NERC Approves Compensation of Loans to Reconstruct Thermal Plants

The National Electricity Regulation Commission approved ratio for compensating power plants for a portion of loans attracted for reconstruction purposes. For loans attracted in 2007 and 2008, 80% will be compensated by a special investment surcharge, and the rest will be covered by the generation company’s profit. In 2009, only 70% will be compensated, and in 2010 – only 60%. According to NERC, this will help stimulate modernization efforts. The NERC will also compensate USD 42 mln of Vostokenergo’s USD 52 mln loan for reconstruction with a special surcharge over 2007-2012. Alexander Paraschiy: The NERC’s decree clarifies orders by the Cabinet of Ministers and the Ministry of Fuel and Energy, which foresee up to 80% compensation of invested money by special tariff surcharges. This is close to what we expected in our GenCos report in November 2006. We believe a decrease in compensation over time does not look justified: generation companies have uniform investment programs; they will be unable to modernize all of their power units in such a short period using their own cash flows. Therefore, we believe the ratios for 2009 and 2010 will be revised in the future.