“LOESK” “consolidate” “under Ryumin”?
“LOESK” “consolidate” “under Ryumin”?
Rosseti is confidently heading towards establishing a monopoly in the regions. At the end of December, LOESK JSC won a lawsuit against the Finance Committee of the Leningrad Region: the proceedings concerned the recovery of losses for 2020 in the amount of 2.4 billion rubles. Prior to that, in October, the electric grid company sued for another 2.3 billion in damages for 2019. Their formation is connected with the order of LenRTK on tariffs for electricity transmission services, which reduced the required gross revenue (RGR) of LOESK in 2019-2021. for 3 billion rubles.
For 2023, LenRTK again set an underestimated level of gross domestic product for the enterprise – 4.85 billion rubles instead of the requested 11.9 billion. Such a policy threatens the bankruptcy of the company, which is forced to compensate for the shortfall in funds with bank loans, and in addition, it strengthens the position of the main competitor of LOESK – PJSC Rosseti Lenenergo, which in 2018-2021. Andrey Ryumin, the current CEO of the power grid giant, was in charge. Experts note significant preferences for the “subsidiary” structure of “Rosseti” from the team of Governor Alexander Drozdenko, which resulted in the growth of its financial performance. At the same time, the net profit of LOESK has more than halved in recent years. Given that the management of Rosseti has taken a course towards consolidating the power grid market in the regions, we can talk about ousting a competitor that serves more than 1 million consumers. Similar trends towards the establishment of a monopoly can be traced in a number of subjects of the Russian Federation, where similar scenarios are being worked out. For example, in the Kirov Region, the Regional Tariff Service reduced the tariff for OJSC Kommunenergo, a competitor of Kirovenergo, a local subsidiary of Rosseti, as a result of which the company’s financial losses amounted to about 135 million rubles. The ensuing litigation led to Kommunenergo’s colossal debts, which Kirov Governor Alexander Sokolov is threatening to pay off by selling the company’s assets. In the Kursk region, the management of Kurskenergo, which is part of Rosseti, openly announced plans to establish control over a promising competitor represented by JSC Kursk Electric Networks (IES), which led to litigation related to the unwillingness of the subsidiary of the federal enterprise to pay for the services of related network organizations, which include IES.
LOESK returns billions
On the eve of the New Year holidays, the enterprise “LOESK – Electric Grids of St. Petersburg and the Leningrad Region” won proceedings with the Finance Committee of the Leningrad Region in the appeal instance, gaining the right to recover losses for 2020 in the amount of 2.4 billion rubles. As Kommersant notes, this is already the second lawsuit against the committee won by the company on appeal over the past two months: in October, LOESK sued for the recovery of another 2.3 billion – losses for 2019.
“In the appeal proceedings, the participants in the process drew the attention of the court to the shortcomings of the expert opinion, to the deficit of the regional budget and to the fact that the lawsuit affects the rights of residents and organizations of the Leningrad Region. However, the court ignored all the arguments, refused to involve the prosecutor’s office of the Leningrad Region in the case and collected such a significant amount from the region … ”, – commented on the decision in PJSC Rosseti Lenenergo, which is a competitor of LOESK.
The formation of losses is directly related to the order of LenRTK on tariffs for electricity transmission services, according to which the amount of required gross revenue (RGR) of LOESK in 2019-2021 is decreased by 3 billion rubles. Officials explained the decision by the order of the Federal Antimonopoly Service, which at the end of 2018 published the results of an audit of tariff decisions in the region in 2015-2018, instructed to analyze the costs of the electric grid company for the specified amount and recommended a reduction in NVV.
In turn, LOESK announced the fulfillment of the order of the antimonopoly department ahead of schedule, partially and with gross violations, as well as the application of double standards in the regulation of tariffs. It was only at the end of November last year that history repeated itself: for 2023, LenRTK once again set an underestimated level of NGR for LOESK – 4.85 billion rubles instead of the requested 11.9 billion. For comparison: in 2021, the company expected 8.4 billion rubles, but in the end only 1.6 billion rubles were approved.
