Page 123 - RusRPTNov20

efficiency improvements and the application of new technologies. According to him, this would make it possible to tackle the problem of capping the tariff growth and to abolish the excessive financial burden on industrial consumers. The Market Council data shows that the non-market surcharges amount to RUB450bn, which, coupled with the RUB237bn of the cross subsidy in the grid tariff, represents 31% of the end-user price. The proposed mechanism is in fact a version of the ‘social norm’ mechanism that was in place previously. However, it is worth highlighting that, apart from the cross subsidy, old generating units also do not get the required level of tariff payments. Overall, excluding the cross subsidy, we estimate that the level of the hidden tariff subsidy that the electricity sector provides to the overall economy is about RUB5 trillion annually (for details, see our Russian Utilities – RUB5 trillion for Mother Russia, of 22 April).
The recovery in the prices of electricity seen in 3Q20 in Russia will support the 3Q20 IFRS results of utility names​, BCS Global Markets wrote on October 6, expecting OKGs and TGKs generating companies and InterRao major state utility holding to see recovery. In 3Q20 utility sector did not outperform the Moscow Exchange average growth of 6% with only 3% growth. The recovery in prices in 3Q20 was due to a drop in cheap hydro generation, seeing the first year on year rise in prices since 2Q19, BCS GM notes, while warning that RusHydro hydropower holding could face challenges. While European zone prices showed moderate 1% y/y growth, Siberian prices showed stellar 33% growth y/y. However, the electricity consumption in Russia continued to fall at 3% y/y decline, and BCS GM notes the potential for further downside in 4Q20, as the second wave of COVID-19 continues to gather pace.
9.1.11 ​Metallurgy & mining sector news
Global crude steel production in September was up 3% y/y (0% MoM) ​as the sector continues to recover. The majority of crude steel-producing countries (excluding China) delivered positive MoM dynamics, with Russia, Germany and the US up 6% MoM, 7% MoM and 2% MoM, respectively. Crude steel production on a y/y basis remained mixed in September, with Germany (-10% y/y) and the US (-18% y/y) lagging as Turkey (+18% y/y) posted the largest gain, albeit against the low base of 2019. The Chinese steel industry continued to lead the way, with September crude steel production slightly easing 2% MoM but still well ahead of the entire market (+12% y/y). China remains the most dominant player within the global steel sector, accounting for 59% of global crude steel production in September, with India a distant second at 5%. Global crude steel production in September gained 3% y/y while 9M20 global crude steel production dropped 3% y/y. Despite China’s strong 9M20 performance (+5% y/y), the numbers for other primary steel-producing nations are well below 9M19, e.g. Germany, India and the US are all down 15% y/y, 20% y/y and 20% y/y, respectively.
123 ​RUSSIA Country Report​ November 2020 www.intellinews.com