Assessment of competitiveness of power generating companies through a riskbased approach: a case study of developing economies

The global financial crisis has shown that power companies are highly exposed to market risks. Market volatility creates competitive tension in the industry because the lack of the necessary methodological tools does not allow power companies to timely identify and measure the severity of emerging threats. Given the current situation, one of the major challenges in the industry is the creation of tools able to assist in the development of a strategy for improving the competitiveness of power companies. The article presents the authors’ risk-based approach to the assessment of industrial risks in the power sector. It assumes a certain level of long-term financial stability, investment attractiveness and, as a result, the competitiveness of the company. The aspects of practical application of the authors’ approach to the assessment of industrial risks are shown in examples of power companies

Risk and profitability optimization of investments in the oil and gas industry

Finding an optimum ratio of return and risk of investment projects is the key problem in overcoming the unfavorable conditions of oil prices and the reduction of profitability of the oil and gas industry. Search for investment opportunities associated with the potential willingness of oil companies to raise funds in new projects, leading to the need for improved tools maximize the return of investment activity in the conditions of uncertainty and risk. In the article the authors propose an original approach which allows solving the problem of formation of a portfolio of investment projects that achieve the maximum return on the risks assumed. The approach includes a method for determining the credit quality of the investment project on the basis of probability of default. This method is based on a comprehensive multivariate analysis of the investment project. Factors model aimed at the country and regional analysis, identification of foreign exchange, operational, technological and financial risks of the project and obtaining the integral evaluation of the project credit. The approach also includes economic capital modeling based on the MV-model (Merton-Vasicek-model), allowing achievement of the target level of creditworthiness of an oil and gas company in the long run. The proposed method of estimating project profitability is based on RAROC (risk-adjusted return on capital) methodology which enables calculation of profitability of projects based on their riskiness. The results can be used by management of oil and gas companies, investors and analysts in making financial decisions.The work was supported by the Act 211 Government of the Russian Federation, contract № 02.A03.21.0006

Diversification effects of the corporate loan portfolios of Russian banks in the context of risk-management paradoxes

The article examines the contradictory aspects of the application of industrial diversification of the corporate loan as one of the most commonly used instruments of credit risk reduction in banking. By implementing industrial diversification of the credit policy, commercial banks aim to create a structure of credit investments that would achieve the desired risk and return parameters. The effects of industrial diversification of loans show in different ratios of risk and return that are the most important indicators of the quality of the bank’s corporate loan portfolio. The purpose of this article is to identify contradictory (paradoxical) consequences of the application of industrial diversification of credit investments in the context of different approaches of risk management. The article presents the results of research into the relationship between the industrial structure of credit investments and the indicators of quality of corporate loan portfolios using the case of a group of Russian banks. The authors propose a methodical approach to diversification analysis, which allows for monitoring the industrial structure of loans in order to minimize portfolio risk. The analytical procedures are based on the Herfindahl-Hirschman index, clustering method, comparison method. The study was based on official financial statements of eight Russian banks with different scales of activity. As a result, the study identified features of the industry composition of credit portfolios of different banks in correlation with their risk appetite, which allowed the authors to reveal contradictory effects of the industrial diversification of corporate loans. The results can used when taking tactical and strategic management decisions by credit managers. In conclusion, the authors proved the importance of having a strategically elaborate policy of industrial diversification of the corporate loans portfolio in the common credit policy of the bank.В статье исследуются противоречивые аспекты применения отраслевой диверсификации корпоративных кредитов как одного из наиболее используемых инструментов минимизации кредитного риска в банковской практике. Диверсифицируя свои кредитные портфели по отраслям экономики, коммерческие банки преследуют цель сформировать такой состав кредитных вложений, который позволил бы достичь желаемых показателей риска и доходности. Эффекты отраслевой диверсификации кредитов проявляются в различном соотношении риска и доходности как важнейших показателей качества банковских корпоративных кредитных портфелей. Цель данной статьи заключается в выявлении противоречивых (парадоксальных) последствий применения отраслевой диверсификации кредитных вложений в контексте разных подходов риск-менеджмента. В статье представлен результат исследования взаимосвязи между отраслевым составом кредитных вложений и показателями качества корпоративных кредитных портфелей на примере группы российских банков. Исследование базируется на авторском методическом подходе отраслевого диверсификационного анализа, который позволяет проводить мониторинг отраслевой структуры кредитов с целью минимизации портфельного риска. Аналитические процедуры основаны на применении индекса оценки концентрации Херфиндаля - Хиршмана, метода кластеризации, метода сравнения. Эмпирической базой исследования послужила официальная бухгалтерская отчетность восьми российских банков с разными масштабами деятельности. В результате исследования были выявлены особенности отраслевого состава кредитных портфелей разных банков в корреляции с их риск-аппетитом, что позволило авторам раскрыть противоречивые эффекты отраслевой диверсификации корпоративных кредитов. Полученные результаты могут быть использованы кредитными риск-менеджерами коммерческих банков при принятии управленческих решений тактического и стратегического характера. В качестве вывода авторы обосновывают значимость стратегически продуманной политики отраслевой диверсификации портфеля корпоративных кредитов в рамках общей кредитной политики банка

