Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Day (November 2005)
38 slides from Fortum Oyj's investor day presentation, Nov 29, 2005
Slide 1: Fortum's strategy in Russia
Fortum’s strategy in Russia Tapio Kuula Senior Vice President, Fortum Corporation Capital Markets Day 29 November 2005
Slide 2: Disclaimer
Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares. Past performance is no guide to future performance, and persons needing advice should consult an independent financial adviser. 2
Slide 3: Contents
Contents • Russian power market and industry reform • Fortum’s current activities and targets • Summary 3
Slide 4: Russian power market and industry reform
• Russian power market and industry reform • Fortum’s current activities and targets • Summary 4
Slide 5: The large Russian power market is undergoing major change
The large Russian power market is undergoing major change • A major need for new Power generation 2003 capacity > 4,000 TWh • Big potential for 2 000 efficiency improvement 1 500 1 000 500 0 S K na c il ce G dia Fr a a R n C ny as di ad si U U pa an hi a or us In Br an m Ja C N er Source: IEA 5
Slide 6: Development of Russian power industry – a Nordic/Western analogy
Development of Russian power industry – a Nordic/Western analogy Competitive • Generation businesses: • Sales Unbundling of businesses by type of activity Regulated • Transmission monopolies: • Distribution Market liberalisation in Pricing model reform – from tariff competitive businesses regulation
Slide 7: Key steps in the reform
Key steps in the reform • "Power industry law" approved • Restructuring of regional energos (P&H companies) • Formation of new companies • Establishment of Russian power exchange (ATS) • Launch of the free-trade sector of the wholesale market • Introduction of vested bilateral contracts for a transi
Slide 8: Competitive market to emerge by end of 2008
Competitive market to emerge by end of 2008 Processes 2004 2005 2006 2007 2008 Restructuring of regional energos Formation of new companies • WGC • TGC • IDC • FGC Restructuring of RAO UES Fully liberalised competitive power market from 2009 Liberalisation of the wholesale market Transition period W
Slide 9: Reform impacts industry structure
Reform impacts industry structure RAO UES restructuring Regulated monopolies Competitive businesses State-controlled companies Privatised companies Share of private 0% <25% 48% 48% <49% 65 - 75 - ownership 100% 100% System Federal Holding Holdings of 1 hydro 6 thermal 14 operator Grid of IDCs guaran
Slide 10: New structure in Russian generation ownership emerging
New structure in Russian generation ownership emerging Rosenergoatom • About half of the total Russian Other standalone co's 11% generation capacity will be in and stations 7% the new privatised companies Krasnoyarskaya GES 3% RAO UES Irkutskenergo 6% 73% • Nuclear power plants remain in State owner
Slide 11: Territorial generation companies (TGCs)
Territorial generation companies (TGCs) Production capacity of which hydro TGC-1 5,750 MW 2,874 MW • Companies combined TGC-2 2,459 MW on a territorial basis TGC-3 10,578 MW TGC-4 3,459 MW from regional energos' 1 TGC-5 2,473 MW generation assets TGC-6 3,125 MW 2 TGC-7 6,823 MW 90 MW • TGCs may incl
Slide 12: Thermal and hydro wholesale generation companies
Thermal and hydro wholesale generation companies Thermal WGCs: WGC-1 8,736 MW • Each company will include WGC-2 8,695 MW WGC-3 8,497 MW power plants across the WGC-4 8,570 MW Russian Federation WGC-5 WGC-6 8,663 MW 9,042 MW 52,203 MW • The size of thermal WGCs Hydro WGC: 22,024 MW about 9,000 MW eac
Slide 13: Interregional distribution companies
Interregional distribution companies • Distribution companies spun-off from regional energos to be integrated into Interregional Distribution Companies North-West IDC (IDC) Center and North Caucasus (Isolated • Structuring of four IDCs IDC or proceeding not yet Urals and Volga IDC decided) Siberia I
Slide 14: Restructuring has entered implementation phase
