Fortum Oyj

OMXH:FORTUM

Earnings Call Transcript 2018-Q1

[Ingela Ulfves]

Welcome to all of you, both those of you who are here at our headquarters in Espoo and those of you who are listening online. We're happy to host a joint webcasted news conference on Fortum's first quarter interim results here today. Please note that this event is being recorded and a replay will be available on our website after the presentation. My name is Ingela Ulfves and I am the Head of Investor Relations and Financial Communications at Fortum. Together with me here today is our CEO, Pekka Lundmark; and our CFO, Markus Rauramo; as well as Mans and Rauno from the IR team. Pekka and Markus will start by presenting Fortum's Q1 numbers and performance, after which we will open up for Q&A. You're also able to ask questions on our webcast chat.I now hand over to Pekka, the stage is yours.

[Pekka Ilmari Lundmark, President, CEO & MD]

Thank you very much, Ingela. Good morning to all of you. It's a real pleasure for me to present the result of the first quarter because this was a pretty good start for the year. We are pleased with our development and there are several reporting factors behind the good performance, which I will now go through. Well, first of all, the market conditions were favorable. We had increased wholesale power prices in the Nordics, supported by cold weather and lower-than-normal precipitation. But in addition to that, a very important development in the quarter was that it now finally seems that the EU emission trading scheme is starting to deliver. We had clearly higher CO2 emission prices during the quarter. Our comparable EBITDA is up 27% and comparable operating profit up 29% in the quarter and EPS up EUR 0.05 to EUR 0.43. So this was a good start. Of course, I know that the Uniper situation is something that everybody is interested and I will come back to that a little bit later. And then actually in his part, Markus will discuss some of the aspects of our balance sheet discipline going forward, which is of course extremely important now when we are putting a lot of money into the Uniper investment.Before I go deeper into the results, couple of other developments in the quarter, many of these are not directly relevant to our result in the short term, but some of them -- some are strategically extremely important in the longer term. First one, we now have 35 megawatts of wind power operational in Russia in Ulyanovsk. This capacity is now receiving CSA payments for a current period of 15 years, and with the approximated or estimated wind production, the prices that we will be receiving will be roughly EUR 180 per megawatt hour. So it is a pretty good tariff. Number two, talking about R&D, bio economy is an important strategic opportunity for us going forward. We have, as you know, in earlier investing in the development of technologies and processes for pyrolysis oil. Now we have a new agreement with Valmet and Preem to start a larger scale testing of bio-oil and its further development into transportation fuels. Fortum and Valmet's role is to develop and commercialize production technology for upgraded pyrolysis oil and Preem partner will focus on processing the upgraded pyrolysis oil into transportation fuels under refinery conditions with feasible technology. One acquisition during the quarter, acquisition of a small startup team actually in Berlin, Germany, called Plugsurfing. Plugsurfing connects its user base of approximately 50,000 electric vehicle drivers to over 200 charging networks and this allows them to charge at more than 65,000 chargers across 24 European countries. We are currently market leader in EV charging services in the Nordic region. Here, we've been focusing on both services and then also physical charging infrastructure. Plugsurfing is very much a software and a service company. They did not invest in their own charging infrastructure, but they make deals with owners of physical charging infrastructure and they, in a way, create the software and service layer on top of the physical infrastructure, which is something that we feel is very interesting. Of course, we noted with satisfaction that TVO signed an agreement with Areva and Siemens, which is now expected to enable the completion of Olkiluoto 3. And then finally, an important deal that we've announced, which kind of strengths our solar development, the largest solar system ever to be built, solar power system to be built in the Nordic region with S Group, approximately 40 commercial buildings across Finland with a total bulk capacity of about 10 megawatts. This is an agreement that Fortum has signed during the quarter.If I then move on to the Uniper situation. On 7th of February, we successfully completed the offer period of the public takeover for Uniper. And right now, the transaction is subject to regulatory clearances, approvals and we expect to receive these approvals by mid-2018. And upon closing of the transaction, Fortum will be the largest shareholder in Uniper with the stake of 47.12% and we look forward to becoming an [ active ] and long-term partner to Uniper. If I just weakly reiterate, our investment in Uniper will support us in accelerating Europe's energy transition and in delivering our vision for a cleaner world. 