UES (RTS: EESR) has offered to allocate part of the proceeds from the sale of a blocking interest in WGC-5 to finance exploration works as part of the project to export electricity to China and also preparation of a pre-feasibility study for a cascade of Kambaratinskiye HPPs in Kyrgyzstan, Interfax reported. The power holding’s management has proposed the Strategy and Reform Committee to approve at a Tuesday meeting new ways to spend the proceeds from WGC-5’s stake.
The auction to sell off 25.03% in WGC-5 owned by UES was held on June 6 and Italian Enel, which placed a bid of Rub 39.2 bln ($1.51 bln), was declared the winner. According to the presentation of the report of UES CFO Sergey Dubinin, the power holding received Rub 29.7 bln ($1.14 bln) after tax payments and selling expenses. The power holding’s materials specify that as part of the agreement with State Grid Corporation of China (SGC), UES and SGC are working out a pre-feasibility study of the project and the feasibility study for precise investment targets.
It’s noteworthy that implementation of a full-fledged project of electricity exports to China will require multi-billion-dollar investments. Therefore, the amounts which UES currently offers to earmark for Chinese projects are insignificant compared to the infrastructural needs of grid companies. Overall, the Chinese segment is promising, since electricity consumption in this region is growing at a double-digit rate and implementation of hydro potential of Siberia and the Far East will enable the Russian electric power industry to gain momentum on rising demand from China.
Expanded energy cooperation with China will positively impact operational activities of Far East utilities. We have every reason to assume that due to improved efficiency of using hydro generation resources and increased electricity exports to China, electricity output in the Far East will climb further. Among the companies which stand to gain from increased exports, we assign a Buy recommendation to FEEC shares.
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