The publication “Business Petersburg” noted that this state of affairs threatens the enterprise with bankruptcy, since the lost funds have to be compensated with bank loans. At the same time, experts linked the developments with the trend towards consolidation of the power grid market in the constituent entities of the Russian Federation. Simply put, the “subsidiaries” of PJSC Rosseti (in the Leningrad region, this is the company Rosseti Lenenergo) do not need competition in the regions.
Is the goal to “finish off” the competitor of Rosseti?
Note that PJSC Rosseti Lenenergo has its own claims against the administration of the Leningrad Region in terms of tariff regulation. Back in 2020, the company filed a lawsuit to recover 17.4 billion rubles from the region. In February last year, the parties agreed to sign a regulatory agreement, but the regional government evaded concluding a settlement agreement on the recovery of damages. Kommersant experts saw a way out in a long-term restructuring of the amount claimed in the lawsuit, while pointing to a budget deficit (at the end of 2022 it was projected at 20.8 billion rubles), as well as in receiving federal funds.
By the way, LenRTK has set RUB 26.55 billion for 2023 NVV for the “daughter” of Rosseti in the region, which is more than five times higher than the NVV for LOESK. Officially, such a significant difference is explained by the number of conditional units of equipment in each of the organizations: if LOESK has 107 thousand of them on the balance sheet, then Rosseti Lenenergo has 213 thousand.
“That is, LOESK should contain two times less capacity for an amount almost 5.5 times less than that of a competitor. Operating expenses per conventional unit for Lenenergo for 2022 were estimated at 28.8 thousand rubles against 16.2 thousand per unit for LOESK,” states Delovoy Peterburg.
Meanwhile, Vedomosti draws attention to one important circumstance: the net profit of LOESK decreased from 3.3 billion rubles in 2018 to 1.5 billion in 2021; according to the results of the three quarters of 2022, the company generally received a loss of 576 million. Over the same period, Rosseti Lenenergo almost doubled its net profit: from 10.4 billion rubles to 19.8 billion; for the three quarters of last year, the company’s net profit amounted to 14.7 billion. The publication recalls an unprecedented case when in 2021, by order of the regulator, the tariff for LOESK was set at 1 kopeck!
In addition, according to the information of the same Vedomosti, in February last year, the authorities of the Leningrad Region, contrary to the decision of the Supreme Court, signed an agreement with Rosseti Lenenergo providing for compensation to the company for lost tariff revenue for 2011-2020. in the amount of 10.2 billion rubles: the specified amount should be taken into account in the budget when setting tariffs for the enterprise annually until the end of 2028. Naturally, the management of “LOESK” appealed against this agreement in court.
Preferences are simply striking! Apparently, this is what the notorious “consolidation” should look like, during which the subordinates of the governor Alexander Drozdenko make every effort to force out the enterprise serving more than 1 million consumers from the market. There is no doubt about one thing: everything that happens plays into the hands of Andrey Ryumin, CEO and Chairman of the Board of Rosseti, in 2018-2021. head of Rosseti Lenenergo. By a strange (and perhaps far from accidental) coincidence, it was precisely at this time that the tariff confusion described above began, which resulted in lengthy litigation, the end of which has not yet been put.
“War” for the Kursk power grid
The Russian media have repeatedly written about attempts to establish an energy monopoly by the structures of PJSC Rosseti in the regions, often accompanied by loud scandals. So, in one of the publications of the Nasha Versiya edition, it was described in detail about the “battle for electricity” that unfolded in the Kursk region and became a real headache for the head of the region, Roman Starovoit.
The essence of the conflict was the legal confrontation between the company Kurskenergo, which is a branch of Rosseti, and JSC Kursk Electric Networks (KES). The management of the “daughter” of the federal enterprise does not hide its “monopolistic” plans:
“Considering that JSC “Kursk Electric Networks” is the second largest power grid company in the Kursk region, PJSC “Rosseti Center”, within the framework of the above tasks, is interested in establishing control over its activities by acquiring a 100% stake in the Company,” quotes “ Our Version ”a fragment of an official letter signed by the director of the branch of PJSC Rosseti Center Kurskenergo Sergey Demidov.
