Russian Firm Rosseti's Capital Expenditures could be reduced 30% due to absence of demand

Rosseti is a Russian Power Engineering Company. It comprises inter-regional and regional distribution grid companies, research and development institutes, design and construction institutes, and construction and sales entities. The stock of the company is RSTI (MCX). The owner of the company is the Federal Agency for State Property Management (88%). The company was founded in 2008. The Headquarters are in Moscow, Russia.

Unfortunately, we are living in the times of the Coronavirus Covid-19. Russian utilities are having a hard time. Customers will be able to pay less of their their bills. The demand for power is significantly decreased. Most of Russia will be on a strict lockdown for all of April. There are already first signs of delinquency in payments. This is only 2 weeks after Russia brought its economy to a halt.

There are many possible scenarios that could happen from the most optimistic to the most pessimistic. The year-on-year reduction of electricity consumption could be between 3.6% and 10.1% contraction in 2020. There could be a 15-20% decrease in payments. There also could be a 5-15% decrease in revenues for the sector. Between March 29 and April 15, electricity demand is already down 3% year on year (ignoring seasonal temperature changes).

However, the impact seems to have increased demand and growth for certain industries like aluminium producers, wood industry, chemicals and oil refineries. Reductions are in metals, the automotive industry and mining.

Russian utilities will see a lot less investment activity.

Capital expenditures (Capex), commonly known as CapEx, are funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, an industrial plant, technology, or equipment. CapEx is often used to undertake new projects or investments by the firm.

Capex programs could be reduced 30% at Rosseti and RusHydro due to the absence of demand for grid connections.

What is an Electrical Grid or Power Grid? It is an interconnected network for delivering electricity from producers to consumers. It has:

- generating stations that produce electric power
- electrical substations for stepping electrical voltage up for transmission, or down for distribution
- high voltage transmission lines that carry power from distant sources to demand-centers
- distribution lines that connect individual customers

Electrical grids vary in size from covering a single building through national grids (which cover whole countries) to transnational grids (which can cross continents).

Power stations connected to grids are often located near energy resources such as a source of fuel or to take advantage of renewable energy resources, and away from heavily-populated areas.

The functioning of the electric grid complex now happens in a complicated epidemiological situation. Rosseti took a number of special measures to ensure reliable electricity supply to consumers. Difficult conditions have arisen as a result of the Coronavirus Covid-19 Pandemic. Power engineers still provide reliable energy supply to healthcare facilities, large industrial, agricultural and social enterprises.

New restrictive measures result in the majority of citizens being at home. Power engineers exercise special control over the quality of electricity supplied to household consumers. Remote provision of all services provided by Rosseti to consumers was ensured. Especially important are connections of life support facilities to electric grids. The company will ensure reliable and uninterrupted power supply to consumers.

Unfortunately, various Russian utility companies have already reported problems with collecting payments, especially for communal services.

For example, MOEK (a Moscow heat company under Gazprom’s control) declared a 50% reduction in payments by some groups of consumers on April 10.

The economic environment is certainly deteriorating for small and medium enterprises. The Russian government also created a ban on charging penalties or fares, and on halting services, if households do not pay for communal services.

Also, social distancing measures mean that people often can't pay in person (through banks, electricity and heat supply companies’ outlets, terminals). They would have to use online banking and other internet channels.

Overdue payments could certainly build up much over the course of this year. This could put pressure on companies' cash flows and their capacity to make investments.

The Russian Energy Ministry has proposed certain measures to help the sector, such as including the "direct expense of coronavirus" in the accounting calculations, adjusting the timing of tax declarations, providing subsidies to companies to cover interest payments on large projects and ban on fines of certain fines.

Here are the Rosseti Subsidiaries:

FSK YeES PAO
Lenenergo
MOESK
Interregional Dist
Interregional Distributio
Kuban power
Interregional
IDGC North-West
MRSK Yuga PAO
Yantarenergo OAO
Dagestan Energy Supply
Tomsk Distribution Company
Karachayevo-Cherkesskenergo OAO
NITS Sibiri, OAO
Tyvaenergosbyt OAO
Chechenenergo OJSC
Limited Liability Company Infrastructure Investments - 3
NITS Yuga, OAO
PJSC VMES
JSC "Sanatorium Energetik"
Nedvizhimost VNIPIenergoprom, JSC
JSC Tyumenenergo
Jsc Moscow United Power Grid Company
OAO Stavropolenergo
NITs Severo - Zapada OAO