Daily analyst comments
Government plans to slow growth in tariffs of distribution grid companies
04.06.10 11:02
In our view, the government plan impairs the appeal of investments in the electricity distribution sector. In essence, the changes voiced alter the principles of tariff setting under RAB.
The Russian government plans to slow the pace of growth in the tariffs of distribution grid companies, to be calculated under the RAB tariff system. In particular, growth in the tariffs for FGC may be slowed 15% for 2011, down from the 31% growth originally targeted.
We are negative on the government’s plans to restrict growth in the tariffs of distribution grid companies. One of the goals pursued in the conversion of distribution grid companies to RAB was to create favorable conditions for investments in the sector, notably by ensuring the acceptable rate of return on invested capital and the predictability of future cash flows. The original plan was to approve tariffs for several years ahead. Therefore, restricted growth in the tariffs and more important still, the likely revision of the tariffs, will hurt investor confidence in the sector. In our view, the plans will adversely affect quotes for distribution grid company shares. FGC, which has already switched to RAB, may see its shares come under the heaviest pressure.