To achieve the task, the management of Kurskenergo did not find anything better than to delay payment for the provision of services to related grid organizations, which include IES. As a result, funds for electricity transmission were transferred with a significant delay and not in full. The result was numerous lawsuits sent to arbitration against Kurskenergo: as of the beginning of July 2022, the total amount of the enterprise’s debt was estimated at more than 440 million rubles.
And again, a coincidence: debts of hundreds of millions to the Kursk power engineers began to form after Ryumin was appointed head of Rosseti. His policy was adopted by the current general director of PJSC Rosseti Center Igor Makovskiy, the former head of the Kaliningrad JSC Yantarenergo, who at one time transferred large contracts to affiliated commercial structures. In addition, Yantarenergo got stuck in litigation due to debts under an agreement with Delta-S LLC, and was also brought to administrative responsibility for unreasonably overstating tariffs and fined 20.1 million rubles.
By the way, IES JSC is a rather tasty “piece” of the energy “pie”: at the end of 2021, its revenue amounted to 1.4 billion rubles, profit – 54.4 million, asset value – 2.5 billion. The portfolio of state contracts of the company as a supplier exceeds 297 million, as a customer – 3.5 billion rubles. The fact that Mr. Ryumin’s subordinates decided to get their hands on IES is not surprising. The demonstrative inaction of the regional and municipal authorities (50% plus one share of the company is owned by the city of Kursk) is striking in the face of the loss of the enterprise, whose tax payments to the regional and local budgets annually amount to about 120 million rubles.
“Extreme measures” of the Kirov governor
An equally indicative situation developed in the Kirov Region, where in 2019 the Regional Tariff Service reduced the tariff for OJSC Kommunenergo, a direct competitor of Kirovenergo, a local subsidiary of Rosseti, explaining the decision by providing false information, including length of electricity networks. As a result, Kommunenergo lost about 135 million rubles. This is reminiscent of what is happening in the Leningrad region, the difference is only in the amount of money. But, as they say, each province has its own scale.
As a result of litigation, Kommunenergo was ordered to reimburse Kirovenergo for unjustified enrichment in the amount of 247 million. In May last year, Kommunenergo began staff reductions: the media reported on three hundred power engineers who were left without work. The financial performance of the enterprise also deteriorated sharply: if in 2020, with a revenue of 1.6 billion rubles, it declared a profit of 88.2 million, then in 2021 the revenue remained the same, but the losses amounted to 41.5 million.
Accordingly, problems began with the payment of salaries: at the end of November, the debt was estimated at 20 million rubles.
But Ryumin’s energy “empire” continues to finish off a competitor in crisis: no later than at the end of December, Rosseti Center and Volga Region PJSC applied to the Kirov Regional Arbitration Court with a request to recover a debt of 28.1 million rubles from Kommunenergo under an agreement assignment of the right to claim. One gets the impression that only yesterday a successful enterprise is being heavily led to bankruptcy. It is not difficult to guess which side Kirov Governor Alexander Sokolov will take: in November, at a meeting with members of the regional government, he announced the region’s readiness to establish control over Kommunenergo’s boiler houses.
“We are ready to take over the management of your thermal assets, pay off the property you own, find buyers for it … If extreme measures need to be taken, we will take them,” Sokolov threatened.
Who will become the main contender for “thermal assets”? Of course, they act as a creditor to Rosseti, perhaps seeking just such a development of events. That’s just the monopolist’s appetites extend far beyond the Kirov region, because the same “LOESK”, even taking into account the decline in revenue, still brings in billions. And here it is worth asking the question: will the federal center help to maintain competition in the energy market or will it calmly watch how local power grid companies are losing ground one after another?