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Russia

Equities

RUSSIA CALLING! Forum Diary – Enhancing potential. Sustaining discipline, of 29 November, by Alexander Isakov et al

Russia Calling! Forum Diary – Building partnerships. Bridging differences, of 30 November, by Ilya Piterskiy et al

Monetary Policy – CBR comments on FX purchases, of 28 November, by Alexander Isakov et al

Food retail – chains call for amendments to regulations to be put on hold – offer to revisit return conditions and dominance threshold, of 28 November, by Maria Kolbina et al

Russian utilities – 9mo18 installed capacity +1.7%, production +1.4% vs. demand +1.5% – surplus remains, of 28 November, by Vladimir Sklyar et al

Week Endnotes

In Russia & the Near Abroad

In focus

As is traditional, macroeconomic issues marked the beginning of our tenth Russia Calling! Investment Forum. The speakers (both members of the government and corporate leaders) focused on the means for achieving the goals set by the new Presidential May Decree. In particular, they examined how to accelerate structural growth and discussed the headwinds which the economy faces.

The plenary session of the Russia Calling! 2018 investment forum centred on Russia’s international ties with its partners, as well as its appeal for foreign investment. The highlight was Russian President Vladimir Putin’s speech, in which he outlined the country’s key strategic objectives for boosting economic growth above the global average and placing Russia among the world’s top five economies.

Speaking at our Russia Calling! Investment Forum, CBR Governor Elvira Nabiullina noted that under current conditions the CBR deemed it fit to restart FX purchases in January and a decision on catch-up purchases would be made after the regular ones had started. We believe this announcement implies that the CBR sees the current state of the FX market as sufficiently robust, which in turn diminishes the probability of an interest rate hike in December. Nabiullina was quoted as saying that the August decision to pause the fiscal rule related to FX purchases was triggered by an increase in volatility.

During the meeting with Deputy Prime Minister Dmitry Kozak, leading food retail chains asked to put further amendments to the retail law on hold in order to assess the impact of the latest amendments. Retailers also proposed revisiting the proposals to amend the options on returning goods, exclude logistics services from rebate calculations and move the 25% dominance threshold from the municipality level to the city or town level. They also acknowledged a greater need for self-regulation between chains and suppliers. The proposals are entering the negotiation stage and to a large extent represent retailers’ point of view, although the prospects of their being implemented are still vague. Currently, none of the amendments under consideration in the regulatory backlog could materially threaten chains’ turnover and margins, we think. Modern trade formats in Russia continue to offer national coverage and unique logistics capabilities. Outside of the harsh measures, we consider the recently implemented amendments to the retail law as representing a balanced framework and do not envisage retailers’ procurement economics deteriorating in the medium term.

System Operator has released its 3Q18 analysis of the electricity sector balance. According to the report, in 9mo18, total installed capacity in Russia increased 1.7% from YE17 to 244GW, driven by 4GW of commissioning and only 0.236GW of decommissioning. Key commissioned units include the Kaliningrad CHPs of Rosneftegaz, InterRAO's Zatonskaya CHP, Rosatom’s 1.1GW unit at Rostovskaya NPP, Crimea units and other. Along with that, total electricity production increased 1.4% YoY to 779,274mn kWh vs. a 1.5% YoY increase on the demand side. Thus, utilisation rates improved across all fuel types except nuclear capacities (44.55% for fossil-fuel generation, 44.34% for hydro, 17.15% for wind, 17.44% for solar and 76.45% for nuclear generation). The released statistics confirm that the electricity surplus glut shows no signs of resolution, as capacity commissioning still matches demand growth.