rao ues reform : the final stage
DESCRIPTION
RAO UES Reform : The Final Stage. Table of Contents. RAO “UES of Russia” today Reform: company transformation and market development Conclusions. 1. RAO “UES of Russia” today. Russia: 4 th Largest Power Producer in the world. RAO “UES of Russia” today. TWh. % Of World Total. - PowerPoint PPT PresentationTRANSCRIPT
RAO UES Reform: The Final Stage
2
RAO “UES of Russia” today
Reform: company transformation and market development
Conclusions
Table of Contents
1. RAO “UES of Russia” today
4
Russia: 4th Largest Power Producer in the world
3 993
1 6401 088 889
601 597 567 555 384 345
0
1 000
2 000
3 000
4 000
5 000
US
Ch
ina
Ja
pa
n
Ru
ss
ia
Ca
na
da
Ind
ia
Ge
rma
ny
Fra
nc
e
UK
Bra
zil
24.9% 10.2% 6.8% 5.5% 3.7% 3.7% 3.5% 3.5% 2.4% 2.1%%
Of World Total
Source: IEA
TWh
RAO “UES of Russia” today
5
RAO “UES of Russia”Leading role in Russia’s electricity industry
Installed capacityRAO: 156m kW
Heat generationRAO: 469m Gcal
RAO “UES of Russia” Other
4%
96%68%
32%28%
72%
Length of transmission linesRAO: 2,497 thousand km
RAO “UES of Russia” today
6
RAO “UES Russia”1999 - 2004 RAO “UES of Russia” financial performance
8,015
10,508
13,273
15,840
20,141
406
1,853 1,8762,819
4,2353,309
(365)
18
1,383 1,101 916 483
16,349
5.1%
20.2%21.0%
17.8%
14.1%
17.6%
(1,000)
1,000
3,000
5,000
7,000
9,000
11,000
13,000
15,000
17,000
19,000
21,000
1999 2000 2001 2002 2003 9M 2004
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Revenues EBITDA Net Income EBITDA MarginSource: IAS Group financial results(1) Excludes doubtful debtors expense(2) As reported
US$m
RAO “UES of Russia” today
(2)(1)
7
0
10
20
30
40
UES RTS Rebased
During the last two years shares of RAO “UES of Russia”outperformed broader RTS index by 37%
RAO “UES of Russia”Share price dynamics
3.06.20051.04.2003
124.1%
87.5%
US cents
RAO “UES of Russia” today
8
7.1x 7.1x 7.0x6.3x
5.1x
4.0x3.7x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
Endesa
E.O
n
CE
Z
Enel
Cem
ig
RA
O U
ES
Ele
ctr
obra
s
RAO “UES of Russia”Relative valuation
2005 EV/EBITDA
1,942
1,631
1,287
1,003
478410
134
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Enel
E.O
n
Endesa
CE
Z
Cem
ig
Ele
ctr
obra
s
RA
O U
ES
$/k
W
EV/Installed capacity, $/kW
Average: 5.8x
Average: 984$/kW
RAO “UES of Russia” today
Sources: Brokers’ Estimates, Bloomberg, companies reporting
2. Reform: company transformation and market development
10
2005
2006
2007
Finish is in sight
FINISH
11
Competitive sectors
Monopolies
RAO “UES of Russia”Reform basics
Free price-setting Stimulating
market entry
Market rules
Regulated tariffs
Securing equal access to grids
Establishing market infrastructure
Generation Sales
Transmission Distribution Dispatching
Reform Basics: Separation of Monopoly and Competitive Sectors
Company transformation and market development
12
Legislative base of reforms: Key legislation, 2001-2004
July 2001 – Government Decree №526 «On reform of
Russia’s power sector»
March 2003:Five laws on power sector reform signed by President Putinand entered into force (main– №35-FZ «On the power sector»)
Governmental decrees
and orders
December 2004: Meeting of
Russian government. Key decision
made: preparation
for the unbundling of
RAO «UES of Russia»
to be completed
in 2006
Company transformation and market development
13
RussianFederation
MinorityShareholders
of the Parent Company
IndependentRegionalEnergos:
Irkutskenergo
Tatenergo
Bashkirenergo
RosEnergoAtom
10 NuclearPlants
Company transformation and market development
Pre-reform Sector Structure
Generation
Transmission &
Distribution Grids
Sales
73 Regional Energos High Voltage
Grid+
GridService
Central Dispatch
32 FederalPower Plants
52% 48%
RAO UES
14
Target sector model
Private shareholders
Government
Monopolies
FGC
(Transmission)
<25%
>75%
Competitive Generation
Other generating companies
On the base of independentRegional Energos
Nuclear power generating company
Hydro GenCo (1)
Wholesale GenCos (6)
Territorial
GenCos (14)
51-60% <48% 75-85%
49-40% 25-15%>52%
System operator
<25%
>75%
IDC
(Distribution) (4)
<48%
>52%
Competitivemarket
FGC – Federal Grid CompanyIDC – Inter-regional distribution grid company
Company transformation and market development
15
• Unbundling completed and Regional GenCos registered in 35 regions• Unbundling continues in 25 regions
Regional Energos
Other assets: Grid, Dispatch, Sales, etc.
