Zakhidenergo Announces 1H05 Results

In 1H05, Zakhidenergo (ZAEN: BUY) posted a net income of USD 3.3 mln (-69% yoy), and USD 230 mln net revenue (+23% yoy). The company increased its electricity production by 7% yoy, which will be the best results among a state-owned thermal generation company. Concorde Capital: ZAEN?s profitability decreased in 2Q04, due to a significant increase in gas tariffs. A high component of natural gas in ZAEN fuel mix (38% versus 5%-24% for its competitors) makes the company highly sensitive to gas price changes. ZAEN?s electricity tariffs lag behind cost increases, while its competitors, which are able to determine the wholesale price for the entire market, as less sensitive to gas prices. Thus, ZAEN?s competitors do not necessarily need to raise tariffs due to higher gas prices. As no significant gas price changes are expected in 2005, ZAEN?s profitability is likely to rise.