Value-based approach to managing the risks of investing in oil and gas business

Development of the oil and gas business is inextricably linked to large-scale investment programs. Large-scale flow of capital funds, long duration of projects, as well as the external environment's high uncertainty for oil and gas businesses bring about the high-risk investing; and therefore, it becomes urgent to develop methodological tools for risk management issues. The authors' approach to risk management of capital investments allows an individual to estimate the risk level of an investment project on the basis of a ratings model, and to evaluate the need for capital to cover potential losses on the basis of the target level of financial stability and long-term strategy of the company. The authors' technique of RAROC (risk adjusted return on capital) analysis of investment projects allows to calculate the risk-adjusted return on investment and to carry out the selection of projects that contribute most to the creation of value and screen out those projects that destroy the company value. The results can be used by management of oil companies, investors, and analysts in financial decision-making. © 2017 WIT Press

Evaluation of investor attractiveness of power-generating companies: Special reference to the development risks of the electric power industry

The paper presents the author's methodical approach to the investor attractiveness evaluation of power-generating companies on the basis of risks development decomposition, which can calculate the value of risks in the financing of electricity capital projects. © 2014 WIT Press.International Journal of Safety and Security Engineering;International Journal of Sustainable Development and Planning;WIT Transactions on Ecology and the Environmen

Optimization of financing investments in a power-generation company

Attracting investment in the Russian energy industry is a necessary condition for improving the competitiveness of energy companies. It is important to create an investment budget financing structure, in which the weighted average cost of funds will be minimal, and the amount of resources drawn from each source to fit the current market trends and financial sustainability criteria power generation company. This paper discusses problems of investment financing optimization of a power generation company, a proposed optimization model of investment financing and calculated parameters for the optimization of the investment program in the example of a Russian power generating company. © 2014 WIT Press.International Journal of Safety and Security Engineering;International Journal of Sustainable Development and Planning;WIT Transactions on Ecology and the Environmen

Complex approach to assessment of competitiveness of power-generating companies of developing economies

The present-day trends in the economic development are characterized by both the processes of restructuring initiating investment activity and the mounting competitive pressure. These special characteristics clearly manifest themselves in the developing economies featuring low level of development of infrastructure – in the power sector in particular, and this gives rise to the development of specific forms of competition in the power-generating sphere. Finding solutions to the problems of development of energy infrastructure will be instrumental in strengthening the competitive position of the developing countries on the world market and reducing the threat of takeover. This paper presents a complex approach to assessment of competitiveness of power-generating companies in developing countries. Such an approach offers an opportunity to assess the attractiveness of current levels of investment of a company and its long-term sustainability through application of modern analytical tools. The practical aspects of the authors’ methodological approach to the assessment of competitiveness are discussed using a Russian power-generating company as an example. The proposed ideas based on revealing the most risk-bearing hazards, those of latent nature including, may serve as a methodological basis for the development of risk management programmes in the power-generating sphere, to the benefit of realization of investment projects as well. © 2018 WIT PressGovernment Council on Grants, Russian FederationThe work was supported by Act 211 of Government of the Russian Federation, contract No. 02.A03.21.0006

Unbiased investment risk assessment for energy generating companies: Rating approach

This article presents a proprietary methodological approach to the ranking of investment risks by severity level and assessment of risk impact on the investment decision-making process. Use was made of the multivariable data analysis mathematical tool, which allows the bias problem to be solved in the efforts to attain the objectives aimed at improvement of investment potential for energy generating companies. © 2017 WIT Press

Diagnostics of competitiveness of power-generating companies

The paper presents the results of a study of the processes of development of power-generating companies in the conditions of high risks and uncertainty. To reduce the impact of uncertainty on the prospects of energy business development in the field of energy generation, a system of diagnostics of the competitiveness of power-generating companies is proposed. This system makes it possible to identify the threats associated with the reduction of competitiveness and provide information and analytical support to the management of companies to create effective management decisions. The developed system of diagnostics is based on mathematical modeling using procedures of discriminant and cluster analysis. The diagnostic process identifies and evaluates the factors that affect the increase in risks and reduce the investment attractiveness of the energy business in the energy generation sector by centralized energy sources. This makes it possible to use the potential advantages of the market situation to improve the competitiveness of power-generating companies. The system of diagnostics of competitiveness of the power generating companies developed by authors is the effective analytical tool which raises quality and objectivity of the made administrative decisions. This will make it possible to avoid the appearance of adverse consequences, which may lead to a decrease in the competitiveness of power-generating companies in the electricity and heat markets. © 2019 WIT PressACKNOWLEDGEMENT The work was supported by Act 211 Government of the Russian Federation, contract No 02. A03.21.0006 and Russian Foundation for Basic Research (RFBR), contract No 16-06-00317

A risk-oriented approach to capital management at a power generation company in Russia

One of the challenges facing the energy industry today is how to improve investment attractiveness and business competitiveness in energy generation. It is becoming particularly important to enhance the sectoral risk management systems in order to ensure long-term growth and sustainable development in the energy sector amidst numerous factors and uncertainties created by the globalization of the financial markets. This paper presents the authors’ approach to assessing sectoral risks in the energy industry based on capital management for the purpose of achieving a certain level of long-term financial stability. The practicalities of applying the proposed approach to sectoral risk assessment are considered using a power generation company as an example. © 2014 WIT Press