The OGK-6 generation company (RTS: OGKF) is holding an open single-stage tender for the right to conclude long-term contracts for coal supplies to the Novocherkassk state regional power plant, says a press release from the company. Both Russian and foreign companies may attend the tender. The contracts are to be concluded for a minimum term of three years (from 2009 through 2011). The shipments are targeted at 3.2 million tons a year. The terms of the tender allow for alternative proposals, including the delivery of a coal grade not currently used at the power plant, but which could be fired if the plant makes the necessary technical changes.
The Novocherkassk power plant earlier filed a lawsuit with the Federal Anti-Monopoly Service for the Rostov Region (FAS) against Russian Coal and the Southern Fuel Company over signs they had breached the law on protection of competition. The two companies stand accused of price fixing aimed at establishing monopoly high prices on coal. Acting on the lawsuit, the FAS opened a case and formed a special commission to look into the claim. OGK-6 management has discussed re-equipping the Novocherkassk power plant, so as to enable it to use coal from alternative providers.
We are positive on the management’s determination to stem growth in the company’s expenses. For the time being, fuel costs constitute a significant part of its total expenses. OGK-6 management has gone beyond lodging a complaint with the FAS, having additionally taken a number of consistent steps to weaken the market position of its existing coal suppliers. In our view, the measures implemented should enable the genco to control its profit margins in coal-fired power generation in the long run.
Our fair price for OGK-6 shares (RTS: OGKF) is USD 0.027 per share, which corresponds to a BUY recommendation.
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