The company’s position in the industry

In the 2000th, as a result of the reform of the electric power industry several independent joint stock companies were established on the basis of RAO UES of Russia, a uniform structure carrying out generation, transmission, and sale of electric power and capacity. There was created Federal Grid Company for electric power transmission on high voltage networks, and System Operator – for management of the power supply system. Regional AO-energo were divided by types of business activities on generating, sales and grid companies. The structural reform enabled to pass to the creation of high-grade market relations in the power industry.

Structure of the power grid branch of the Russian Federation

1 Backbone generators of electric power

Today, the Uniform Energy System of Russia (UES of Russia) consists of seven incorporated power systems: East, Siberia, Ural, Middle Volga, South, Center and Northwest which, in turn, include 69 regional power supply systems. All power supply systems are connected by intersystem high-voltage power lines 220–500 kV and above, and work in a synchronous mode. The power grid complex of UES of Russia comprises about 700 power stations over 5 MW. The grid complex of UES of Russia accounts for more than 10,700 power lines110–1,150 kV. In the European part of Russia there was formed a developed network of 500–750 kV, and in the Asian part – of 500–1,150 kV. High-voltage power lines of 220 kV and above make the main backbone network and are maintained by intersystem electric networks. The total length of power lines of all voltage classes across the Russian Federation amounts to 2,647.8 thousand km.

Basic branch infrastructure organizations

JSC System Operator of the Unified Energy System individually exercises the centralized operative and dispatching control of the Unified Energy System of Russia.

NP Council for Organizing Efficient System of Trading at Wholesale and Retail Electricity and Capacity Market (Market Council) organizes functioning and control of the wholesale and retail markets of electric power.

Inter RAO UES group, the diversified power holding operating generating and sales assets in Russia, and in the countries of Europe and the CIS. The Company is a single Russian operator of export and import of electric power.

Russian Grids, Open Joint Stock Company (JSC Rosseti) is the operator of power networks in Russia and one of the largest grid companies in the world. The company operates 2.2 million km of power lines, 473 thousand transformer substations with a capacity of more than 748 GW.

Property complex of JSC Rosseti includes 43 subsidiaries and dependent companies, including 14 interregional companies and the federal grid company. The controlling shareholder is the state represented by the Federal Agency for state property management of the Russian Federation.

JSC Rosseti is the major shareholder of JSC Lenenergo.

Main indicators of the power grid branch of Russia

Main indicators of the power grid branch of Russia

At the end of 2013 general installed capacity of power plants of UES of Russia was at the level of 226, 470.2 MW which is 1.5% higher than at the end of 2012. 71 power lines 220 kV and above were commissioned in 2013. Input of new capacity at power plants of UES of Russia in 2013 totaled 3,783.4 MW. A year earlier this indicator was 64.1% more . In 2014, according to plans of the Ministry of Power Industry, commissioning of generating capacities in Russia should reach 9,115 MW. Thus, this indicator should grow up in comparison with 2013 in 2.4 times.

Electric power generation by power plants of UES of Russia in 2013 totaled 1,023.5 bn kWh, which is 0.8% less than in 2012. Overall electricity consumption across Russia in 2013 decreased in comparison with 2012 by 0.6% to 1,009.8 bn kWh. Reduction of consumption occurred for the first time for the last four years. Thus on consumption volume the result of 2013 conceded only to record results of 2012, but exceeded results of other years.

Increased values of air temperature in February and December 2013 and the decline of electricity consumption by industrial enterprises had the most significant effect on the dynamics of electricity consumption in 2013.

In 2013, according to the Ministry of Power Industry, Russia generated 4.7% of global electric power and was the fifth in the world after China, USA, Japan and India.

Demand for electric power steadily grows in long-term prospect. On forecasts of the Ministry of Power Industry, till 2019 demand for electric power will continue to grow and by 2019 it may reach 1,150 bn kWh at the average annual growth rate for the period of 1.79%. The highest growth rates in electricity demand in the UES of Russia are forecasted in 2014–2017 due to the expected expansion and reconstruction of existing facilities and commissioning of new capacity at the large enterprises of manufacturing industries.

