Kyivenergo expects USD 80.2 mln losses from heat supply in 2008

Kyivenergo’s (KIEN: HOLD) 2008 net loss from heat supply is expected to reach USD 80.2 mln, the Company’s Executive Director Borys Yaschenko said yesterday. According to Yaschenko, if the current tariffs for Kyivenergo’s heating services are kept untouched, 2008 revenue will amount to USD 188 mln. By the end of the year the company’s fuel costs will reach USD 194.6 mln, and other costs will be USD 151.1 mln, yielding net losses of USD 164.3 mln. Adjusted for subsidies from the budget of Kyiv city in the amount of USD 84.1 mln in, heating losses will total USD 80.2 mln in 2008. Yaschenko expects problems with gas purchase for Kyivenergo, unless Kyivenergo’s tariffs are raised upward or Kyiv budget subsidies to the company are raised to fully cover losses. Alexander Paraschiy: According to the law On Prices and Pricing, if local authorities set tariffs for services below their costs, they have to compensate the difference from the local budget. Last year Kyivenergo’s heating losses were compensated by 76%, and we expect at least the same compensation rate in 2008. Yaschenko’s statement is one of the ways for KIEN to make city raise compensation amounts. We do not exclude the company will suit the city in a court to get full amount of compensation for 2007 and 2008. Given profitable electricity generation segment of KIEN, and assuming 75% heat losses compensation, we stick to our USD 4 mln FY08 net income forecast.