RAIFFEISEN BANK S.A.

  |  27.06.2013

Company update Transelectrica

Transelectrica was the first utility company listed on the Bucharest Stock Exchange. Electricity transmission is a natural and legal monopoly in Romania.

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In terms of operational segments, Transelectrica provides three main services: (i) electricity transmission: (ii) power system management by dispatcher consisting of technological system services and functional system services and (iii) administration of the electricity market. The revenues from system and market balancing services, which account for some 60% of total turnover, are pass-through revenues and have no impact on the bottom line.

 

Starting 2005, the transmission tariff charged by the company is set based on a revenue cap methodology. The regulatory authority sets a yearly target revenue within a five-year framework (however, the first such framework extended over three years, 2005-2007).

 

The regulated return on the asset base (RAB) has been agreed for the period 2008-2012 at 7.5% and is pre-tax and in real terms. The beginning of the third regulatory period was delayed by one year to 2014. Over 2013-2015 the company plans investments worth EUR 400 mn, revolved around the connection to the grid of the new wind parks, the development of interconnection capacity and grid strengthening.

 

Shareholder structure

Strengths/Opportunities

           

            ► Electricity transmission is a natural and legal monopoly, Transelectrica being the only licensed operator.

            ► Regulatory regime should induce a stable revenue stream and an approved level of return on             assets.

            ► Other revenues could boost the profitability above the regulated profit on transmission.

            ► As a state-owned company, Transelectrica must pay a  minimum 50% of the net profit as dividends (90% in 2010&2011 profit and 85% in 2012).

            ► Independent board members should be appointed over the following period.

 

Weaknesses/Threats

 

            ► The regulatory risk is high, as the regulator could decide to bypass the revenue-cap methodology to keep energy          prices down.

            ► Delayed commissioning of investments could lead to delayed tariff adjustments.

            ► State retains majority position in the company, management still named politically.

            ► RON volatility influences bottom line through FX loans revaluation.

            ► Dividend policy remains the prerogative of the state.

 

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