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MRSK of the Centre and Privolzhye OJSC geographical location
Currently, the ‘Interregional Distribution Grid Company of the Centre and Currently, the ‘Interregional Distribution Grid Company of the Centre and Privolzhye’ Open Joint Stock Company is the main provider of services for Privolzhye’ Open Joint Stock Company is the main provider of services for supplying electricity and technical connection to electricity grids in the supplying electricity and technical connection to electricity grids in the regions of Vladimirskaya, Ivanovskaya, Kaluzhskaya, Kirovskaya, regions of Vladimirskaya, Ivanovskaya, Kaluzhskaya, Kirovskaya, Nizhegorodskaya, Ryazanskaya and Tulskaya, and the republics of Mariy Nizhegorodskaya, Ryazanskaya and Tulskaya, and the republics of Mariy El and Udmurtskaya. El and Udmurtskaya. The region being serviced extends for 1,315 km The region being serviced extends for 1,315 km west and east and 315 km north and south, the region’s area – 414 west and east and 315 km north and south, the region’s area – 414 thousand km2, resident population – 14.4 million.thousand km2, resident population – 14.4 million.
The company is a natural monopoly and actually all distributing power grids The company is a natural monopoly and actually all distributing power grids with voltage of 110 kV and lower in these 9 regions are owned by MRSK with voltage of 110 kV and lower in these 9 regions are owned by MRSK Center and Privolzhie OJSC.Center and Privolzhie OJSC.
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MRSK of the Centre and Privolzhye OJSC generating capacityMRSK of the Centre and Privolzhye OJSC generating capacity
Length of transmission lines,
including cables
Transformersub-stations
(6 – 35/0,4 kV)
Distribution sub-stations (6 – 10 kV)
Sub-stations(35 kV and
over)
Transformer sub-station installed capacity(35 kV and over)
263,400 km 58,203 520 1,540 27,640 MVA
Transmitted electricity volume(million kWH)
in 2006 in 2007
53,580.68 54,302.66
Number of staff … 19,600
Company assets as at 29 Feb 08 … RUB49.1 billion
2008 2009 2010 Total
Transmission lines planned for commissioning (km) 1,226.97 1,290.16 1,232.34 3,749.47
Capacities planned for commissioning (МVА) 1,360.80 1,245.15 652.40 3,258.35
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Sale of servicesSale of services
MRSK earnings forMRSK earnings for 2007 2007––1010
Earnings (‘000 RUB net of VAT)
2006 2007 2008* 2009* 2010*
21,177,015 26,778,989 35,034,404 41,658,622 43,265,884
Electricity transmission
Technicalconnections
Other revenues
94.9 % 3.5 % 1.6 %
* * –– plannedplanned
MRSK revenue make-up for 2007MRSK revenue make-up for 2007
Growth in revenue will derive from growth in the volumes of Growth in revenue will derive from growth in the volumes of electricity transmitted, tariff changes and expansion of the electricity transmitted, tariff changes and expansion of the technical connection of customers to the distribution network.technical connection of customers to the distribution network.
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MRSK investment activities for MRSK investment activities for 20062006––1010
Invested capital values
Year 2006 2007 2008* 2009* 2010*Total
2006–10*
‘000 RUB3,292,68
75,508,50
89,983,60
98,327,205 6,094,516 33,206,525
‘000 $ RUB/$= 24.05
136, 910 229,044 415,119 346,246 253,410 1,380,729
Investment structure
Technical refurbishment and reconstruction
72.6 %
New construction 25.2 %
Major assets acquisition 2.0 %
Miscellaneous 0.2 %
Funding sources structure
Depreciation 43.1 %
Profit, including ‘investment component’ in electricity transmission tariff
21.6 %
Miscellaneous, including technical connection fees
35.3 %
Investment and funding sources structure for Investment and funding sources structure for 20020077
* * –– plannedplanned
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Technical connection fee
Its introduction was prompted by the fact that the existing tariff regulation Its introduction was prompted by the fact that the existing tariff regulation system prevents distribution grid companies from meeting the growing system prevents distribution grid companies from meeting the growing demand for connection to the energy grid because of material restrictions on demand for connection to the energy grid because of material restrictions on tariff increases. tariff increases. The basis of the scheme is as follows: anybody who wants to be connected to The basis of the scheme is as follows: anybody who wants to be connected to the grid shall bear all the costs required for the increase in the Energo-JSC’s the grid shall bear all the costs required for the increase in the Energo-JSC’s grid capacity. The amount of the connection fee is calculated on the basis of grid capacity. The amount of the connection fee is calculated on the basis of the region’s mid-term demand for grid capacity increase. Currently, such a fee the region’s mid-term demand for grid capacity increase. Currently, such a fee is levied in the regions which suffer a serious deficit of grid assets. is levied in the regions which suffer a serious deficit of grid assets.