Northwest integrated power system

The integrated power system of the Northwest is located in the territory of ten subjects of the Russian Federation of the Northwest federal district: St. Petersburg, Murmansk Region, Kaliningrad Region, Leningrad Region, Novgorod Region, Pskov Region and Arkhangelsk Region, Republic of Karelia, Republic of Komi, and Nenets autonomous region.

The structure of the Northwest power supply system comprises eight regional power systems: Arkhangelsk, Kaliningrad, Karelian, Kola (Murmansk), Leningrad (uniting St. Petersburg and the Leningrad Region), Novgorod, Pskov and the Komi Republic.

As at January 01, 2014 power grid complex is formed by 127 power plants (including 104 power stations 5 MW and above) with total installed capacity of 23,386 thousand MW, 1,095 electric substations 110–750 kV with total installed capacity of 85,992.3 MVA and 1,395 transmission lines 110–750 kV with the total length of 43,828.3 km on electric circuit.

Electric power generation by power plants of OES of the Northwest in 2013 totaled 101.1 bn kW h that is by 3.7% less than in 2012. Electricity consumption in the territory of OES of the Northwest in 2013 was 90.3 bn kWh that is by 2.3% less than in 2012.

Regions of activity of JSC Lenenergo

JSC Lenenergo is one of the largest distribution grid companies of Russia, serving a capacious market – the territory of St. Petersburg and the Leningrad Region.

The situation in national and regional economy considerably affects JSC Lenenergo development, therefore the Company on a constant basis conducts monitoring of economic development of the region.

It is filled according to the Territorial body of the Federal service of state statistics across St. Petersburg and the Leningrad Region (Petrostat), Committee of finance of St. Petersburg, the Official website of Administrations of the Leningrad Region (http://lenobl.ru/finance) and St. Petersburg (http://www.gov.spb.ru), data of the Ministry of regional development (http://www.minregion.ru), the Ministry of economic development of the Russian Federation (http://www.economy.gov.ru) including on the basis of data of the operative statistical reporting at the moment of report preparation. The methodology of definition of the majority of indicators is given on Petrostat’s official website http://petrostat.gks.ru . The main indicators of economy development of the regions of service of the Company 2013

Indicator

St. Petersburg

Leningrad Region

Consumer price index

December 2013, in % by December, 2012

106.7

106.0

For reference: December 2012, in % by December, 2011

106.1

106.5

Performance of the consolidated budget

Income (January–December 2013), RUB mln

408,752

94,403

Expenses (January–December 2013), RUB mln

393,401

99,638

Surplus (January–December 2013), RUB mln

15,351

– 5,235

Public debt of the subject, RUB mln

As of: 01.01.2014

18,663.4

5,866.9

For reference: as of 01.01.2013

21,285.7

10,210.3

Commissioning of residential buildings

2013, total area, thousand sq. m

2,583.50

1,292.7

2013, in % to the corresponding period of the previous year

100.3

112.5

Industrial production index

2013 to 2012, in %

98.8

95.7

For reference: 2012 to 2011, in %

104.3

104.2

Balance financial result (profit minus loss) by types of business activity

Total (January–December, 2013), RUB bn

423.5

87.3

in % to the similar period of 2012

114.1

100.5

Dynamics of the real monetary income, in % to the corresponding period of previous year

January–December, 2013

109.5

100.1

For reference: January–December, 2012

103.0

108.0

Ratio of the average per capita income and living wage

The ratio of the average per capita income and a living wage across St. Petersburg is reflected for Q3 2013 and Q3 2012, respectively. Q4 2013, %

449.9

327.3

Foreign trade turnover (goods)

Foreign trade turnover, January–December, 2013, USD mln

54,054

18,326

In % by January–December, 2012

95.5

86.8

Including export

19,129

13,398

In % by January–December, 2012

92.6

83.9

Including import

34,925

4,928

In % by January–December, 2012

97.1

96.0

Investments into fixed capital

Total January–December 2013, RUB bn

366.9

235.5

January–December, 2013, in % to the corresponding period of the previous year

100.3

69.5

Demographic indicators

Population of regions – by preliminary estimates as of 01.01.2014.Population, thousand people, 2013, total

