Annual Report 2014 | Suomeksi |

Russia

The Russia segment consists of power and heat generation and sales in Russia. The segment also includes Fortum’s over 29% holding in TGC-1, which is an associated company and is accounted for using the equity method.

EUR million 2014 2013 Change
14/13
Sales 1,055 1,119 ‑6%
‑ power sales 758 822 ‑8%
‑ heat sales 285 290 ‑2%
‑ other sales 11 7 57%
Operating profit 161 156 3%
Comparable operating profit 161 156 3%
Comparable EBITDA 304 258 18%
Net assets (at period‑end) 2,597 3,846 ‑32%
Return on net assets, % 5.6 5.2 8%
Comparable return on net assets, % 5.6 5.2 8%
Capital expenditure and gross investments in shares 367 435 ‑16%
Number of employees 4,213 4,162 1%

The liberalisation of the Russian wholesale power market has been completed since the beginning of 2011. However, all generating companies continue to sell a part of their electricity and capacity – an amount equalling the consumption of households and a few special groups of consumers – under regulated prices. During 2014, Fortum sold approximately 80% of its power production in Russia at a liberalised electricity price.

The capacity selection for generation built prior to 2008 (CCS – “old capacity”) for 2014 was held in September 2013. All of Fortum’s capacity was allowed to participate in the selection for 2014, and the majority of Fortum’s power plants were also selected. The volume of Fortum’s installed capacity not selected in the auction totalled 132 MW, which represents 4.6% of Fortum’s total old capacity in Russia.

The generation capacity built after 2007 under the Russian Government's capacity supply agreements (CSA – “new capacity”) receives guaranteed payments for a period of 10

years. The period and the prices for capacity under CSA were defined to ensure a sufficient return on investments. At the time of the acquisition in 2008, Fortum made a provision, as penalty clauses are included in the CSA agreement in case of possible delays. If the new capacity is delayed or if the agreed major terms of the capacity supply agreement are not otherwise fulfilled, possible penalties can be claimed. The effect of changes in the timing of commissioning of new units is assessed at each balance sheet date and the provision is changed accordingly.

Received capacity payments differ depending on the age, location, type and size of the plant as well as seasonality and availability. The CSA payments can also vary somewhat annually because they are linked to the Russian Government long-term bonds with 8 to 10 years maturity. In addition, the regulator will review the guaranteed CSA payments by re-examining earnings from the electricity-only market three and six years after the commissioning of a unit and could revise the CSA payments accordingly.

In 2014, the Russia Segment's power sales volumes amounted to 26.5 TWh (2013: 25.6). Heat sales totalled 26.0 TWh (2013: 24.1) during the same period.

The Russia Segment’s comparable operating profit was EUR 161 million (2013: 156). The positive effect from the new units receiving CSA payments amounted to approximately EUR 165 million (2013: 163), including EUR -35 million due to the weaker rouble, a reversal of the CSA provisions totalling EUR 4 million (2013: 48). In addition, better electricity and heat spreads, income from heat connections, improved bad-debt collections and increased efficiency positively affected the result. Overall, the weakened Russian rouble affected the result negatively by approximately EUR 34 million. Note for comparison that 2013 figures included a reversal of the CSA provision totalling EUR 48 million and EUR 40 million in compensation for CSA penalties.

Operating profit was EUR 161 million (2013: 156).

In late September, the third unit at Fortum's Nyagan Power Plant passed the comprehensive and certification tests that precede commissioning. Fortum started the commercial operation of the unit at the end of 2014. Capacity payments under the Russian Government's capacity supply agreement for 418 megawatts (MW) started as of 1 January 2015.

Key electricity, capacity and gas prices for Fortum Russia
2014 2013 Change
14/13
Electricity spot price (market price), Urals hub, RUB/MWh 1,089 1,021 7%
Average regulated gas price, Urals region, RUB/1,000 m3 3,362 3,131 7%
Average capacity price for CCS “old capacity”, tRUB/MW/month 1) 167 163 2%
Average capacity price for CSA “new capacity”, tRUB/MW/month 1) 552 576 ‑4%
Average capacity price, tRUB/MW/month 304 276 10%
Achieved power price for OAO Fortum, EUR/MWh 30.4 32.1 ‑5%
1) Capacity prices paid for the capacity volumes excluding unplanned outages, repairs and own consumption.
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