OREANDA-NEWS. July 02, 2010. The transfer to electricity distribution tariffs based on RAB of 23 regions, planned for 1 July, has been delayed, according to Interfax. The delay period is not specified, but could last until 1 January 2011, by which time all remaining regions controlled by Holding MRSK are slated for transfer to the new tariff system. This delay should be facilitated by an amendment to the decree signed by Prime Minister Putin on 19 January 2010, in which the timeline was stipulated, reported the press-centre of OTKRITIE Financial Corporation.                    

View: We expected a possible delay in some (though not all) of the 23 regions. 1 July represented an important catalyst for the stocks of electricity distribution companies, as transfer to RAB of 23 regions would significantly decrease uncertainty regarding the overall RAB introduction process. In our view, the main reason for the delay is the planned 15% cap on tariffs growth in 2011. We regard the potential cut of the size of IRAB as a more important trigger for distribution stocks, and expect more clarity on this issue closer to 1 January 2011.

Valuation: Holding MRSK trades at an EV/RAB of 0.39x, assuming that the approved IRAB will amount to RUB1 trillion. FGC trades at an EV/RAB of 0.69x, while international distribution peers trade at a much higher multiple (1.2x).

Action: We regard the news as negative for Holding MRSK and for individual MRSKs, since in our view transfer to RAB tariffs is the fundamental driver for these companies.