholesale electric power market remains highly volatile: we can observe dramatic price fluctuation in this sector. And in case of power shortage this sector may be subject to regulation by the state", he added. Sergey Mironosetsky, Deputy General Director of OJSC SUEK, also believes that the launch of the power market is "crucial for ensuring stable investments in new generation capacities, as well as in the modernization of existing power plant". "The power market should guarantee to the investor in new power plants a sufficient level of return on invested capital, which is particularly important for the capital-intensive generation sector, primarily in the coal industry. ‘Old' power companies can only be upgraded upon creation on a liberalized power market where existing capacities will compete with new projects", he declared to Interfax. OJSC WGC-1 also expresses concern regarding the possible delay in launching the power market, but they seem less worried by it than other generating companies. "The delayed launch of the power market will deprive us of the potential possibility to get a higher price in the market than is stipulated by the tariffs", Vladimir Paley, head of Department for Electricity and Thermal Power Sales, explained to Interfax. The draft resolution on the power market provides for two models: transitional - up to 2011, and target model. Within the transitional model, once a year OJSC UES System Operator will hold a tender to select power suppliers with participation of all capacities recorded on the balance of the FTS for the year when the tender is held. In the transition period the participants will have several options for signing contracts for the supply of power and electricity. First option: they will be able to enter into contracts within the framework of regulated contracts as per the FTS tariffs. Second option: the market participants will have an opportunity to sign free bilateral contracts for power and electricity in the course of exchange trades. The third option shall be free over-the-counter bilateral contracts. These will only be available to counteragents under regulated contracts or the owners of new generation capacities non recorded on the FTS balance. There is also a forth option: the power that is not sold under regulated contracts of through exchange trades can be sold to the ATS financial settlement center (FSC) where it will be paid for as per the tariff. Power trading under the target model will start from 2012. Auctions will be held by System Operator 4 years before the power is actually required. In their tender applications generating companies will state their price for power supply; the winners will be chosen based on the minimal application price, and only after this will they have a chance to sign the contract for physical supply of power to the users. |
