GAZPROMS POWER GENERATION STRATEGY Denis Fyodorov Directorate - - PowerPoint PPT Presentation

PRESS CONFERENCE AS PART OF GAZPROM’S ANNUAL GENERAL SHAREHOLDERS MEETING

GAZPROM’S POWER GENERATION STRATEGY

Denis Fyodorov

Directorate Head, Gazprom Director General, Gazprom Energoholding

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Gazprom Energoholding: 2015 Highlights

GAZPROM’S POWER GENERATION STRATEGY Operating activities Financial results Investments Major events

Electricity output decreased by 4.7% versus 2014 Heat supply* dropped by 6.9% versus 2014

152.2 145.0

2014 2015

bln kWh

120.2 111.9

2014 2015

mln Gcal

*Including MOEK output

Revenues under RAS changed insignificantly versus 2014 EBITDA under RAS rose by 20% versus 2014

454.3 454.7

2014 2015

RUB bln

52.9 63.5

2014 2015

RUB bln

Combined cycle gas turbine units at Serov SDPP operated by OGK-2 (420 MW), CHPP-12 operated by Mosenergo (220 MW), and CHPP-20 operated by Mosenergo (420 MW)



Reconstructed steam turbine unit, with its capacity increased to 330 MW, at Ryazan SDPP operated by OGK-2



By late 2015, investment program was implemented to 84% in physical terms and 87% in monetary terms New units commissioned under CSAs: Dividend payouts grew to 35% of net profit Gazprom Energoholding assumed functions of sole executive body in Mosenergo and MOEK Stock prices have been growing since early 2016 Gazprom Energoholding and Tsentrenergoholding have sold non-core assets in 2015 and 2016

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+20%

  

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Production Results in 2015

• Electricity generation by TGC-1 (including Murmansk CHPP)

dropped by 2.3% versus 2014 due to stagnating electricity consumption and optimized generation process.

• Heat supply by TGC-1 (including Murmansk CHPP) fell by 5.4%

versus 2014 due to higher mean temperature during heating period.

• Generation by OGK-2 reduced by 6.3% versus 2014 after

adoption of strategy for optimizing capacity utilization of inefficient units (such as Stavropol SDPP, Pskov SDPP, etc.)

• Heat supply by OGK-2 plants declined by 8% versus 2014

mostly owing to abnormally warm winter in Russia

• Generation by Mosenergo decreased by 3.4% in 2015 versus

2014.

• Heat supply by Mosenergo plants increased by 1.9% in 2015

versus 2014 mostly because of transferring control over several MOEK-owned boiler houses to Mosenergo.

Electricity output Heat supply

166.9 159.0 152.2 145.0 2012 2013 2014 2015 Changes 2015/2014 Mosenergo 61.3 58.6 56.7 54.7 (3.4%) TGC-1 30.4 29.3 26.4 25.8 (2.3%) OGK-2 75.2 70.7 68.7 64.4 (6.3%) MOEK* – 0.4 0.4 0.1 (70.5%) 101.1 108.0 120.2 111.9 2012 2013 2014 2015 Changes 2015/2014 Mosenergo 68.4 67.6 70.3 71.7 1.9% TGC-1 26.4 25.3 24.3 23.0 (5.4%) OGK-2 6.3 6.8 7.1 6.5 (8.0%) MOEK* – 8.3 18.3 10.7 (41.5%)

*MOEK data consolidated since 2013

bln kWh mln Gcal

GAZPROM’S POWER GENERATION STRATEGY

• Gazprom Energoholding’s revenues of 2015 stood at almost RUB

455 bln inclusive of MOEK results.

• Gazprom Energoholding’s EBITDA was RUB 63.5 bln showing

20% rise versus 2014. Main growth drivers: ― commissioning of new efficient capacities at CHPP-12 and CHPP-16 of Mosenergo, cost optimization, and mitigation of losses from revaluation of foreign currency loans; ― higher performance of TGC-1 thanks to optimizing use of fuel and reducing utilization of inefficient units; ― cutting of operating costs in MOEK and income growth from asset sale and disposal.