4,000 Uniper's assets and expertise are highly complementary and we consequently see a great potential for value creation through close cooperation between the 2 companies. There is an interesting other transaction going on in Europe at the moment and that is, of course, the transaction between E.ON and RWE. And in a way, we could say that it follows a little bit the same logic when we talk about the new RWE after the transaction. Also, in that case, they are talking about combining making renewable and conventional power generation services to work together, so that we could really be talking through one strategy, talk about energy transition from conventional towards renewable power in such a way that you take care of security of supply, affordability and decarbonization, all through the same strategy. It does not need to be either or it will be both. And this is very much our thinking as well and this is the key reason why we believe that the strategies and production portfolios of Uniper and Fortum are as highly complementary as we've been talking. In light of these market dynamics, we are convinced more than ever that close cooperation between Uniper and Fortum is highly beneficial and in the best interest of all stakeholders of both [ companies ]. Having said this, it's important to remember that Uniper and Fortum operate as 2 separate companies and we are unable at this time to provide any additional details. We now continue to work closely with the relevant regulatory authorities and we will update the market as more information will be available.Then I would like to go back to the market conditions, which were, as I already said, fairly favorable. Weather in Nordic region was mild in January, but cold in February and March. And as a consequence of cold February and March, the electricity consumption was 121 terawatt hours, which was 7% higher than in Q1 2017. Precipitation was clearly below normal. And as I already said, price development was favorable, the spot price in the Nordic system improved to EUR 38.60, up from [ EUR 31.1 ] a year ago. And also both Finnish area prices and Swedish area prices developed favorably. And price for the CO2 emissions developed in a pretty strong way during the quarter around [ EUR 13.30 ] at the end of the quarter, roughly more or less in the same level as we are speaking today. This is now showing that the S system has started to deliver. Of course, there is still long way to go to make this -- really the central driving instrument in decarbonization as we would like it to become. But there are promising signs now. The new directive has now been approved for the period of 2021 to 2030. Market stability reserve starts with 24% intake rate in the beginning of 2019 and the so-called linear reduction factor will be increased to 2.2% in 2023, I think it's the -- sorry, 2021, so linear reduction factor will be 2.2% from '21 onwards. And all these factors are now strengthening and creating expectations for EPS to start to deliver. These levels EUR 13 to EUR 15 is roughly the level where with today's fuel prices, today's coal and gas prices, this is important to remember, this is roughly the level where we could start switching market base, switching from low-efficiency coal to high-efficiency gas to start to happen. Then on the Russian side, electricity consumption is slightly higher and first price on consumption, which is the relevant area for us, 220 terawatt hours compared to 217 terawatt hours, driven by industrial demand and cold weather also there. And average electricity spot price roughly flat in the euros area. Here you are seeing graphical form at the Nordic water situation, clearly below normal level. It's the orange line, which is representing 2018. The balance was 7 terawatt hours, negative at the end of Q1 and this development has continued in the beginning of the second quarter. Right now we are around minus 10 terawatt hours. So it is really quite dry in historical comparison right now.Here you see the commodities in graphical form. The CO2 that I already mentioned, the upper right-hand corner, here -- there you see how fast the increase in the price has been. We are now looking at the 7-year high in CO2 price and this, of course, has an important connection to both short-term marginal cost of coal and then in that way also to electricity prices.Coal price and gas price, there was a slight drop in the beginning of the year. And then after that slight recovery, a slight increase actually, but not any -- no dramatic moves in the beginning of the