Page 17 - BNE_magazine_05_2020

bne May 2020 Companies & Markets I 17
Russian utilities
in a time of corona, first non-payments appear
bne IntelliNews
R
country will be on a strict lockdown for all of April. The first signs of delinquency in payments have already appeared, only two weeks after Russia brought its economy to a halt.
Evgeny Grabchak, the Russian Deputy Minister of Energy said in a recent interview that the ministry was preparing for three possible scenarios: optimistic, pessimistic and shock.
The range of pain within these three scenarios is big: the year- on-year reductions of electricity consumption could come in at between a 3.6% and 10.1% contraction in 2020; a 15-20% drop in payments; and a 5-15% slide in the revenues for the sector.
Between March 29, when Moscow announced the imposition of a lockdown, and April 15 electricity demand is down 3% year on year (ignoring seasonal temperature changes).
And the impact on the various industries has been a mixed bag: aluminium producers have increased demand 2.5% y/y, with y/y growth also recorded for the wood industry, chemicals (5%) and oil refineries (1%). Other sectors have seen y/y reductions: metals (4.1%), the automotive industry (13.3%) and mining (1.7%).
While the utilities will be able to weather the storm financially, the biggest knock-on affect will be the drastic curbing of their investment activity.
“Capex programmes could be reduced 30% at Rosseti and RusHydro due to the absence of demand for grid connections. In different scenarios, Rosseti’s capex could decrease RUB40bn [$540mn],” Vladimir Sklyar of VTB Capital (VTBC) said in
a note. “Companies submitted their proposals for changes to investment programmes by April 1, with the ministries to assess them in the coming 2-3 months. Note that there are little risks in terms of preparation for the autumn-winter period.”
Paying the bills... not
Various utility companies have already reported problems with collecting payments, especially for communal services.
ussian utilities are coming under pressure as customers are expected to start reneging on their bills and
demand for power falls off heavily, as most of the
MOEK (a Moscow heat company under Gazprom’s control) declared a 50% reduction in payments by some groups of consumers on April 10. TPLus (the largest private electricity and heat producer operating in Central Russia, the Volga and the Urals regions) recorded a 46% reduction in the payments for its services, of which 37% is the drop in payments for electricity and 54% for heat, on April 14 . On the same
day, Siberian Generation Co. (the electricity arm of SUEK) reported a 40% reduction in payments for the heat it supplies.
“We are at the early stage of the non-payment spike, which is driven by two factors: i) the deteriorating economic environment for small and medium enterprises and ii) the
“We are at the early stage of the non-payment spike”
government ban on charging penalties or fares, and on halting services, if households do not pay for communal services,” Sklyar said.
Given the schedule of payments – households pay their electricity/heat bills on a monthly basis – analysts expect the main blow to revenues to fall at the beginning of May.
“The initial data suggests a significant shock to cash flows in the sector, although we would not rush to draw early conclusions. In our view, the non-payment spike can partially be explained by social distancing measures, which effectively meant that people could not pay in person (through banks, electricity and heat supply companies’ outlets, terminals),” says Sklyar. “Thus payments had to be made via online banking and other internet channels. We suspect that the full-month data might suggest
a slightly less radical deterioration in payment discipline.”
Nevertheless, VTBC estimate that RUB1tn ($13.5bn) of overdue payments could build up over the course of this year, split roughly equally between non-payments for electricity and for heat, due to the negative effects of the pandemic-related stop-shock to the economy.
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