Vedomosti interviews Russian Energy Minister

The following points represent our key takeaways for the power universe:

Novak has stressed that the Ministry is currently working on the self-balancing system for the power sector, which will decrease government involvement into the sector regulation process. In other words, such measures as we saw in 2011 "when former Energy Minister Sergey Shmatko announced the regulation of free electricity prices on the spot market" will be avoided in the future.

Novak also confirmed that the Ministry might look at Rosneftegaz's involvement in Inter RAO, where any synergies are expected to be seen after this partnership. For example Rosneft (owned by Rosneftegaz) is currently considered the main gas supplier for Inter RAO. Moreover, the consolidation of government entities' stakes in Inter RAO (FGC, Rosatom, RusHydro, VEB etc.), which total 60%, in one entity is considered to be more effective than the current shareholder structure.

The minister commented on consolidation in the grid segment, which assumes creation of a management company on the base of MRSK Holding. He said that the minorities of Federal Grid Company will have a choice: either remaining with their FGC shares or converting them into the shares of MRSK Holding at a ratio determined by an independent appraiser. That said, FGC stock might turn out to be an entry ticket into MRSK Holding shares going forward.

He confirmed his view that one or two MRSKs might be privatized in 2013 in order to raise funds for their capex programs, as well as establishing some privately-held MRSKs for tariff benchmarking purposes.

Novak agrees that the ongoing capex plans in the power sector are excessive in terms of newly-built capacities. Meanwhile, he believes that the ongoing plans inclusive of DPMs make sense because of the very high depreciation of the existing assets in the power sector.

Alexander Kornilov, Ph.D., CFA