Oil Report

Mosenergo says cuts capex after state "price caps"

MOSCOW, Jan 16 (Reuters) - Russian electricity producer Mosenergo MSNG3.MM is suspending plans to build four new turbines after regulators capped the price of power from recently-installed plant, a company spokesman said.

A company source said that at the tariff allowed by the regulator, it would take Mosenergo more than 20 years to see a return on an investment of some $2 billion.

Power-hungry corporations such as steel and oil firms buy capacity offered by utilies at auction. But they face intense cost pressure amid the global financial crisis and are lobbying hard for state watchdogs to rein in growing electricity costs.

At the most recent capacity auction in December, Mosenergo, which is controlled by gas export monopoly Gazprom GAZP.MM, offered the output from two existing state-of-the-art turbines.

The Mosenergo source said the industry watchdog capped prices at 370,000 roubles ($11,490) per megawatt for one proposed turbine and at 402,000 roubles per megawatt for the other.

The source spoke on condition of anonymity as the regulator does not make the prices public from power auctions.

“We think that our (initial) offers were capped. On average the price set for the new capacity is about a third lower than what we first offered. Aside from that, there was no clear methodology for making these adjustments,” Mosenergo spokesman Vitaly Koskovetsky told Reuters in seperate comments.

The firm’s investment committee has already approved the partial suspension of its spending plans, which must still be finalised by the board of directors at its next meeting.

The power sector’s regulator, known as the Market Council, insisted last August that Mosenergo lower its asking price at the first ever capacity auction. After days of negotiation, they agreed on a price cut of 20 percent on Mosenergo’s original offer. The watchdog at first demanded a 30 percent cut.

Near the top of the government’s economic agenda in recent months has been controlling inflation, which topped 13 percent last year.

Even though the power sector underwent sweeping free-market reforms in recent years, the Energy Ministry and the Market Council still reserve the right to cap power prices at the auctions if they deem them unjustified. (Reporting by Olga Popova, writing by Simon Shuster; Editing by David Cowell)