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22.12.2008
Power Sector Gets Multibillion-Dollar Bailout
After more than three months of silence, the Energy Ministry laid out anti-crisis plans for the electricity sector Friday that include $5.3 billion in loans and bonds for state companies but no permission for private firms to delay investment programs.
The government will earmark 146 billion rubles ($5.3 billion) in infrastructure bonds and state bank loans to state-controlled companies including the Federal Grid Company, RusHydro, Energy Systems of the East, and the Interregional Distribution Grid Company, Deputy Energy Minister Vyacheslav Sinyugin said at a media breakfast. Some of the money also will be channeled directly from the federal budget, he said.
In addition, the government will amend the legislation so it can change electricity tariffs several times a year and change a key document outlining the construction of power stations to introduce some flexibility, Sinyugin said.
In return, state banks that lend money to the companies will be able to secure stakes in them, he said, adding that such a mechanism has been approved for OGK-1, the only generation company that Unified Energy System, the former state-run electricity monopoly, failed to find an investor for.
State-controlled electricity companies have been tight-lipped about their problems, but private ones have warned of a looming crisis due to unpaid bills and a lack of bank loans. Investors who participated in the privatization of the sector, which was completed in July, are required to construct much-needed infrastructure as part of their winning bids, but they have little cash amid the economic crisis.
The issue is a sensitive one. Seven generating companies asked to comment on Sinyugin's remarks on government support refused Friday, citing the sensitivity of the issue.
Among those that offered comment, OGK-1 spokeswoman Yana Dubeikovskaya welcomed the announcement and said her company would need the money before the end of this year.
RusHydro spokesman  Yevgeny Druzyaka said his company was counting on state help.
Power companies are among 500 firms being ranked on a priority list for loans, Sinyugin said. The list only includes companies deemed socially and economically important, and is to be confirmed by the government Tuesday.
Sinyugin said Energy Systems of the East and the Interregional Distribution Grid Company faced the biggest problems, while some electricity companies seemed to be faring well.
"The state-run electricity trader Inter RAO has not asked for money," Sinyugin said, adding that he had been glad to hear from Gazprom chief executive Alexei Miller that the company did not need state money either.
Sinyugin singled out the Interregional Distribution Grid Company and the Energy Systems of the East because they lacked fund-raising programs, such as an additional share emission, said Sergei Pikin, head of the independent Power Development Fund. "As a result, they are very much in need of money now," he said. A subsidiary of the Interregional Distribution Grid Company conceded that it was in trouble. "We have recently seen a reduction in the demand for the grid connection services, and the banks are reluctant to give out loans to us," said Maxim Landa, a spokesman for Moscow United Electricity Grid Company. "With all that, we still have to continue modernizing the [parent company's] grids, most of which are extremely worn out."
Pikin said no financial support has been announced for privately owned generators because their lobby in the government was not very strong. "But we believe the state will ultimately help them too," he said.
Sinyugin said loans for private generators were being discussed in the government and a consensus was near.
Sinyugin also said that spending by state-run electricity companies would be cut by 15 to 20 percent next year due to falling prices for construction materials, and that the Energy Ministry was lobbying state banks to extend loans for electricity sales companies.
As for tariffs, the government has decided to hike them as planned to make sure that the generators have the money they need for their investment programs, Sinyugin said.
Deputy Prime Minister Igor Shuvalov has said the average electricity tariff would rise by 19 percent for industrial customers and by 25 percent for residential consumers next year in line with the initial plans.
"We will also amend legislation so that we can change the tariffs at least twice a year, instead of once as it was determined before," Sinyugin said. This will allow the government to react more quickly to shifting economic conditions and the utilities' pace of building new capacity, Sinyugin said. The Economic Development Ministry had floated a proposal to raise tariffs by 5 percent next year.
With the higher tariffs, "a strong signal has been sent to the generators that we expect them to fulfill all of their investment programs, without any modifications," Sinyugin said.
Turning to investment programs, Sinyugin said the government saw a need to change the General Scheme of Power Sector Facilities Placement, the document that outlines where and when power stations will be built through 2020 and what fuel they will use. "We'll be collecting information to analyze what specific modifications have to be made through the next year," he said.
As an example, he said the ministry did not see any advantage in building coal- instead of gas-fired power stations.
According to the document, the share of coal-based generation must increase from 25 percent to 46 percent by 2020, while gas usage is supposed to drop from 68 to 50 percent.