Reforms could raise the sector's efficiency and attract investment, the report said. The power sector could achieve the desired results within the existing government-controlled integrated structure, given changes in regulation. Under any scenario, economically substantiated prices conducive to investment are the most important issue, the agency said.
The sector's fixed assets are functionally obsolete, but their replacement is prevented by the politicized system of regulation, which fails to mobilize the cash flows required for capital investment, S&P credit analyst Yevgeny Korovin said.
Under any outcome, the Russian population will have to finance the sector's revitalization and development by paying higher electricity rates or taxes, he added.
At a corporate level, the sector's reform is expected to further differentiate credit risks between regulated monopolies with lower credit exposure, and companies operating in the competitive environment, including generating and sales companies, with higher risks, the agency said.
In a competitive environment, the credit status of electricity companies will depend on the primary cost of electricity output and the geography of sales markets, the report said.
Today the credit status of electricity companies is affected by the uncertainty of the sector's development, S&P said.
Reforms in the sector have been delayed several times, which raises doubts over fair pricing, the agency said.