year.Electricity price development, Nordic system -- Nord Pool system price. This is quite interesting, because as you can see, we've been talking about a potential trend that was it so that there was a long down-going trend and then a low point in 2000 -- latter part or actually the late summer of 2015 and then a trend change. Of course, we've been saying that it's too early to call this a trend, but of course, now there are more and more signs that perhaps it is a trend. The forward market which has not been that representative. The spot price development in the last 2 years is also clearly up. It is EUR 10 higher than it was 1 to 2 years ago. And this is of course very important for us because we need to remember that the rule of thumb is that every euro in achieved power price is EUR 45 million and our operating profit.Here, once again the power prices in a graphical format on a quarterly basis and this Q1 System price was 24% higher than the year before. Of course, hedges take away most of the gain in the short term, but still our achieved price also was 3% higher than a year ago, EUR 33.60. And fairly a flat development in Russia, the euro-denominated achieved price including capacity payments was 10% down, mostly because of the currency exchange rates.Key figures for the first quarter. Our sales went back [ shortly ] over EUR 1.5 billion -- [ EUR 1,585 million ] and I already mentioned that comparable operating profit was up 29%, EUR 405 million, and EPS EUR 0.43 compared to EUR 0.38 a year ago. And Markus will comment on the cash flow development in a little bit more detail. And before I let Markus to continue brief comments on each division, of course, the self-driver in this quarter was clearly the generation division, the slightly higher achieved power price supported the result, but the strong driver was hydro volumes, 6.4 terawatt hours compared to 5.2 terawatt hours a year ago. But of course, the power price achieved 33.60 compared to 32.60, also had an impact.We had good nuclear availability, but year-over-year in Q1 nuclear production was slightly lower due to closure of Oskarshamn 1 last year, so that was still in the numbers in Q1 last year, but not anymore this year. Overall, really strong result improvement from EUR 136 million to EUR 220 million in comparable operating profit.City solutions division also increased comparable operating profit with a pretty handsome percentage, 55%. Here we have to remember that strong driver behind this was the Hafslund transaction that we implemented last year, which is strongly supporting the result. Comparable operating profit went from EUR 56 million to EUR 87 million in the quarter. There are then other factors behind high heat sales offset by slightly unfavorable fuel mix and fuel prices and some availability issues, which are not untypical to business like this. There is nothing dramatic, but there is quite a lot of factors then behind the numbers when you zoom a little bit deeper.Consumer solutions result also improved 42%. But here we also have to remember that this is very much because of the Hafslund transaction, the acquisition of Hafslund Markets which has now made us clearly the largest player in the Nordic Retail Electricity market. This is going to be, as I have said earlier, a challenging year from profitability point of view and the overall trend in the electricity retail market with very strong competition, new competitors, and a general margin pressure just shows how important the Hafslund transaction is for us. And of course, we are now working on the integration, we are working on synergies and we are working very much on the development of new typically, digitally enabled services for the consumers to increase differentiation in this business and to increase the share of value-added services other than just plain electricity that we could offer to these customers. But these measures will obviously take time and that's why some patience is now needed in the short term, especially during 2018 before we can expect or start to see real profit recovery and real Hafslund synergies to start taking effect.Russia development fairly stable, but there is a EUR 12 million negative impact from weaker ruble, which is clearly seen in the comparison, EUR 104 million operating profit or comparable operating profit compared to EUR 132 million the year-ago. In addition to the ruble comparison, the other factor behind the lower profit is actually a comparable figure in 2017 which, as we then told, included a positive one-time impact from bad debt collection. If we take these away, the underlying performance was solid and actually supported by higher CSA payments and introduction of new renewables capacity. I already mentioned the new wind farm that we now have in operation. So everything going pretty much according to our plan in Russia.And now I would like to ask Markus to continue before we take questions.