5,131.9

1,763.9

Natural increase in 2013 per 1,000 people, in % to 2012

8.0 times

98

Change in births per 1,000 people, 2013 in % by 2012

102

100

Change in deaths per 1,000 people, 2013 in % by 2012

96

99

Number of unemployed, thousand people

20.2

5.1

Level of registered unemployment, % of economically active population

0.3

0.4

For reference: 2012

0.4

0.5

St. Petersburg

The largest enterprises and organizations of the Northwest federal district are located in St. Petersburg such as aircraft construction enterprises, power engineering plants, etc., which produce and develop aircraft engines, devices and special equipment, power engineering equipment, and a number of other large enterprises. Among strengths of the economy of St. Petersburg are diversified structure, high level of development of financial and banking infrastructure, availability of modern trade networks and capacious consumer market, and a high level of competitiveness of several industries. The city is among the largest transport and transit hubs in Europe. However, significant long-term needs of St. Petersburg in infrastructure financing, high concentration of the economy and a relatively low level of welfare have a negative impact on economic development of the city .

Among the main priorities of the Government of St. Petersburg in 2013 remained support of social and economic stability and sustainability of economic development; economic growth; further modernization of economics (including increase of the investment activity of enterprises). The region proceeded with development and implementation of target programs, work on creation of conditions and preconditions for the most effective management of budgetary funds pursuant to priorities of the state policy is carried out on a permanent basis.

Dynamics of the number of regional macroeconomic indicators are positive. Positive trends in dynamics of real incomes of population, improvement of demographic indicators, growth of the net financial result of enterprises and organizations, investments in fixed capital were noted. In 2013 the volume of public debt of the subject decreased, commissioning of residential houses increased.

At the same time, consumer price index across St. Petersburg in 2013 made 106.7% that exceeds all-Russian CPI by results of 2013 (only by 0.2 p.p.) , and the level of the previous year (by 0.6 p.p.). In 2013 the index of industrial production also decreased.

Leningrad Region

Leningrad Region is among the regions ensuring stable growth of budget income, industrial production, and positive dynamics of investments. According to the Ministry of Regional Development, the Leningrad Region takes one of leading places on investment appeal in the Russian Federation and on the integrated indicator of development of the region as well.

Simultaneously with the work on attraction of large investors the region implemented a set of measures to support entrepreneurship, development of small and medium business. Investment development of the region serves as a stimulus for development of the construction industry. In 2013, 1.3 mln sq. meters of residential housing was commissioned which exceeds the planned figures, while the number of construction sites for the year increased 1.6 times. Besides, large objects of mechanical engineering and metallurgy, a large number of agro-industrial enterprises and major chemical facilities are located in the Leningrad Region.

A number of indicators of the regional economy development improved in 2013: CPI decreased to the level of 2012 by 0.5 p.p., and the indicator reached 106.0% which is lower than the national values of the indicator for 2013 (106.5%). Positive dynamics of real incomes of the population was noted. The region proceeds with implementation of major projects and target programs providing concentration of financial resources on priority directions of social and economic development.

In 2013 a drop of indexes of industrial production, a growth of CPI in St. Petersburg, reduction in the net financial result of enterprises and investments in the fixed capital of the Leningrad Region, as well as other negative factors of economic development of the subjects had a negative influence on the activity of JSC Lenenergo which reflects national trends.

However, despite a number of negative aspects of economic development of St. Petersburg and the Leningrad Region, their prospect as a whole can be regarded as quite favourable that can positively affect the Company’s activities.

Peers

When analysing the position of JSC Lenenergo in the market indicators of peer group companies – regional distribution grid companies which were formed by results of RAO UES reform and are operating today in various regions of the Russian Federation as subsidiaries of JSC Rosseti, are considered. The companies do not compete directly as they serve different geographical segments of the market. Regional distribution grid companies operate in similar market conditions within the general tariff policy, and, respectively, all basic market and country economic factors equally influence the activity of market players. At the same time situation and prospects of development of each company are closely associated with peculiarities of the economic situation in the regions of activity.

listed companies, whose shares are traded on JSC Moscow Stock Exchange. Along with JSC Lenenergo regional distribution grid companies comprise:
  • JSC MOESK;
  • JSC IDGC of Centre;
  • JSC IDGC of Centre and Volga;
  • JSC IDGC of Ural;
  • JSC IDGC of Siberia;
  • JSC IDGC of Volga;
  • JSC IDGC of Northwest;
  • JSC IDGC of South;
  • JSC IDGC of North Caucasus.

