RusHydro (RTS: HYDR) is interested in selling electricity that is generated by newly-built hydropower plants in Russia’s Far East on separate terms. Construction of the plants is in the offing, Interfax quoted RusHydro acting CEO Vasily Zubakin as saying. The latter has suggested concluding long-term deals with customers on take-or-pay terms. Zubakin also deems it necessary to facilitate access to Russian Investment Fund resources for the sites that were included in the general plan for the placement of power generation facilities in the period up to 2020.
The power grid in Russia’s Far East is isolated from the rest of Russia. Unlike other Russian regions, the local power grid has not been subject to reform and all electricity in the region continues to be sold under tariffs set by the state. If RusHydro starts to conclude long-term contracts with customers on take-or-pay terms, its cash flows should become steadier, as the company would no longer face uncertainty over the yearly indexing of prices, and would also be insured against the risk of falling demand for its products. However, the statement made is just a suggestion voiced by the company’s acting CEO, which is why it is unlikely to affect the company’s stock valuations.
We estimate the fair price of RusHydro (RTS: HYDR) at USD 0.13 per share, which corresponds to a BUY recommendation.
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