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our unchanged 12-month Target Price of RUB 8.40 implies an ETR of 102%: Buy reiterated. Summary. Plans for the Erkovetskaya power plant emerged in February 2014 with the goal of satisfying growing electricity demand in China using Russian coal resources and energy generation expertise. Several projects were discussed: i) 600-700MW; ii) 5GW; iii) a 8GW thermal power plant (the world’s largest, see Fig. 1). Since 2014, the project’s reported price tag has been growing and hit $24bn in 2016. However, in June 2017 the Ministry of Energy officially excluded the Erkovetskaya GRES plan from its energy development scheme, motivated by “muted electricity demand in China”. Novak’s words only revive consideration of a feasibility study for the project.
The Economics Ministry has proposed a significant reshaping of the regulatory framework for electricity in the Far East. The proposals include establishing a separate pricing zone or merging the Far East with other zones, abolishing the special add-on paid by consumers in other zones that is aimed at lowering tariffs in the Far East, and creating competition across the Far East by holding tenders for modernization of obsolete capacities. Analysts see the news as quite significant but believe that the issue is still only in the discussion phase. In any case, though RusHydro could lose some contracts with a guaranteed return if tenders were to be granted to other market participants, the overall effect of healthier regulation in the region (if a separate pricing zone is created) could improve the economics of RusHydro's loss-making old thermal capacities.
9.1.12 Transport sector news
Russia's President Vladimr Putin has asked the government to study the option of linking Sakhalin island in the North Pacific Ocean to mainland Russia with a bridge . Only two months ago, Putin inaugurated the newly built Kerch Strait bridge that connects the Russian mainland with the annexed Crimea peninsular by driving a truck over the 19km long bridge. The controversial bridge became Europe’s longest and provides direct access to Russia’s mainland, bypassing the previous land route that required driving through Ukrainian territory. Putin told the head of the Sakhalin region Oleg Kozhemyako to look into building a bridge to the island on July 24. Another major bridge to Sakhalin could cost RUB252bn ($4bn) or RUB637bn accounting for the construction of 585mn of adjacent rail tracks, Vedomosti daily said on July 25 citing the unpublished materials of Russian Railways.
The Federal Anti-Monopoly Service (FAS) is continuing to liberalize prices for port services while introducing investment fees for infrastructure investment to be collected from stevedores in return. The bill does not apply to ports that are associated with oil pipeline monopoly Transneft or to ports in the Far East.
By creating investment fees, FAS hopes needed port infrastructure development will take place . But the move is functionally a subsidy for Transneft that could destroy its value by acquiring non-oil ports. Far East ports also require subsidization to maintain their competitiveness. It's a bandaid largely aimed at boosting revenues without much concern for effects on business.
Regulation on prices for port services has been repeatedly loosened over
69 RUSSIA Country Report August 2018 www.intellinews.com