RusHydro will remain without networks – Newspaper Kommersant No. 59 (7504) dated 04/06/2023

RusHydro will have to give up power grid assets in the Far East: the region will move to market pricing for electricity, which means that the company will not be able to own both generation and power grids. Regulators will work out a plan for the division of the company by May, they say in the FAS. The state holding does not want to “donate” assets, the market value of which, according to analysts, could be about 6 billion rubles. For many years, Rosseti was interested in power grids in the region, but the deal did not happen.

RusHydro, which manages generation in the Far East, will soon no longer be able to own the power grid assets of the Far Eastern Distribution Grid Company (DRSK). The Federal Antimonopoly Service, together with the Ministry of Economy and the Ministry of Energy, are already developing a plan for the division of the state holding, Deputy Head of the Federal Antimonopoly Service Vitaly Korolev said on April 5 at the Russian Energy Conference of the Vedomosti newspaper. The region will gradually switch to free electricity prices by the summer of 2025, and according to the law, companies in the market sector should not combine competitive (generation and sales) and monopoly (grids) activities.

“We understand that this will take some time. It is obvious that a company like RusHydro cannot be taken and divided at once,” Mr. Korolev said. According to him, the separation plan will be sent to the government in May. The Ministry of Economy told Kommersant that the FAS proposal had not officially been received by them. The Ministry of Energy did not respond.

The decision on the fate of RusHydro’s power grids in the Far East is up to the authorities, but the company would not want to “donate” assets, Roman Berdnikov, a member of the board of the state holding, told reporters.

“There must be alienation. How is the second question,” he said. Later, RusHydro added that they “certainly support the development of market relations in the electric power industry of the Far East.” Now the company, together with the government, “is working on options for implementing the norms of the law,” they emphasized.

RusHydro received the DRSC as part of RAO ES of the East in 2011. DRSK owns power distribution networks in the Amur Region, Primorsky and Khabarovsk Territories, the Jewish Autonomous Region, and also in the south of Yakutia. The length of the networks is 59 thousand km. In 2022, the productive supply through the DRSC networks amounted to 24.62 billion kWh, technological losses amounted to 7.2%. DRSK revenue in 2022 according to RAS amounted to 36.8 billion rubles, net profit – 258.73 million rubles. Net assets at the end of 2022 – 25 billion rubles.

Since the beginning of the 2010s, Rosseti has been interested in RusHydro’s distribution networks in the Far East, but the parties have not agreed on an asset transfer scheme. Then Rosseti repeatedly returned to the issue of consolidating Far Eastern networks: for example, in 2020, the state monopoly approached Vladimir Putin with such a proposal (see “Kommersant” dated February 13, 2020). The President instructed Deputy Prime Minister Yury Trutnev to consider the initiative, and he, in turn, instructed the Ministry of Energy and the Ministry of Economy to work out the issue. Rosseti did not respond to Kommersant’s request.

The market price of DRSK can be 6.3 billion rubles, if we evaluate it on the basis of analogues – Rosseti Center and Rosseti Center and Volga Region, Matvey Taits from Sinara investment bank calculated. But such a valuation may be “quite optimistic” due to the lower ratio of net income to equity of DRSK, the analyst clarifies.

In general, the Far East, taking into account the plans for the development of the energy sector of the region and relations with China, is very promising in terms of expanding the power grid infrastructure, notes Sergey Sasim from the Institute for Economics and Regulation of Infrastructure Industries of the National Research University Higher School of Economics.

The economic situation of the DRNC is stable, so this company is potentially an attractive investment object, he believes. However, power grid assets owned by Yakutskenergo (part of RusHydro, owns generation, as well as transmission lines with a length of more than 20 thousand km), on the contrary, are experiencing economic difficulties due to defects in tariff regulation and problems with the collection of planned revenue. Now these shortcomings, Sergey Sasim notes, are offset by the profits of other divisions of RusHydro: “Taking into account the fact that the revenue of Yakutskenergo is about 30% of the revenue of DRSK, the asset separation plan developed by the regulators should provide for the mandatory elimination of shortcomings in the calculation of tariff rates. The fair selling price of assets must be determined based on the normal collection of the company’s economically justified gross proceeds.

Polina Smertina