OREANDA-NEWS. April 22, 2010. Following the approval of the rules and parameters for the long-term generation capacity market in Russia by the government last week, Market Council (the regulatory body in the Utilities sector) has preliminarily calculated the actual tariffs for newly commissioned generation capacity in terms of RUB/MW/month, which should be introduced starting from 2011. The table below summarizes these calculations. The actual tariffs for the individual companies will be made public within the next three months, at which time the gencos will sign Capacity Delivery Agreements (CDAs) with the regulator, reported the press-centre of OTKRITIE Financial Corporation.

View: As we noted before, the approved parameters of the power capacity market imply tariff levels of above RUB500K/MW/month, and this is confirmed by the announced figures. We currently use an average tariff forecast of only RUB300K/MW/month, and hence see significant upside to our financial projections. We see the highest upside for coal-fired generators, as the tariff may reach as high as RUB1,779K/MW/month.

Valuation: Russian generation companies currently trade at an average EV/installed capacity multiple of USD320/kW, which is less than what they used to trade in 2008 before the crisis (above USD 500/kW) and also below the EM peer average (above USD 1,000/kW).

Action: We expect a positive market reaction in all generation stocks, especially for gencos that will commission coal-fired capacity: OGK-2, OGK-6, TGK-11, Kuzbassenergo, TGK-13 and TGK-14.