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ATON - Daily Dashboard, Utilities - Nov 30, 2011.

Utilities

RusHydro May Sign LongTerm Contracts with Rusal

Interfax reported yesterday (29 Nov), citing Rusal's Deputy CEO Vadim Geraskin that Rusal has nearly agreed on the terms for longterm electricity supply contracts with RusHydro. The contracts will cover the electricity needs of the Sayanogorsk and Khakassk aluminium smelters, should be valid for 10 years and will have a price formula linked to the aluminium price on the LSE, Geraskin said.

(To view the full document, please click on the link below:

http://reports.aiidatapro.com/brokers/AtonEN/2011_11_30.pdf)

Notably, the contracts are subject to expected changes in capacity market rules, which currently oblige electricity consumers in Siberia to pay for the difference between the capacity auction price and the bilateral contract price (i.e. consumers in Siberia are required to pay no less than the capacity auction [KOM] price regardless of any direct agreements with generators, making such agreements meaningless). This rule might be changed in 2012. No information on the pricing formula or other details were provided in the report.

Bottom line

The potential contracts do not add any value to RusHydro and thus make no sense for the company, in our view. Moreover, we see significant value erosion risks for RusHydro's shareholders if the contracts are concluded, as similar contracts signed between Irkutskenergo and Krasnoyarsk HPP and Rusal have included steep discounts to market prices (reaching 5070%, on our estimates). We believe the news points to deteriorating corporate governance at RusHydro, which could have a longterm negative effect on its fundamental value. In the near term, we expect RusHydro's shares to react negatively in response to the news.

Bashkirenergo Reports Healthy 9M11 IFRS Results

Bashkirenergo reported its 9M11 IFRS financials yesterday (29 Nov), which look solid overall. Net electricity and capacity revenue (less purchased electricity) expanded by 20% YoY in rouble terms driven by 2.7% and 1.4% YoY growth in electricity and heat production, respectively. Operating costs excluding purchased electricity, D&A and nonrecurring items grew at a slower pace of 7%, which led to an expansion of EBITDA by 4.9 ppts to 16.6% and net margin by 3.7 ppts to 7.9%. As a result, adjusted EBITDA and net income were up by 29% and 71% YoY, respectively.

Bottom line

We are impressed with the company's 9M11 results, which demonstrated a significant improvement over the previous year. We are also encouraged by its cost control: fixed operating expenses increased by only 1% YoY. The results are indicative of the benefits of electricity market liberalisation and better corporate governance associated with private ownership, in our view. We rate the news as positive for Bashkirenergo's share price performance.

Bashkirenergo 9M11 IFRS results* (table)

***

Copyright: Aton OOO (LLC), All rights reserved.

For further Information please contact: Aton OOO (LLC),

27 Pokrovka str., bld.6, 105062 Moscow, Russia

phone: (495) 777-66-77, (495) 228-38-99

aton-line@aton-line.ru, http://www.aton.ru
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Publication:Russian Banks and Brokers Reports
Date:Nov 30, 2011
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