Cabinet Approves Oblenergos’ USD 4 bln 5Y CapEx programs

According to the Deputy Minister of Fuel and Energy, yesterday the government approved a program to develop and reconstruct electricity distribution networks (0.4-110 kV) by 2012. The program’s total value is USD 4.08 bln. About 40% of the costs are planned to be financed by electricity distribution companies (Oblenergos) from their EBITDA (now almost 100% is covered); the rest by loans, additional tariff surcharges and budget inflows. According to the program, total electricity losses are planned to be reduced by 2.3 times. Alexander Paraschiy: We believe that in the short-term, Oblenergos will face problems with program financing, as most of them do not have a credit history, and Oblenergos’ low profits raise the risk of default. We expect a smoother financing mechanism (regulators, Oblenergos, creditors and investors working cooperatively) to emerge in 1-2 years and the development program to be realized on time. We also expect that the introduction of the program will push the regulator to approve changes to Oblenergos’ tariffs faster in order to increase the investment attractiveness of the sector.