Monday, January 3, 2011

Transelectrica CEO Sees Romanian Price Increase Halting Decline in Profit

Romanian grid operator Transelectrica SA’ 10 percent price increase will boost revenue and halt declining profits, Chief Executive Officer Stelian Gal said.

The state-owned company received permission to raise its regulated distribution fees more than expected to 18.77 lei ($5.8) per megawatt-hour from 17 lei, according to a statement published on the National Energy Regulator’s website. The company had expected a 7 percent price increase for this year and forecast a 1.5 percent gross profit decline in 2011.

Transelectrica estimates gross income will drop to 20.2 million lei in 2011 from a projected 20.5 million lei last year. The utility, which needs to expand the power grid to accommodate increased wind power generation from farms owned by CEZ AS and Iberdrola SA, was hurt by the leu’s depreciation, which boosted costs with foreign debt contracted for investments.

“We will reconsider the budget proposal for this year following a higher-than-anticipated increase in tariffs and we will present an official document to our executive board on Jan. 18 before seeking a vote from our shareholders,” Gal said in a Bucharest phone interview today. “We’ll certainly budget a profit increase for this year.”

Transelectrica’s shares surged as much as 5.9 percent to 20.5 lei and were trading at 20.2 lei in Bucharest as of 1:10 p.m. today, valuing the utility at 1.5 billion lei.

“We see the news positive as the higher-than-expected increase in tariffs offers the company a better opportunity to recoup revenue not collected in the previous regulated periods as expected, based on the fact that the company’s revenue are capped by the Regulatory Authority,” Piraeus Bank Romania SA analysts wrote in a note to investors today.

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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