Made in China-Gas Utilities:return regulation;CTIH,Inovance,Moutai,Baozun,Humanwell

On 22 Jun 2017, the NDRC officially released the Guidance of
Strengthening Supervisions of Distribution Tariffs, which we think is
more favorable and positive to downstream than the draft version. There
are mainly 3 differences/revisions compared to the draft: 1) the
regulated return is set at 7% vs. 6% in the draft; 2) During cost
assessment, distribution line loss is set at 5% and decline to 4% within
3 years (vs. a fixed 4% in the draft); 3) In the draft version, it
requires the volume to be determined at 60% utilization of capacity when
calculating distribution tariffs, while the final version does not
mention the “60%” and delegate the flexibility to local govts. The NDRC
requires the local government to issue corresponding notices based on
this guidance before June 2018. We believe the actual impact to gas
distributors should be gradual and mild. We reiterate Buy on China Gas,
ENN Energy, and BEHL.

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