Gazprom's subsidiaries have reported in a joint press-release that they have withdrawn their applications to the Federal Antimonopoly Service (FAS) for the acquisition of 50% plus 1 share in SUEK. Gazprom management and SUEK shareholders have decided to stop the negotiations on the merger of the companies' energy and coal assets on SUEK's base and have focused on the implementation of their own power utilities strategies.
The companies attribute this decision to the uncertainty over the ratio between the performance of the energy and capacity markets, the degree of implementation of investment programs in power generation, and grid infrastructure development, which hinders precise and correct evaluation of the company's potential market force. At the same time, meeting the structural and behavioral requirements of Gazprom and SUEK would hamper the implementation of the company's planned strategy. However, Gazprom and SUEK have signed a strategic partnership agreement that implies co-ordination of their strategic activities in the power utilities industry.
The decision to give up the creation of a joint-venture is positive for both Gazprom and the whole industry. In spite of the ongoing thorough development of trading rules in the competitive segment of the power utilities market which is aimed at the elimination of price manipulation, any market player that holds nearly 15% of generating capacities, such as Gazprom and SUEK, might have considerable influence on market prices, which could negatively affect other market participants.
The strategic partnership agreement between the two companies implies delivery of SUEK coal to power plants controlled by Gazprom. Primarily, this should produce a positive impact on OGK-2, with 25% of coal in its fuel balance, and OGK-6, with 44%. In our opinion, Gazprom and SUEK will sign long-term agreements for steam coal supplies, and prices in these agreements will be set in accordance with specific price formulas. This should become a considerable competitive advantage for these gencos with account for the recent upturn in prices for steam coal.
The fair value of OGK-2's shares is USD 0.119 per share, which corresponds to Buy recommendation. The fair value of OGK-6 is USD 0.126 per share, which also corresponds to Buy recommendation.
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