OREANDA-NEWS. August 27, 2010. The Russian government approved the final list of mandatory investment projects to be commissioned by the thermal generation companies (OGKs, TGKs) through 2015-2017. The chief parameters of the projects are as follows: location, installed capacity, and date of commissioning (see table below for aggregated figures). A preliminary list of projects had been published about a month ago, and is very close to the final list (there were pending discussions about the details of only a few minor projects), reported the press-centre of OTKRITIE Financial Corporation.

 We are still waiting for the Capacity Delivery Agreements (CDAs) to be signed with individual gencos. The last remaining unknown parameter is the capacity tariff for the new blocks, once they are rolled-out. The anticipated tariffs for new capacity should allow an adequate return on investment (15% IRR over a 15-year payback period), hence the signing of CDAs is the main fundamental driver for the generation companies. We view the news as slightly positive for the generation sector, since it indicates forward movement in the CDA signing process.

Valuation: Russian thermal generation companies trade at an average EV/installed capacity multiple of USD270/kW, versus the USD1,015/kW average of EM peers.

Action: We view the news as positive for the generation sector and reiterate our top picks: Mosenergo, TGK-1 and OGK-1.