According to Vedomosti, the President’s Economic Council is to hold its first meeting today, with the agenda featuring measures to help business get through the crisis. According to the newswire, one of the support measures which is to be discussed is capping the annual indexation of tariffs for the natural monopolies (including utilities companies) at 4%. No further details were provided. The suggestions have not been agreed with the government which has voiced scepticism about the suggested measures.
The suggested 4% tariff indexation cap is excessively tough (it is below our expected CPI of 6.2% in 2013 and 5.3% in 2014) and could have a strong negative effect on the sector’s economics. Thus, we only see a small probability of it being approved as a base case scenario. However, the recent rhetoric on the tariffs for natural monopolies in general, and for utilities in particular, are in line with our strategy attitude to the sector, which is entering a period of capped top-line growth, with the key measures for securing equity value being capex and opex efficiency.