Gazprom’s Power Unit Bears Brunt of Electricity Tariff Freeze

OAO Gazprom (OGZD), the world’s biggest natural-gas producer, said profits from its power division will be hurt by the government’s decision to hold off from raising electricity tariffs in the run-up to elections.

“The year is difficult because it coincided with the electoral cycle and decisions to limit tariff growth were taken, which hit all our companies quite badly,” Denis Fedorov, the head of Gazprom’s power division, told reporters today.

President Vladimir Putin delayed power-price increases due in January by six months to bolster his campaign ahead of the March 4 presidential vote which he won.

Gazprom’s three power units, OAO OGK-2, OAO osenergo and OAO TGK-1, account for about 17 percent of Russia’s generating capacity. Earnings at OGK-2, the biggest generator, slumped 90 percent in the first six months of the year to 429 million rubles ($13.7 million).

“This year will be difficult,” Fedorov said. “We are creating a positive base for 2013.”

Fedorov in May attributed OGK-2’s performance to a high debt burden and lost revenue from the Troitskaya power plant after an accident last year.

OGK-2 has adopted a cost-cutting plan and agreed lower coal prices for some of its stations, Fedorov said today.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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