2007 2008* 2009* 2010*
0.9 1.5 1.9 2.6
* * –– plannedplanned
Technological connection services Technological connection services (billion RUB net of VAT)(billion RUB net of VAT)
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Tariff calculation using Return on Regulatory Asset Base (RAB) method
It is expected that during 2010–12 there will be a gradual transition from the ‘Costs + ’ It is expected that during 2010–12 there will be a gradual transition from the ‘Costs + ’ method of regulating tariffs for electricity transmission via the distribution grid, to the method of regulating tariffs for electricity transmission via the distribution grid, to the ‘Return on Regulatory Asset Base’ (RAB) method. ‘Return on Regulatory Asset Base’ (RAB) method. The RAB method is aimed at providing full return of funds invested into company assets The RAB method is aimed at providing full return of funds invested into company assets during the period determined to correspond to asset service-life, and at normalised during the period determined to correspond to asset service-life, and at normalised revenue earning, the level of which is set by the Government, and which shall revenue earning, the level of which is set by the Government, and which shall correspond to the RSK’s risk profile and its sector prominence to investors.correspond to the RSK’s risk profile and its sector prominence to investors.
Required gross
earnings at RAB method = Operational
costs + Return on Asset Base +
Yield on Asset Base
Asset Base WACC
(regulatory)
Operational costs include all Operational costs include all productions costs, excluding depreciation of a company’s productions costs, excluding depreciation of a company’s tangible and intangible assets.tangible and intangible assets.Return on Asset Base Return on Asset Base shall provide for replacement of the assets used intensively for shall provide for replacement of the assets used intensively for electricity transmission via the MRSK grid. electricity transmission via the MRSK grid. Yield on Asset Base Yield on Asset Base is calculated on the basis of regulated rate of return (regulatory is calculated on the basis of regulated rate of return (regulatory WACC) established by the regulator, the rate of which will be established for the long-term WACC) established by the regulator, the rate of which will be established for the long-term regulatory period and will be the same for all MRSK. regulatory period and will be the same for all MRSK.
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EquityEquity
28 June 2007, RAO UES of Russia established the MRSK of the Centre and Privolzhye OJSC29 February 2008, the MRSK merged with nine regional grid companies, and additional share issues were carried out for this purpose.
Currently, MRSK of the Centre and Privolzhye OJSC’s statutory capital totals 11.27 billion RUB, and comprises 112.7 billion ordinary shares.
April 2008 – shares will be traded at MICEX and RTSJuly 2008 – listing for adoption to ‘B’ Quoted ListJune 2010 – publishing of ISA-based or US GAAP-based financial statementsJuly 2010 – listing for adoption on ‘A’ Quoted List
Main shareholders
RAO UES of RUSSIA 50.3
IES 7.6
Prosperity 11.2
Bridgeport 6.7
Eurochem AM Limited 2.0
Renaissance Securities 2.0
Others 22.2
After restructuring of the electricity sector and the liquidation of RAO UES, its equity will be transferred to the MRSK Holding, which will have the following structure: 52% will be owned by the Government and 48% by minority shareholders.
The nonresident shareholders account for over 20%. 77
Comparison with Foreign Analogs In the long-term perspective, Russia’s and foreign distributing companies may be compared using the following indicators:
EV/ Resident $/persons
EV / El.sales
$/MVh
Average across companies of developing countries 282 183
MRSK Center and Privolzhie 124 32
Growth potential, % 128% 472%
Mcap, mln.$
Electricity sales, MV
EV/El.sales$/ МVh
Budapesti Elektromos Muvek, Hungary 981.4 7, 371 133
Prazska Energetika, Czech Republic 1,502.8 5, 802 259
MRSK Center and Privolzhie 1,732.5 54,302 32
These ratios are not dependent on the existing tariff-formation system, specifics of Russian accounting, degree of capacities loading, but they take into account a potential growth in the amount of electric power transmitted and change in tariff regulation.
•capitalization/amount of power transmitted: EV/El.sales
• capitalization/population of serviced territory: EV/Resident
Main reasons of growth:• improved corporate management • changed tariff regulation, changing-over to RAB • implementation of investment program • positive effect of joining RSK and MRSK
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MRSK Center and Privolzhie: Investment-Attractive Company
• One of the largest distributing grid companies of Russia having high investment attractiveness has been established;• This has created opportunity for prompt, efficient and operational management due to economy of scale and synergy;• Investment resources are being consolidated and potentialities of their efficient use increase;• Increased credit rating will allow the company to make less expensive borrowing;• Reduced transaction costs;•Increased efficiency of financial flow management.
By 2012, MRSK capitalization may reach capitalization of foreign analogs and make up RUB 112 billion
Forecast of MRSK Capitalization by Early 2012
53,9
43,2
112
0
20
40
60
80
100
120
RU
B b
ln
0101.окт.07.окт.07 0101.янв.09.янв.09 0101.янв.12.янв.12
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Comparison with Other Distributing Grid Companies of Russia
13 interregionalnterregional distributing grid companies operate in Russia.
At the end of six-month period of 2007, FSK UES OJSC conducted a comparison in terms of the following indicators:
• Financial and economic status• Equipment operation and grid reliability• Sale of services and interaction with customers• Capital construction• IT-support • Personnel quality
MRSK Center and Privolzhie scored the most.
Strengths of MRSK Center and Privolzhie:1. Personnel quality2. Equipment operation and grid reliability3. Financial and economic status4. Development prospects
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