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. Last Updated: 07/27/2016

Fitch Not Optimistic on UES

Global ratings agency Fitch gave a resounding thumbs-down Tuesday on prospects for Russia's power sector on international debt and capital markets due to uncertainty over tariff liberalization and political risks.

"This is a very high-risk market to invest in because there are so many uncertainties. Clearly the train is progressing faster than the laying of the track," said Andrew Steel, the London-based managing director at Fitch who heads up the energy, utilities and project finance team.

"If you want to avoid a train crash you have to either slow down the speed of the train or speed up building of the track," Steel told a presentation in Moscow. "For fixed-income debt, this is a very dangerous market."

The warning comes as investment banks hungry for fat fees pile into the power sector to get a slice of booming debt, equity and capital markets deals in the pipeline.

Some analysts predict there will be no full electricity-market liberalization before 2017 -- a long wait for investors in an industry with tangles of rusting equipment, unwieldy regional subsidies and directors resistant to change.

Steel, quoting UES data, said the cash-strapped sector needed investments of roughly $100 billion by 2010 or roughly $40 billion to $50 billion per year by 2020 -- triggering a choking response from a Fitch analyst on the panel.

"I see my colleague choking at that figure and that's probably a good reaction," Steel said.