Rosseti is preparing to increase the volume of investments by more than 30% in the next decade, mainly through the construction of networks for the BAM and Transsib, follows from the long-term development program of the state holding. Under the current regulation, the company’s debt burden will grow significantly, and its profits will decrease, however, Rosseti may improve its performance due to not yet approved initiatives. Rosseti’s long-term plans also exclude the privatization of subsidiaries, provide for the launch of an option program for top management and a change in dividend policy.
The state holding Rosseti, which includes the Federal Grid Company (FGC) and Interregional Distribution Grid Companies (MRSK), may increase its revenue to RUB 1.686 trillion by 2030, and its net profit to RUB 224 billion. This is the basic scenario of the long-term development program for Rosseti until 2030 – according to Kommersant’s information, it was approved by the government commission on the electric power industry on June 10. The baseline scenario assumes an increase in the tariff for energy transmission at the level of “inflation minus 1%”, after 2024 – “inflation minus 0.1%”, as well as innovations in regulation – the introduction of payments for the power reserve and technological connection. In the pessimistic scenario (with the current regulatory parameters), revenue will grow to RUB 1.43 trillion, while net profit will fall to RUB 7 billion. from 68 billion rubles. in 2021.
Funding for the construction of power grids to expand the Eastern range of Russian Railways will seriously hamper the growth of the holding’s financial performance. In a negative scenario, the investment program of Rosseti is increased from 271 billion rubles. in 2020 up to 355 billion rubles. in 2021, reaching a peak of 386 billion rubles. by 2023, and remains at a high level in subsequent years even after the completion of the electrification program of the Eastern landfill.
According to the pessimistic scenario, dividends for the Rosseti group, which the parent company receives from MRSK and FGC, on the horizon until 2030 will be in the range of 26-33 billion rubles. At the same time, payments from FGC will grow: from 18.5 billion rubles. in 2021 up to 22-23 billion rubles. by 2030. On the part of IDGCs, payments to shareholders, on the contrary, will decrease from 11 billion rubles. in 2011 to 3.6 billion rubles. in 2024, and then will rise again – up to 9.9 billion rubles. in 2030. In this scenario, the debt / EBITDA ratio of Rosseti will grow from 2.2 to 4.3 by 2030.
In the baseline scenario, the volume of Rossetei’s investment program will remain at the same level as in the pessimistic scenario. But due to revenue growth, the debt / EBITDA ratio will decrease from 2 to 1.3 by 2030. Dividends of IDGC and FGC will grow threefold: from 34 billion rubles. up to 98.96 billion rubles. in 2030. Including payments from IDGCs will increase from 16 billion rubles. up to 76 billion rubles., from FGC they will remain in the range of 18.5-23 billion rubles.
As for the general scheme for the development of Rosseti, the program mentions the need to maintain the state holding’s share in subsidiaries at the level of January 2020, which actually means a refusal to privatize IDGCs until 2030. At the same time, the document does not mention further consolidation of the network complex, but only notes the need to optimize the management structure “to reduce transaction costs and improve manageability.” The company also intends to significantly increase non-tariff revenue through the development of a network of electric stations, microgrid services and demand response (demand management systems). The adoption of an additional long-term incentive program for management based on shares, as well as a new dividend policy are mentioned as measures to increase the company’s value.
Vladimir Sklyar of VTB Capital notes that Rosseti’s strategy actually “cements the company’s status as a state monopoly focused on fulfilling national goals on the horizon until 2030.” In these conditions, the growth of dividend payments is planned to be ensured by a significant increase in non-tariff earnings and a possible change in legislation, allowing the grid complex to save savings from reducing costs in the tariff. At the same time, in a pessimistic scenario, he notes, the sector is actually completely subordinate to the logic of the implementation of state projects – investments are provided in full, which means a significant increase in the debt burden, and failure to meet the goals set to increase non-tariff earnings will lead to a reduction in dividend payments of IDGCs.