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TGK-2 is a territorial generating company that supplies electricity and heat to cities in the north-west and centre of Russia. A significant part of its work is heat supply, a business with a regulated tariff. Its ordinary and preferred shares trade under the tickers TGKB and TGKBP.
The company sells two products with different economics. Electricity and capacity are sold on the wholesale market under market rules. Heat is sold at a tariff set by the regions, and that tariff has historically failed to cover the full cost of producing and delivering it.
The reason lies in the social nature of the service: heating cannot be switched off and cannot be made expensive, so the price for the consumer is held below the economically justified level. The gap falls on the company.
The condition of the heat networks adds to the burden: pipes laid decades ago lose heat along the way, and these losses are paid for not by the consumer but by the supplier. Replacing the networks requires investment that the tariff does not pay back.
Delivery of heat into the district heating systems of cities.
Sale of generated output and of payments for plant availability on the wholesale market.
Strengths and weaknesses describe the business itself. Opportunities and threats describe what may happen around it.
The company produces electricity and heat at its own plants and delivers heat into the district heating systems of cities in the north-west and centre of Russia.
Because the heat tariff is held below the economically justified level: heating is a socially important service, and the price for residents is not raised to the full cost. The supplier bears the difference.
The supplying company. Heat that has escaped into the ground through worn-out insulation has been produced and paid for in fuel, but it never reached the consumer and never appeared on the consumer's bill.