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Financial Results (RAS*)

Revenues EBITDA Net profit

* TGC-1 results under RAS include Murmansk CHPP results (revenues – RUB 6.1 bln, EBITDA – RUB 0.6 bln, net profit – RUB 81 mln) RUB bln

11.7 17.1 10.1 10.8 11.8 8.5 11.8 13.9 13.3 13.8 21.2 22.7 16.1 24.1 43.1 47.4 52.9 63.5 2012 2013 2014 2015

• 6.9
• 0.5

4.0 4.5 5.7 3.0 3.4 3.2 3.5 2.8 7.8 8.0 1.4 6.4 15.2 15.8 3.8 11.7 2012 2013 2014 2015

RUB bln RUB bln

GAZPROM’S POWER GENERATION STRATEGY

108.8 106.8 104.1 111.6 116.0 112.1 64.5 72.5 70.6 71.2 155.4 154.1 158.8 164.5

324.0 338.2 454.3 454.7

2012 2013 2014 2015 MOEK OGK-2 TGC-1 Mosenergo

• In 2015 aggregate debt of Gazprom Energoholding’s companies amounted to RUB 160.6 bln, thus surpassing 2014

level by 5.2%

• Rise in debt burden was mainly caused by acquisition of loans for OGK-2

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Gazprom Energoholding’s Debt Burden

Debt (RAS)

78.7 92.8 152.6 160.6 2012 2013 2014 2015 Changes 2015/2014

Mosenergo 18.1 24.9 48.6 49.2 1.2% TGC-1* 37.3 33.4 30.3 28.8 (4.7%) OGK-2 23.3 34.6 47.1 61.9 31.6% MOEK 26.7 20.7 (22.5%) Total debt 78.7 92.8 152.6 160.6 5.2% Debt/EBITDA 1.8x 2.0x 2.9х 2.5х

RUB bln

Loans were acquired for investment program and will be paid off in parallel to completion of construction projects under CSAs

* TGC-1 results under RAS include Murmansk CHPP results (debt – RUB 2.9 bln as of December 31, 2015)

GAZPROM’S POWER GENERATION STRATEGY

• Total budget of CSA program exceeds RUB 400 bln, with 87% of it already funded
• Total capacity of newly commissioned facilities is over 7 GW (84% of investment program), around 1 GW of capacities will

be put in operation in 2016 at Novocherkassk SDPP and Troitsk SDPP of OGK-2 as well as at Tsentralnaya CHPP of TGC-1

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Execution of CSA Investment Program

CSA program for capacities commissioning, progress as of December 31, 2015 CSA program for financing, progress as of December 31, 2015 Unused funds from CSA program, RUB bln incl. VAT Facilities commissioned in 2015

100% 3% 97% 93% 7% 95% 5% 69% 31% 24% 76% 7 2

2015 2016 2017

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2015 2016 2017

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2015 2016 2017

 Commissioned  Planned

Reconstruction of steam turbine unit at Ryazan SDPP

+60 MW

Combined cycle gas turbine unit at Serov SDPP

420 MW

Combined cycle gas turbine unit at CHPP-20

420 MW

Combined cycle gas turbine unit at CHPP-12

220 MW  Commissioned  Planned  Commissioned  Planned

*Exclusive of funds for CCGTU-420 at Grozny TPP

15*

GAZPROM’S POWER GENERATION STRATEGY

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Gazprom Energoholding’s Dividends

Dividend calculation principle at Gazprom Energoholding Debt burden Keeping balance between debt servicing and dividend payout. Income growth upon completion of CSAs Investment program Gazprom Energoholding accounts for investments to be made within next 2 to 3 years Dividends: history / debt burden of Gazprom Energoholding

Debt/EBITDA (2015)

2.0x 2.0x 7.3x

188 469 644 869 937 0.5% 1.8% 2.5% 4.9% 5.8%

2011 2012 2013 2014 2015

1,188 1,188 1,584 396 2,244 1.8% 2.3% 4.6% 1.6% 6.9%

2011 2012 2013 2014 2015 Dividend amount, RUB mln Dividend yield

57 861 600 2.4%

2011 2012 2013 2014 2015

0.1% 4.9%

Net profit share under RAS earmarked for dividend payout

(with regard to MCap at year-end)

