Why FSK and “Rosseti” are only now merging into a single company

On Friday, July 15, the power grid state holding “Rossiyskie Seti” (“Rosseti”) and its largest subsidiary, the Federal Network Company (FSK, owns the main networks), announced a merger. The base of the merger will be FSK, which will issue additional shares. The papers will be exchanged for Rossetei shares. The head of the United Network Company will be the current head of “Rossetei” Andrey Ryumin.

The shareholders of FSK must approve the merger on September 14, the owners of Rossetey shares – on September 16, 2022. The controlling stake of Rossetey (88%) belongs to Rosimushchestvo, the holding owns 80.1% of FSK shares.

Those who do not agree with the reorganization will be able to sell their shares. Redemption of ordinary shares of “Rossetei” will take place at 0.6058 rubles. per piece, privileged – 1,273 rubles each. for paper. The shares of FSK will be bought from dissenters at 0.0904 rubles. per piece. On July 15, at the closing of Moscow Exchange, ordinary shares of “Rossetei” cost 0.6267 rubles each. per piece, prefabs – 1,247 rubles each. FSK shares traded at 0.0886 rubles.

Also, the companies “Tomskie Magistralnye Seti”, “Kubanskie Magistralnye Seti” and the Far Eastern Energy Management Company will be attached to FSK by the same additional issue.

The merger of FSK and “Rossetei” formally ends the history of the division of the domestic power network complex into trunk and distribution networks. Director of the Energy Development Fund Sergey Pikin reminds that FSK and “Rosseti” (previously “IDGC Holding”) were formed from the assets allocated within the framework of the reform of RAO UES from regional “AO-energo”. The separation of trunk and distribution networks had primarily managerial logic, the expert explains.

FGC was created back in 2002, “IDGC Holding” was only at the final stage of the reform of RAO UES. At the same time, FGC was from the very beginning a single company with interregional branches, managed centrally. “IDGC Holding” included more than a dozen large and small distribution network companies, and the main company did not conduct operational activities and performed only management functions. In addition, the holding’s balance sheet included chronically unprofitable energy sales companies in a number of regions with a traditionally high level of non-payment (mainly the North Caucasus republics).

In addition, companies initially received assets in different technical conditions. Distribution networks were often significantly worn out, unlike trunk networks, and required more serious investments. The technical condition of the trunk networks of the FSK and the objects of the power grid economy “Rossetei” is different: the higher the voltage class, the better the condition of the network, notes the director of the practice “Development of power systems and electrical networks” of Vygon Consulting, Ilya Kiselev. “According to our estimates, the physical wear and tear of high-voltage networks with a voltage of 110 kV and above is about 50%, networks of 35 kV and below – 70%,” – says the expert.

To this day, network tariffing is a separate problem. FSK with small specific transmission costs has always been a profitable company, while interregional companies “Rossetei” often showed losses. For example, in 2013, “Rosseti” received a loss of 159.4 billion rubles according to IFRS. with a revenue of 759.8 billion rubles, and FSK – an adjusted profit of 23.4 billion rubles. with a revenue of 158 billion rubles. In 9 months of 2021, FSK received 54.7 billion rubles. profit according to IFRS with a revenue of 185.7 billion rubles. (there is no more recent reporting). “Rosseti” for the same period – 104.8 billion rubles. and 798.8 billion rubles. respectively.

In addition, cross-subsidization remained in the industry, when tariffs for some categories of consumers (population, low-voltage distribution networks, etc.) were lowered, and lost income to the networks was compensated by increasing the tariffs of other consumers (for example, large-scale industry).

A typical example of a “crossroads” was the “last mile” that caused many disputes. The tariff system refers to the mechanism by which large plants connected directly to the main networks paid not only the FGC tariff, but also the distribution networks, although they did not actually use their services. This allowed the “Rossetei” companies to improve their financial situation, but for many years it provoked discontent in the energy-intensive industry.

It is unclear whether the merger will have any effect on the cross-rate situation. The question of eliminating cross-subsidization in networks arises regularly, says Pikin, but there are always some reasons (crisis, pandemic, etc.) that allow to postpone this decision for several years. As a result, the volumes of the “intersection” are only growing, he notes.

The director of the Association “Community of Energy Consumers” (a lobby of large industrial consumers) Vasily Kiselev now sees “a systemic risk of transferring the problems of distribution [сетевого] of the complex in the economy of the highway”, which will require a new quality of tariff regulation at the federal and regional levels. Improving the control of a monopoly does not lead to an increase in efficiency, he believes, because “speeding up and simplifying decision-making can have a bad effect on their quality.”

The existence of two large state-owned companies, which shared an industry, has repeatedly led to conflicts between their management over the past decade and a half. The struggle for the unification of trunk and distribution networks has been going on with variable success since the beginning of the 2010s. As a result, FSK lost its independence in 2013: its controlling stake was transferred to Rosseti. But for several years FSK continued to be managed relatively independently of the entire holding. By the end of the decade, after several waves of management changes, FSK actually turned into one of the usual subdivisions of the state power grid holding.

There were no specific goals for the unification of network companies. It is also not determined whether further absorption by a single operating company of the “daughters” of the “Rosseti” holding (“Rosseti Moscow Region”, “Rosseti Center and Volga”, etc.) could be continued – similar ideas existed in previous years.

“Perhaps, the case of the connection of distribution networks to trunk lines on a national scale is unique in world practice,” Vasiliy Kiselev remarks about the announced merger. The merger of FSK and “Rossetei” will make it possible to create a single financial center, which is especially important for the creation of energy supply systems of “mega-constructions” that require significant investments, Pikin believes.

Leave a Reply

Your email address will not be published.