TGK-13 Posts Loss As Costs Soar 18%

Power producer TGK-13 said Monday that it posted a net loss of 1.07 billion rubles ($45.4 million) in 2007, as higher operating costs erased a 24.3 percent increase in revenue.

Krasnoyarsk-based TGK-13 said year-on-year operating costs increased 17.8 percent to 13.78 billion rubles ($580 million) on revenue of 12.37 billion rubles.

"Overall, we are pleased with the financial results for 2007," TGK-13 general director Oleg Salkov said. "The considerable growth of revenue from electricity sales on the unregulated market clearly shows our potential to benefit from further deregulation of the sector."

TGK-13, which is to be sold at auction in April, said expenses grew because of renovations and the purchase of new equipment.

But rising coal prices also fueled expenses, and analysts warned that the prices would continue to grow this year.

"World coal prices are soaring, and TGK-13 is fully operated on coal," said Denis Gorev, a mining analyst at Finam brokerage. "For the first three months of 2008, the prices for the coal used in electricity production have grown 80 percent."

TGK-13's biggest shareholder, SUEK, said coal prices would not hit the power producer's profitability. SUEK, the country's largest producer of coal, supplies TGK-13's needs.

"The Russian coal market is highly competitive, and we cannot follow world trends that quickly," SUEK spokesman Alexei Naumenko said.

He declined to disclose SUEK's prices, calling it a commercial secret.

Domestic prices are around 2,500 rubles per ton.

SUEK holds 35 percent of TGK-13 shares and plans to acquire a controlling stake in the auction. It has said it wants to include TGK-13 in a $15 billion electricity holding it is creating with Gazprom.

The sale could create a problem for OGK-4, the rival power producer in the Krasnoyarsk region, which gets its coal from SUEK. OGK-4 was sold to Germany's E.On in September.

Naumenko declined to discuss the potential rivalry. But, he said, "the company in any case won't sacrifice its business."

TGK-13, part of former electricity monopoly Unified Energy System, is one of the leading heat and electricity producers in the Krasnoyarsk region and the Khakasia republic and is listed on the RTS and MICEX. TGK-13 shares closed essentially unchanged on both exchanges Monday. The company is currently holding a new share sale, priced at 19 kopeks to 23 kopeks per share. The sale is to end Wednesday.

UES is selling 20 major assets to attract investment and introduce competition into the industry. The reform is to be finished by the July 1.