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. Last Updated: 07/27/2016

Firms Face Shock From Rate Hike

A Russian government decision to allow electricity tariff increases is unlikely to spark rises in power company share prices but could hit big consumers such as metals smelters and paper companies, analysts said Monday.


A resolution dated Feb. 12 said wholesale electricity prices, frozen since October, would rise 16 percent on average, though the increase would vary in the regions, an official of generator and supplier Unified Energy Systems of Russia said.


He said regional energy commissions would decide on the increases in the coming weeks.


Utilities analyst Alexander Kazbergi of Salomon Bros. in London said some generators had already raised their tariffs.


He said the tariff increases could hit big electricity users such as aluminum and forest industry companies.


"If they are looking for cost cutting, a 16 percent increase will certainly hurt them to some extent," he said.


However, he added that many big users negotiated discounts with power suppliers which would protect them. He did not see an impact on power company shares, adding that the price increases had been expected.


Analyst Sergei Bubonov of C.S. First Boston in London said he also did not see any impact on power firm shares.