Net profit share under RAS earmarked for dividend payout is growing annually

5% 14% 20% 25% 35%

2011 2012 2013 2014 2015 11% 15% 20% 28% 35% 2011 2012 2013 2014 2015 5% 0% 0% 15% 20% 2011 2012 2013 2014 2015

GAZPROM’S POWER GENERATION STRATEGY

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Execution of Cost Reduction Programs

In order to boost value of its power generating assets, Gazprom Group takes steps to raise their operating efficiency and runs cost reduction programs meant to improve financial performance Optimization measures Optimization effect

3,938 1,929 348 461 466 730 906 899 498 653 1,685 1,576 5,958 4,979 2014 2015 2016P Mosenergo TGC-1 OGK-2 MOEK

RUB mln

Enhancement of asset efficiency Cost reduction Investment spending cuts Import substitution Sale of non-core assets Additional initiatives      

GAZPROM’S POWER GENERATION STRATEGY

Stock prices of all generating companies of Gazprom Energoholding demonstrate growth since early 2016

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Stock Price Growth

60% 80% 100% 120% 140% 160% 180% January 1, 2016 January 15, 2016 January 29, 2016 February 12, 2016 February 26, 2016 March 11, 2016 March 25, 2016 April 8, 2016

Mosenergo: +77% TGC-1 +23% OGK-2: +30% Company Price as of January 4, 2016 Price as of April 26, 2016

Mosenergo RUB 0.8210 RUB 1.4465 TGC‐1 RUB 0.0042 RUB 0.0051 OGK‐2 RUB 0.2283 RUB 0.2900

Source: Bloomberg

GAZPROM’S POWER GENERATION STRATEGY

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Main Problems of St. Petersburg Heat Supply Market

By end of Q1 2016, housing maintenance companies owed RUB 7 bln to TGC-1 for thermal energy Heating networks of St. Petersburg exhibit high degree

• f deterioration, and tariff rate

fixed by city authorities fails to cover modernization expenses

3.3 3.9 4.4 1.2 1.4 1.8 4.4 5.2 6.9 01.01.15 01.01.16 01.04.16

Other managing companies

• Gazprom Energoholding offers different solutions for

heat supply problems (subsidies, loans, additional capitalization from city budget, etc.)

• City authorities are unable to take constructive

approach and debt continues to grow

• Consumers’ pay rate reaches almost 100%, yet

payments are made through intermediary city entity – VTsKP

• In order to stop network deterioration, it is necessary to

increase investment component in tariff rate for St. Petersburg Heating Grid

• Gazprom Energoholding is negotiating sale of St.

Petersburg Heating Grid to city authorities, but negotiating parties are unable to agree on company’s value

City authorities need to reconsider approach to heat supply pricing for St. Petersburg Heating Grid (GRR should be increased by at least RUB 3.5 bln) in order to prevent accident rate in heating networks from growing further Gazprom Energoholding and city authorities need to find common ground on debt settlement by housing maintenance companies

! !

RUB bln

Overdue debt Investments in upgrading St. Petersburg heating networks

Investments embedded in tariff Gazprom Energoholding spending on network upgrades RUB 1.8–2.0 bln per year RUB 2.7–4.5 bln per year

GAZPROM’S POWER GENERATION STRATEGY

Managing companies with participation of city authorities

Creation of optimal production capacity structure Furtherance of cost reduction programs in companies Gradual transition to vertically- integrated energy holding model

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Development Priorities/ Strategic Areas

• CSA program completion
• Upgrading of core assets
• f generating companies
• Decommissioning of

inefficient assets

• Sale of non-core assets
• Fuel efficiency and optimal

capacity utilization

• Optimization of operating and

investment costs

• Upgrading and optimization of

Moscow heat supply system

• Acquisition of efficient power generating

assets

• Participation in attractive construction

projects for generating facilities in Russia and abroad

• Development of energy service

business and outsourcing of certain support functions GAZPROM’S POWER GENERATION STRATEGY