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prevailing CO2 price or those required to reach Paris Agreement targets. We estimate such costs could eliminate 9-100% of Russian utilities’ EBITDA, leading to a 35% dividend payment reduction, depending on the CO2 price benchmark used. Coal asset-related disclosure, including provision requirements and stricter DCF-based valuations of coal-fired PP&E, might also pose a risk to genco financials. Our conclusion is that such external costs must be considered when making investment decisions, given the 30-50 year lifespan of capital-intensive projects in the sector. So far, we have seen such care from Enel, recently joined by Unipro, both of which are guided by their international controlling shareholders' green strategies. State-affiliated utilities broadly remain aloof to the risks of climate-related expenses in the future.
Russian utilities reported annual financials that were (bar RusHydro) among their weakest ever, driven by COVID-related pressures on demand and electricity prices. The follow-up conference calls – and we highlight all of them, from Enel Russia to InterRAO – outlined the sector's key trends. Every company is on the hunt for growth, with dividends of secondary concern. Some refused calls for a step-up in payments, despite cash-rich balance sheets, and some paused dividends altogether to meet near-term capex obligations, while announcing new areas of investment. Despite delivering a robust combined 13.3% FCFE yield, utilcos remain parsimonious dividend payers, and we expect them to have 5.2% combined dividend yield for FY20F.
The Ministry of Energy published on April 2 a proposed adjustment to the selection of renewables DPM projects for capacities launched after 1 January 2021. According to the document, for such capacities MinEnergo has suggested shortening the no-fine period for potential delays to eight months, with a longer delay only being fine-free with additional validation of existing obligations. Then, the total delay could be up to 24 months (as currently), although not two time twelve months but three time eight months. In addition, MinEnergo has offered to lower the coefficient that was applied for the fine calculation from 0.3 to 0.22. Moreover, it proposed that investors which had faced delays of more than eight months for two or more projects commissioned since 2021, or which had not provided sufficient validation in the event of a longer delay with the fines, not be allowed to participate. This implies that the capacity supply agreements of such companies could be terminated is the conditions were not met. And were this to happen before the submission of applications for the new auction, these companies would not be able to take part in the new auction. The first auction with the new terms is due to take place in 2H21, with the results possibly being announced in September as has been noted previously.
Russia’s Ministry of Economy proposes ESG RUB150-2,000/t payment for emissions in Sakhalin.
The Ministry for Economic Development, together with the authorities of the Sakhalin region, has drawn up and submitted for approval by the
147 RUSSIA Country Report May 2021 www.intellinews.com