Restructuring has entered implementation phase – the point of no return has been passed Progress of regional energos' restructuring • Restructuring has largely No. of 70 energos 60 proceeded according to 50 plan 40 30 Restructuring • Some delays in schedule 20 plan approved Unbundling 10 implemented
Slide 15: Functioning wholesale market is essential
Functioning wholesale market is essential • Currently 5-15% of the power is Planned future steps traded in the free-trade sector • Introduction of vested bilateral • There is an implicit price cap in the contracts for the transitional period free trade sector set by the tariff in the regulated secto
Slide 16: Prices of fuel and electricity in Russia are currently low
Prices of fuel and electricity in Russia are currently low Russian power generation Electricity price and typical 914 TWh in 2003 marginal costs for gas-fired power plant Oil 3% Nuclear 50 Electricity price 16% Gas 45% 40 150 TWh 407 TWh CO2 cost 30 20 Hydro Gas cost 10 17% 156 TWh 0 Russia Germany
Slide 17: Integration of European and Russian power markets
Integration of European and Russian power markets • Integration of European and Russian power markets is a long term vision • It will require – transmission capacity – similar approach to the environment – parallel liberalisation of power and fuel (gas) markets • Integration of the markets would imp
Slide 18: Fortum's current activities and targets
• Russian power market and industry reform • Fortum’s current activities and targets • Summary 18
Slide 19: Foreign presence in Russian power and heat sector today
Foreign presence in Russian power and heat sector today Sole international strategic investor in Russian power sector In an alliance with local partner won tender for the operation of the North-West CHP Source: RAO UES 21 Sep 2005 19
Slide 20: Fortum's operations in Russia
Fortum's operations in Russia • A ~1/3 stake in companies spun-off from OAO Lenenergo, the largest utility company in northwest Russia; – Fortum investment EUR ~150 million • Operation & maintenance services • Electricity imports • Nuclear fuel imports 20
Slide 21: Fortum's strong foothold in NW Russia originates from Lenenergo
Fortum's strong foothold in NW Russia today originates from stake in Lenenergo • Largest utility in northwest Russia • 9 thermal and 6 hydro plants • Power generation – capacity ~3,240 MW – production ~13.4 TWh/a • Heat generation – capacity ~13,900 MW – production ~25.2 TWh/a • Personnel ~12,500 •
Slide 22: Lenenergo restructuring
Lenenergo restructuring Unbundled companies with the same shareholding structure as Lenenergo • Has leased the generation and heat assets to TGC-1 Saint-Petersburg Generating • To be merged into TGC-1 together with Kola and Company Karelia generating companies Saint-Petersburg • Sales of electricity
Slide 23: Acquisition of 24.8% stake in Kolenergo
Acquisition of 24.8% stake in Kolenergo Acquisition Kolenergo's current owners • Fortum agreed to acquire a 24.8% stake of Kolenergo from Norilsk Nickel RAO Norilsk Others • Fortum's share of Kolenergo's and its incorporated UES Nickel companies' voting rights will be 23.3% • Transaction is estimate
Slide 24: Kolenergo – northwest Russian power company
Kolenergo – northwest Russian power company Key figures of Kolenergo Unbundled companies Companies are planned to Hydro power generation TWh/a 6.5 with the same shareholding be merged with territorial Hydro power capacity MW 1,593 structure as Kolenergo or interregional companies Share of TGC-1's hy
Slide 25: TGC-1 operating as of 1 October 2005
TGC-1 operating as of 1 October 2005 Installed capacity Territorial Generating Company TGC-1 MW • Production capacity ~ 5,750 MW, of which hydro 2,874 MW • Third largest territorial generation Sweden company in Russia 33,600 • Started operation on 1 October 2005 Norway Finland based on a leasing mod
Slide 26: Current St Petersburg heat supply
Current St Petersburg heat supply • City of St Petersburg's current heat market is abt. 50 TWh/a • Current heat production in the City of St Petersburg – TGC-1 about 25 TWh/a – city-owned Utilities Company (GUP TEK) about 15 TWh/a – the rest by more than 190 small heat boilers and industrial compani