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

Thank you, Pekka. Okay, I will summarize the results. We have seen good development, sales up, EBITDA up, comparable operating profit up, and what we are pleased about is that the good top-line development has actually translated into good results. Still summarizing the divisional performance, we had good development in generation with positive impact on the mix with more hydro and less nuclear, also higher prices and lower taxes. City solutions and consumer solutions improved due to the Hafslund acquisition and consolidation, otherwise, city solutions is flat and we continue to see the same pressures as before in the consumer solution business. We also had negative impacts from the sale and divestment of the infrastructure business in Poland and also losing some of the distribution-related services that we have been selling earlier which are not really impacting the underlying business. In Russia, we had negative impact from FX, lower spot margin, but better CSAs, not having now the positive impact from the bad debt collection, but operationally flat and then the new capacity is actually improving the result. And the other area was flat year-on-year. So all in all, good development, EUR 92 million better comparable operating profit. Then some comments about the cash flow statement, where there are big movements and big items. If we look at the first 2 left-hand columns, EBITDA year-on-year, strong development. Going down the lines, the cash impact from rolling the ruble and Swedish krona internal loans had EUR 100 million positive impact on cash flow. We had higher sales and that resulted in higher operative working capital and then we had also, due to the higher prices, negative impact from cash settlement of the Nasdaq futures. CapEx was lower year-on-year, about EUR 50 million and then the even larger impact came from the cash collaterals for the Nasdaq futures, [ EUR 245 million ] year-on-year. These are of course items that vary due to the prices and they will neutralize over time.But all in all operatively very good, big impact from the derivative settlements and internal loans. And both in 2017 and the last 12 months, there are big impacts from the Hafslund acquisition, divestment and transaction in the acquisition of shares and divestment of shares, so large items, on the 2 right-hand columns. Then over to balance sheet and our financial position. Financial position is strong. EBITDA improved up to EUR 1.39 billion and debt decreased somewhat and this resulted in positive development in the net debt to EBITDA, which was at 0.6x at the quarter end. We had a very good cash position at the quarter end, EUR 3.5 billion, of course, one has to remember that after that we have paid the dividend close to EUR 1 billion. But we have close to EUR 3 billion in cash after that. We have committed credit lines EUR 1.8 billion and then the Uniper acquisition -- related acquisition facility EUR 3.8 billion. So the financial preparedness and financial position is good and solid. But even with this good development and strong financial position, we continued to focus on the balance sheet and cash flow discipline to ensure that we have financial flexibility we need going forward. So what we will do is we will scrutinize both our maintenance and growth investments and prioritize those. We will continuously go through our whole asset portfolio and assess the future of potential non-core assets to ensure that we do have the focus on the right things. We will continue the good cost consciousness and fixed cost scrutiny we have had in the past years and continue the discipline there and of course, also focus on working capital efficiency and scrutiny. And the objective of all these areas is to ensure our strategic focus, ensure that our resources are in the right places and that we maintain the financial flexibility we want to have.Finally, for the outlook, the hedging percentages are at 65% for the remainder of 2018, hedged at EUR 27 per megawatt hour and for 2019 45% at EUR 26. We estimate the CapEx to be this year between EUR 600 million and EUR 700 million and this is excluding potential acquisitions. So if we make further announcements of transactions, they will then be in addition to this number. The Hafslund combination has proceeded very well. We are very pleased with the progress and performance. We target cost synergies of EUR 15 million to EUR 20 million materializing in 2019 to 2020 and you see the city solution and consumer split here, but I would say that the first steps have been very encouraging in both areas. Taxation, effective tax rate remains at 19% to 21% for 2018 and all in all, there are positive developments in Sweden especially, also continuing this year of the earlier-made decisions. And the demand growth we expect to be at 0.5% in the Nordic area. And finally, I would say that we see really good structural support from what was mentioned earlier. The ETS and MSR developments, the added interconnections between Nordic countries and Mainland Europe and then the closures of production capacities in Mainland, Europe, so all of these are supportive factors for us. With this, we are now ready to take questions with Pekka.

[Ingela Ulfves]

Thank you, Markus, and thank you, Pekka. So as said, we are ready for the Q&A session. And we will start it here with the audience in Espoo. You are also able to ask your questions in Finnish or in Swedish if you so wish. After these questions, we will open up for the teleconference questions and if there are further questions here in the audience, we can come back to those. Please raise your hand if you have a question and I will then bring you a microphone. And when asking the question, please state your name and your company. We are ready.

[Artem Beletski, Analyst]

Artem Beletski from SEB, actually I have 3 questions. And the first one, what comes to hedging activity, what is your policy right now given the fact that looking at Q1 performance, hedge rate actually came down for this year, increased slightly for next year, and also Pekka has been talking about -- a lot about ETS [ peaks ] and potentially CO2 prices picking up, so are you more, so to say, reluctant to do hedges right now given the current outlook for the market?