In 2013 revenues of distribution grid companies under IFRS increased while dynamics of EBITDA was multidirectional. The financial position of distribution grid companies in the reporting period and in the medium-term prospect is complicated by the decision on a zero indexation of tariffs for rendering of services to industrial consumers, and overall slowing of economic growth and development of a number of industrial sectors. On this background the grid companies take measures for reduction of the volumes of investment programs, other costs and operational efficiency enhancement.

In 2013 some distribution grid companies – JSC IDGC of Siberia, JSC IDGC of Northwest, JSC IDGC of Centre, JSC IDGC of Centre and Volga and JSC IDGC of Volga became guaranteeing suppliers of electric power in the territory of the Bryansk Region, the Orel Region, the Kursk Region, the Tver Region, the Murmansk Region, the Smolensk Region, the Omsk Region, the Novgorod Region, the Ivanovo Region, the Tula Region, the Penza Region and the Republic of Buryatia. Thus, in addition to rendering of services in electric power transmission, these companies began to carry out electric power purchase in the wholesale market and its sale in the retail market.

Accordingly, direct comparison of performance indicators of the regional distribution grid companies it not always correct. It is necessary to take into account that the demands for electric power in Russia vary considerably between regions and settlements. However, comparison of the companies enables to get an overview of the development of the power grid complex as a whole and the place of a certain company in the distribution grid complex of the power industry of Russia.

JSC Lenenergo is the second among its Russian peers on the book value of assets under RAS and IFRS, the third on EBITDA under RAS and IFRS, on Net profit is the fourth under RAS and the second under IFRS, the seventh on Market capitalization, the eighth on revenue under RAS and IFRS. Discrepancy of high book value of assets to the level of capitalization testifies to significant underestimation of the Company and, accordingly, to the potential of growth of share prices under favorable development of the power and financial markets. The comparative analysis also shows that JSC Lenenergo demonstrates some of the best industry’s profitability indicators for 2013. The Company is ranked second on EBITDA margin.

Comparison of JSC Lenenergo with its peers on financial statements under RAS in 2013

Source: data of financial statements of the companies in accordance with Russian Accounting Standards.
EBITDA is calculated by the formula: Net profit + Profit tax + Interest payable – Interest receivable + Depreciation of fixed assets and intangible assets.

Comparison of JSC Lenenergo with its peers on financial statements prepared under IFRS in 2013

>

Source: data of financial statements of the companies in accordance with IFRS.
EBITDA is calculated by the formula: Earnings before tax + Depreciation of fixed assets and intangible assets + Financial expenses – Financial income.

in this section, the following sources were used:

  1.  The program of development of the Unified Energy System of Russia for 2013–2019, approved by the Order of the Ministry of Power Industry # 309 of 19.06.2013.
  2.  Report on the functioning of the UES of Russia in 2013 of JSC SO UES.
  3.  Analytical Bulletin “Electric power industry: trends and forecasts. Issue # 13. Outcomes of 2013”. Group “RIA Rating”, Moscow, 2014.
  4.  “The main indicators. The results of the work of the power grid complex in 2012”. Ministry of Power Industry of Russia.
  5.  Data of the branch of JSC SO UES – ODM of the North-West, territorial body of the Federal Service of State Statistics of St. Petersburg and the Leningrad Region (Petrostat), Finance Committee of St. Petersburg, official web-site of the administrations of the Leningrad Region (http://lenobl.ru/finance) and St. Petersburg (http://www.gov.spb.ru), data of the Ministry of Regional Development (http://www.minregion.ru), the Ministry of Economic Development of the Russian Federation (http://www.economy.gov.ru), data of the Ministry of Power Industry (http://www.minenergo.gov.ru/), data of operative statistical reporting at the time of preparation of the report.
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