Slide 27: Outlook on the St Petersburg and Leningrad Region heat market
Outlook on the City of St Petersburg and Leningrad Region heat market • The area is one of the fastest growing economical areas in Russia • The heat supply system needs refurbishment and new investments – recognised by the city – significant potential for further CHP development • Building of new re
Slide 28: Similar conditions a good basis for operations
Similar conditions a good basis for operations Fortum’s Nordic NW Russian total • Similar generation capacity generation capacity 11,220 MW 14,350 MW – capacity structure Other Condensing Hydro Condensing Hydro – market model – operational conditions CHP CHP Nuclear Nuclear Helsinki or St Petersburg
Slide 29: Long experience of successful co-operation
Long experience of successful co-operation 1950 1960 1970 1980 1990 2000 Construction of hydro power Construction of North-West plants in Kola area Loviisa NPP construction CHP in St Petersburg Lenenergo shareholding Electricity import Nuclear fuel import Automation & information system deliveries t
Slide 30: A competent actor in the liberalised power markets
A competent actor in the liberalised power markets • Efficient use of diversified production portfolio (hydro, nuclear, CHP, condense) Fortum is well- • Proven track record in successful risk positioned for the management (hedging) operations opening Russian • Strong in environmentally friendly powe
Slide 31: Fortum an industrial actor and a participant in the Russian market
Fortum an industrial actor and a participant in the Russian market JSC "Lenenergo" BoD • Strong influence through presence in Lilius, Mikael Kuula, Tapio Strategy and Reformation Committee Karttinen, Timo of RAO UES BoD companies' boards and committees Gravé, Irina Internal Audit Committee Lindström
Slide 32: Generation – the most attractive business area for Fortum in Russia
Generation – the most attractive business area for Fortum in Russia • Fortum's position in TGC-1 provides a solid basis • The target is to strengthen the position and expand the business • NW Russia is the most attractive area • Russian hydro generation potential • Long-term potential from integrati
Slide 33: Major potential for service business in Russia
Major potential for service business in Russia • High age of power plants Construction decade of NW Russian capacity MW • Low availabilities 6 000 – fossil power plants are Condensing CHP running 3,000 - 4,000 h/a 5 000 Nuclear Hydro • Due to high unreliability 4 000 2,000 - 3,000 MW of capacity 3 0
Slide 34: Fortum's service experience meets Russian demand
Fortum's service experience meets Russian demand Asset Management Services Grangemouth Edenderry Herbrechtingen Sullom Voe 135 MWe / 16 MWe / 95 MWe / 250 MWth 128 MWe 25 MWst 330 MWth CHP Condensing CHP CHP Gas Peat Biomass Gas O&M Services Burghausen Laem Chabang Teluk Gong Joensuu 120 MWe / 105 M
Slide 35: Service – a competence centre to support growth in Russia
Service – a competence centre to support growth in Russia • Co-operation agreement signed between Fortum, RAO UES and Integrated Energy Systems (IES/KES) • Target to improve the efficiency and competitiveness of generation companies Russian-wide • Potential for extended role in power plant operation
Slide 36: Participation in distribution restructuring
Participation in distribution restructuring • Interregional Distribution Company North-West to be established during 2006 according to present plan • Fortum will have a minority share in the North-West IDC • Fortum is competitive based on operation and turnaround experience • Fortum has interest to
Slide 37: Contents
Contents • Russian power market and industry reform • Fortum’s current activities and targets • Summary 35
Slide 38: Russia – a large market with considerable potential
Russia – a large market with considerable potential • Large and growing power market • Compatible future power market model • Similar geographical, environmental, Fortum present weather and operational conditions to leverage the • Similar technology opportunities – • Long co-operation experience For