Myths and reality of Russian power

Reform of the Russian electricity sector began in 2003 when the State Duma adopted the whole package of necessary legislation, and continued until 2008, when RAO UES of which were isolated and all of the new company has ceased to exist. In the market many different opinions about its outcome, but in my opinion, this is an example of successful restructuring of the entire industry, on which they write business cases in other countries. In Russia, except for the ballet and the cosmos, there is another reason for pride. This of course, I'm exaggerating, but try to debunk the myths still that emerged on the Russian power. 1st Myth: The reform of the electricity industry failed to meet expectations. The reform in the sector received more than $ 30 billion of private investment - both Russian and foreign. These funds have been spent on construction of new assets - plants, combined cycle power plants, etc. But portfolio investors in many ways still not reflected in stock prices, this factor, assuming that they all work on older facilities. But in fact the economy is now one of the industry's best in the world, and investments in the Russian power are more profitable than investing in other sectors. Industry, the MICEX index since 2006 has grown by 137%, twice beating the rest of the market on profitability (MICEX index over the same period grew by 70%). 2nd Myth: State regulation of the industry - is evil. In fact, in March 2010 on the initiative of the government new power are 70-100% return of capital invested in them for 10 years. This was done in order to attract new investment sector, and enables companies to increase the yield of 2-fold compared with Western counterparts. Return of capital is carried out at 14% per annum. Third myth is that the free market price is unpredictable. It is not, it is possible to predict with more or less high degree of accuracy. All new owners of energy companies have agreed to the program PD (contracts to provide power), which determines the amount of the construction of new capacity by 2010. PDM program implies an increase in capacity in the country at 2% per year, but it is covered by the natural disposal facilities, as the average useful life power - 50 years. If the economy grows, it will grow an additional demand for energy, and accordingly, and price. The mechanism of the free market implies the existence of different manufacturers. But the market price of electricity is determined by the margin principle, which means that it dictates the most expensive producer, whose products are at the moment is called for. Much of the power generation capacity was built in 1970-1980's, they have similar effectiveness, and therefore will be determinant of prices in the near future. Therefore the price will not be much affected by fluctuations in demand and therefore will be relatively predictable. 4th myth: Generating companies have a low efficiency of electricity generation. Pricing is set inefficient producers, and the efficient producers earn not only high prices but also on its effectiveness. For example, OGK-4 as an efficient producer is already working with EBITDA margin at a level above 25%. This is the highest not only in the world, but also in the Russian scale, where the average level of this index does not exceed 15%. 5th myth: Electricity - too complex sector to understand the vicissitudes of the reforms and the prospects of individual companies. True, the investor, who became an expert in power generation, it provides a unique opportunity to show the results significantly above average for the sector due to the choice of companies that provide the highest return. For example, stocks of Russia's hydropower still the cheapest in the world based on power, but it has caught up with their foreign counterparts in terms of profitability. In general, there is no reason not to invest in the electricity sector, which, moreover, produces also the cheapest electricity in the world. For example, in Russia, 1 kWh is 3.5 rubles, and in Germany - about 6-7 rubles. As the price increases yield sector will only increase. 6th myth: Power generation - is the development and sale of electricity. A significant portion of the proceeds of Russian electric energy comes from the production and sale of heat. Heat is a byproduct of electricity production. The system of central power that exists in most Russian cities, allows CHP (a type of power engaged in joint development of electricity and heat) sell thermal energy produced in the production of electricity, which is advantageous, as in conventional power plants generated heat literally "thrown to the wind" (goes through the cooling tower, a huge tower in which hot water, heat carrier is cooled by outside air). 7th Myth: Nuclear power generation is a threat to the environment and humans. The tragedy of the Japanese nuclear power plant "Fukushima Daiti" forced to think again about the dangers inherently associated with nuclear power. But do not forget that "Fukushima", built more than 38 years ago, is one of the oldest nuclear power plants in the world. This year it was to be decommissioned, but limited to the cash the government has extended its license for another ten years just before the earthquake. In addition, as you know, cause of the tragedy was the strongest earthquake and tsunami. On the contrary, Russia has no nuclear power plants, which would be located in seismic zones. Moreover, the average lifetime of nuclear power plants in Russia is 19 years, which is itself one of the lowest in the world. Third-generation reactors, installed at the newly built power plants, virtually exclude the possibility of an accident with radioactive contamination. However, events in Japan really reiterated the danger associated with the operation of the obsolete reactors in earthquake zones. 8th myth: Rising gas prices lead to lower profitability of electric energy. All of the other way around. In our country, trailing apply the principle of free market pricing of electricity, in which the price of electricity is determined by the most inefficient producer. In the European part of Russia, as a rule, a producer who works on gas. Thus, any increase in gas prices would automatically lead to higher electricity prices, which ultimately lead to increased profitability of the most efficient companies in the sector. 9th myth: The end of the sector reform, the most interesting things in the industry has already happened, and then it will be of little interest in terms of events occurring in it. This is not true. Despite the end of major stages of reform, some of its key components, such as, for example, market power, is still under discussion with the expectation that the final version of the market model will be adopted no earlier this summer. The industry is a large-scale process of mergers and acquisitions. Not to mention the fact that such a radical change in the ownership structure, as the privatization of distribution and transmission companies, has not even begun. The 10th Myth: Statement by the Prime Minister of Russia, on February 17, the inadmissibility of the growth in electricity tariffs above 15% this year will lead to measures which will impact a significant reduction in financial performance of companies in the industry this year. As the Minister of Energy Sergei Shmatko met with Prime Minister Vladimir Putin on March 9, the actual growth rate in January - February the national average has not exceeded 15%, but actually in some regions it was much higher than average. A large part of the measures currently under consideration by the government to smooth the process of raising prices, does not provide cause serious economic damage to companies sector. In particular, the mechanism of smoothing of tariffs distribution network includes compensation for the delay in receiving income. Russian power - a dynamic sector of the Russian economy. Reform of this sector was much discussion, it is a subject of study industry experts and practitioners of management, is a mixed reaction of customers and suppliers, as it formed myths. Perhaps such an active interest in the industry, discuss and study its problems and prospects will lead to the fact that we really can be proud of the Russian power sector reform.