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. Last Updated: 07/27/2016

Mosenergo Generates $43M First-Half Profit

Moscow region power firm Mosenergo swung to a $43 million net profit in the first half from a loss a year ago as energy consumption in the country's wealthiest city booms and prices rise.

The company said Thursday that it expects growth in power and heat sales to reach an all-time high this year as more Muscovites buy air conditioners and vacuum cleaners.

It warned, however, that its ability to generate more power and heat had peaked and the firm would not be able to upgrade its aging facilities to meet the rising demand if the government did not permit another substantial price increase.

"First-half power consumption rose by 10 percent, while heat consumption rose by 9 percent due to weather conditions and the growing number of clients," Mosenergo head Arkady Yevstafiyev told a news conference.

"This is going to be a record year in terms of consumption growth," he added.

Mosenergo, controlled by power grid Unified Energy Systems, reported net profit under Russian accounting standards of 1.31 billion rubles ($43 million) in January-June of 2003, compared with a net loss of 778 million rubles in the first half of 2002.

Revenues from heat and power sales rose 50 percent to 37.2 billion rubles.

The government puts a ceiling on domestic gas and power prices to curb inflation and subsidize industry and households. But it has to balance this with the needs of utility companies for funds to invest to meet the country's energy demand.

The State Statistics Committee this month said power prices rose by 12.6 percent in the first half of 2003 compared with 18.5 percent in January-June 2002.

Mosenergo said its first-half profitability increased due to two factors -- a price hike brought it an additional 9.9 billion rubles of revenues compared with last year, while higher sales volumes added another 2.3 billion rubles to its revenues.

Chief financial officer Vladislav Nazin said he hoped for a 28 percent price increase in 2004 compared with the government plan to raise power and heat prices only by 13 percent.

"Our desire for these prices does not mean that we want to have higher profits, it is rather a reflection of reality," Yevstafiyev said, referring to the firm's need for investment to upgrade its aging facilities.

Mosenergo plans to borrow 1 billion rubles by the end of this year from domestic banks, raising its total borrowings in 2003 to 2.5 billion rubles.

"The repayment of this borrowing will be a burden for the future tariff-regulated periods,'' Yevstafiyev said. The company now owes banks 5.1 billion rubles.

Mosenergo deputy head Dmitry Vasilyev said the company needs a total of $700 million by 2010 to upgrade its existing facilities, of which 60 percent are working above their designed capacity.

Mosenergo, which heavily depends on gas prices -- also capped by the state -- said a respective 31.8 percent and 25.8 percent share in the costs of power and heat production weighed on its results.

Average production costs in the half rose by 26 percent, or 7.1 billion rubles. Power-generation costs rose 32 percent to 65.4 kopeks per kilowatt-hour. Heating production rose 26 percent.

The Bank of Moscow recently bought 5 percent of Mosenergo's shares, probably for the city of Moscow, Yevstafiyev said. The city owns 2.95 percent of Mosenergo.

(Reuters, Bloomberg)