Kievenergo Feels The Cold

Kievenergo (KIEN: BUY) has again been hit by its seasonal problem: Gas Ukrainy decreased gas supplies to the company’s power plants, due to debts of USD 16.4 mln. The reason is KIEN’s low debt payments for gas supplied in 2006, as only 74% of electricity and 15% of heat debt payments have been collected. Concorde Capital: The decreased gas supplies from Gas Ukrainy acts as a stabilizer for KIEN’s total costs related to heat production. The reduced gas supply lowers heat production and thereby reduces total related costs. As heat tariffs for most consumers do not depend on the amount of heat supplied, gas limitations decrease the cost of KIEN’s heat production, but do not significantly affect its heat-related revenues. Thus, limiting gas supplies can potentially have a slightly positive effect on KIEN’s margins. Still, the problem of poor cash collection persists.