Annual Report 2013 | Suomeksi |

Russia

The Russia Division consists of power and heat generation and sales in Russia. It also includes Fortum’s over 25% holding in TGC-1, which is an associated company and is accounted for using the equity method. 

 

EUR million 2013 2012 2011   Change
13/12
Sales 1,119 1,030 920 9%
- power sales 822 713 590 15%
- heat sales 290 300 324 -3%
- other sales 7 17 6 -59%
Operating profit 156 79 74 97%
Comparable operating profit 156 68 74 129%
Comparable EBITDA 258 189 148 37%
Net assets (at period-end) 3,846 3,848 3,273 0%
Return on net assets, % 5.2 3.0 3.5 73%
Comparable return on net assets, % 5.2 2.7 3.5 93%
Capital expenditure and gross investments in shares 435 568 694 -23%
Number of employees 4,162 4,253 4,379 -2%

Fortum operates in the well-developed industrial regions of the Urals and in the oil-producing Western Siberia.

The liberalisation of the Russian wholesale power market has been completed since the beginning of 2011. However, all generating companies continue to sell a part of their electricity and capacity – an amount equalling the consumption of households and a few special groups of consumers – under regulated prices. During the fourth quarter of 2013, Fortum sold approximately 83% of its power production in Russia at a liberalised electricity price.

The capacity selection for generation built prior to 2008 (CCS -“old capacity”) for 2013 was held at the end of 2012. In the selection auction, the majority of Fortum’s power plants were selected, with a price level close to the level received in 2012. Approximately 10% (265 megawatts, MW) of the old capacity was not allowed to participate in the selection for 2013, due to tightened technical requirements.

It did, however, receive capacity payments at the capacity market price during 2013.

The generation capacity built after 2007 under the government capacity supply agreements (CSA – “new capacity”) receives guaranteed payments for a period of 10 years. The period and the prices for capacity under CSA are defined to ensure a sufficient return on investments. At the time of the acquisition in 2008, Fortum made a provision, as penalty clauses are included in the CSA agreement in case of possible delays. If the new capacity is delayed or if the agreed major terms of the capacity supply agreement are not otherwise fulfilled, possible penalties can be claimed. The effect of changes in the timing of commissioning of new units is assessed at each balance sheet date and the provision is changed accordingly.

The new capacity will bring income from new volumes sold and will receive considerably higher capacity payments than

the old capacity. However, received capacity payments will differ depending on the age, location, type and size of the plant as well as seasonality and availability. The regulator will review the guaranteed CSA payments by re-examining earnings from the electricity-only market three years and six years after the commissioning of a unit and could revise the CSA payments accordingly. In addition, CSA payments can vary somewhat annually because they are linked to the Russian Government long-term bonds with 8 to 10 years maturity.

The company’s extensive investment programme is a key driver of growth in Russia. The last units have been slightly delayed by some months and the programme is now due to be completed during the first half of 2015. After the completion of the investment programme, the power generation capacity of the Russia Division will have nearly doubled and will exceed 5,100 MW. Fortum’s goal is to achieve an operating profit level (EBIT) of about

EUR 500 million run-rate in its Russia Division during 2015 and to create positive economic value added in Russia. 

The Russia Division's power sales volumes amounted to 25.6 TWh (2012: 23.3) during 2013. Heat sales totalled 24.1 TWh (2012: 26.4) during the same period. 

The Russia Division’s comparable operating profit was EUR 156 million (2012: 68) in January-December 2013. The positive effect from the commissioning of the new units amounted to approximately EUR 163 million (2012: 87), including a reversal of the CSA provision totalling EUR 48 million. In addition, the EUR 40 million in compensation for CSA penalties received from E4 (the general contractor of the Nyagan power plant) was booked and recognised in the fourth quarter. The result was burdened by EUR 16 million in bad debt losses for Energostream group and EUR 23 million due to unplanned outages. In addition, volumes were impacted negatively by the lower heat volumes due to  

exceptionally warm weather at both the beginning and end of 2013 as well as by the divestment of the heating network assets in Surgut in 2012. 

Operating profit was EUR 156 million (2012: 79) in 2013. In 2012, the operating profit included a gain of EUR 11 million relating to the divestment of heating network assets in Surgut. 

In late March, Fortum finished the final stages in the construction of its Nyagan power plant unit 1. Accordingly, the company started receiving capacity payments for the unit from 1 April 2013 onwards. As of 1 December also Nyagan power plant unit 2 was commissioned and started  receiving capacity payments. Nyagan 3 will be finalised at the end of 2014. The capacity payments for the Nyagan unit 3 will start as of 1 January 2015.

At year-end, the Russia Division's total power generating capacity was 4,250 MW (2012: 3,404) and the division's total heat production capacity was 13,466 MW (2012: 13,396).

Key electricity, capacity and gas prices for OAO Fortum
2013 2012 2011   Change
13/12
Electricity spot price (market price), Urals hub, RUB/MWh 1,021 956 925 7%
Average regulated gas price, Urals region, RUB/1,000 m3 3,131 2,736 2,548 14%
Average capacity price for CCS “old capacity”, tRUB/MW/month 1) 163 152 160 7%
Average capacity price for CSA “new capacity”, tRUB/MW/month 1) 576 539 560 7%
Average capacity price, tRUB/MW/month 276 227 209 22%
Achieved power price for OAO Fortum, EUR/MWh 32.1 30.6 29.2 5%
1) Capacity prices paid for the capacity volumes excluding unplanned outages, repairs and own consumption.
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