Generation Assets (Regional GenCos)
Territorial GenCos
10 of 14 registered
HydroGenCo
Formation of new generation companies
Target Private Shareholder Stake: >50% Target Government Stake: >50%
* Some of the assets contributed from Regional Energos
Federal Power Plants
Company transformation and market development
• Capacity ranges from 0.6 GW to 10.5 GW• Annual sales ranges from US$100m to US$1300m
• Average capacity at 9 GW• Average annual sales at US$600m
6 of 6 registered
Wholesale GenCos
•Capacity of 22 GW•Annual sales at US$700m
Registered
16
Transition Market (2006 - 2008)
Status Quo (Nov 2003 – 2005)
Market Progression
List of participants (buyers and sellers) established by the government
Regulator or RAO UES matches buyers and sellers
Tariffs are regulated
Regulated bi-lateral (vesting) contracts introduced (for the next 3-5 years)
Initial electricity volume of 85% of total electricity volumes and decreasing
Regulated Market
Competitive Market (5 – 15%)
Free market segment trading 5 – 15% of electricity volumes
Self regulating trading floor - ATS
Price cap set by the Regulated Market
Voluntary for generators and purchasers
No price cap
Vesting Contracts
Free Market(from 2009)
Full liberalization
Fully Regulated Market(prior to Nov 2003)
List of participants (buyers and sellers) established by the government
Regulator or RAO UES matches buyers and sellers
Tariffs are regulated
Regulated Market
Competitive Market (≥15%)(Spot)
Free marketRegulated Market
Company transformation and market development
Competitive Market
17
The Reform ProcessFinishing line in sight
Company transformation and market development
2005 2006 2007 2008
Launch of vesting contracts and competitive market (spot) Competitive Market (5 – 15%)
Wholesale GenCos Formation
Territorial GenCos Formation
Private majority Wholesale GenCos
Private majority Territorial GenCos
RAO UES unbundling
3. Conclusions
19
Currently/During Transition (2005-2006)
Pro-rata distribution among shareholders brings about transparency and fairness
Entry point into concrete Wholesale
and/or Territorial GenCos along defined and transparent route
Substantial future valuation upside
Valuation parameters
more certain since market signals are in place
Ownership/control
profile of government or industrial group clarified
Relatively smaller and less liquid entities
Valuation risk due to lack of market signals
Valuation upside likely to be lower than through earlier investments
Post RAO UES Unbundling (2007-2008)
RAO UES/Regional GenCos/ Federal Plants Wholesale and Territorial GenCos
Pros
Cons
Vehicles
Investing in Russian Power Sector: Investment Vehicles and Timing
Conclusions
20
Potential Investor Concerns Do We Share?
No Government willingness/commitment to support the company transformation
No
No willingness of the Government to exit generation and consolidate control over monopolies business (FGC, SO, Hydro GenCo)
Partially
No transparency/fairness of corporate procedures during the restructuring
No
No Government commitment to the electricity market liberalization
Partially
Reform’s final stage: Lower risk investmentConclusions
21
Reform of RAO “UES Russia”On a Corporate Mission…
… ensure a sustained GROWTH OF THE VALUE of its shares and the shares of the companies that will be established in the course of restructuring
RAO “UES of Russia” is committed to…
Conclusions
through a successful implementation of the reform…
… and increased efficiency and transparency of its operations as well as the operations of the companies established in the restructuring process
22
Conclusions
Russian Power Sector: Key advantage for investors
2005-2006: From the swamp to the firm ground
Today, electric power assets are deep in the non-market environment ...
… By the end of 2006 they will be available amid competitive market conditions.