City of Kyiv To Compensate USD 8.6 mln of Kyivenergo’s Losses

The Kyiv City Council agreed to compensate USD 10.9 mln in losses for Kyiv-based producers of heat and hot water. Kyivenergo (KIEN: U/R) will obtain USD 8.6 mln of this amount. Alexander Paraschiy: Of Kyivenergo’s total losses from heat production of USD 58.4 mln in 1H07, Kyiv city has compensated only 41%. We estimate heat production losses for Kyivenergo in 2H07 at USD 66.3 mln, thus the recently adopted compensation will cover them only by 13%. Although full compensation of losses is demanded by the law “On Prices and Pricing,” there is little chance that the city will cover losses fully this year. This implies Kyivenergo’s profit will be close to zero or negative in 2007. We expect that in the mid-term the compensation mechanism will be perfected, allowing Kyivenergo to report a profit margin of about 2%.