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An agreement signed between Gazprom and Inter RAO UES is evidence that the later is following up on its plans to expand its installed capacity. The cost of the project, however, is somewhat overstated, the way we see it.
On September 24, 2008, Mezhregionenergostroy and Inter RAO UES (RTS: IRAO) signed a deal on an investment project to expand the capacity of the Kaliningrad TETs-2 co-generation power plant via the construction of a second 450-megawatt power unit. Under the agreement, Mezhregionenergostroy pledges to fund the project, while Inter RAO UES assumes the obligation to oversee the construction of the power unit and, once it is completed, transfer it to the investor. The terms of the deal cap the maximum capital investment at RUB 22.3 billion and set the construction completion deadline for December 31, 2010. After a series of corporate adjustments, Gazprom will hold 51% in Mezhregionenergostroy, leaving Inter RAO UES with the remaining 49%.
We look upon the news as upbeat for Inter RAO UES. The company is pressing ahead with an investment program aimed at boosting its capitalization to USD 15 billion and expanding its installed capacity to 30 Gigawatts by 2015. Under the project, one kilowatt of capacity will cost around USD 2,000. In our view, the project cost is somewhat overstated by Russian standards, but such a conservative estimate shows that the cost is unlikely to be substantially revised upward.
Our recommendation on Inter RAO UES shares (RTS: IRAO) is now under review. Konstantin Reily
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Gazprom
Capitalization: $102 269 575 728,00
Common shares:
Price: $4,32
Delta week: 5,8%
Delta month: -16,6%
Delta year: -67,5%
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0.569
0.073