[Pekka Ilmari Lundmark, President, CEO & MD]

Now when we look at what has happened in the market, the fact that we have been in the last couple of years, we have actually been slightly more open in our position than some of our competitors has proved out to be a good thing. You mentioned that this year the hedge rate would have come down. Technically, that is true, but we have to remember that it is for the rest of the year and we now have a high price, typically seasonally high-price quarter behind us. So it is -- in reality, that explains it and then next year's number actually went up. We are in 2019 hedges, we are at the upper end of the historical range at the moment, and that probably reflects the way how we see the situation from our cash flow management point of view. We are doing a big transaction now through the investment in Uniper and that increases the need for us to increase predictability of our cash flow.

[Artem Beletski, Analyst]

And then maybe second question regarding Russia. So we have seen that excluding CSA payments or capacity payments, overall it seems that the margins have been under some pressure here in Q1, what is your longer-term view on outright margins what you can make in Russian business, so how demand-supply situation looks, in your opinion?

[Pekka Ilmari Lundmark, President, CEO & MD]

The Russian market, as the Nordic market is currently over-supplied, which does put pressure on spot prices, but we have to remember that our Russian income is more coming from the capacity market than spot market. Of course sometime in the 2020s, gradually unit by unit, the CSA payments will start to come down. And then what will be important is the competitive capacity payments, CCS payments and spot prices. There is a target which has been stated by the authorities also is to push out old, inefficient and polluting capacity from the market in order to get the better market balance. It's very difficult and we do not want to preempt that what the result of all this will be, but then when we look at our earnings potential in the longer term, it will depend a lot on what then the market base, CCS and spot prices will be, and this will be especially important in the second half of 2020s. Until then, we are fairly safe when it comes to the CSA payments and we have to remember that we have actually what is now exceeded our stated target for the investments, which was the RUB 18.2 billion annual operating profit level.

[Artem Beletski, Analyst]

And then the last one from my side. So Markus mentioned about looking at potential non-core assets what comes, so to say, getting better cash flow and so on in future. Are we talking about some larger divestment. So what is roughly the potential magnitude we are looking about here?

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

The idea was not to indicate any such things. This is normal scrutiny. We want to increase the discipline now both on the divestment side and we are also seeing if there could be something non-core, but this is not a dramatic piece of news or anything like that. We see this as normal scrutiny and being disciplined when it comes to the balance sheet when we are in the process of making a large investment.

[Unknown Analyst]

[Foreign Language]

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

[Foreign Language]

[Ingela Ulfves]

Thank you so much. Maybe just a brief summary on this, the question was from Finnish Media STT, mainly regarding the recent writings in the Finnish and Russian media around Fortum and the Russian energy market. The answer from Pekka Lundmark was that we do not see that there will be any change in the business environment and that this is not affecting our business. There were some detailed questions also around how you see the -- how we see the Russian markets developing also related to Uniper and Pekka's brief summary of that was the…

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

I can take that in English as well that Uniper is, of course, a very large company with a large substantial position in Russia, but in relative terms, the share of Russia, both when it comes to turnover and result in Uniper, is actually smaller than that in Fortum. And then I also said that we do not believe that some of these articles that have been published in Russia that they would in any way -- the negative articles that they would in any way reflect the views of the Russian government.

[Ingela Ulfves]

Any further questions here in the audience? If not, then operator, we are ready for the teleconference questions. Please go ahead.

[Operator]

[Operator Instructions] We will now take our first question, please go ahead.

[Alex Leng, Associate Analyst]

This is Alex Leng from UBS. One question around the Uniper deal, if I may, perhaps a slight follow-up to the question earlier? But I was wondering, could you give us some color on why you expect the Uniper deal will close in mid-year? In December, you flagged that the deal will need strategic investment clearance from Russia and that should be in the bag by the end of October, I believe. What I'm just trying to confirm is, have you had any signals around the strategic clearance decision, perhaps any indication why you might be confident that decision would be made?

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

Well, we repeat it actually exactly what we have said earlier that we expect clearance by mid-2018 and this is both when it comes to Russia and when it comes to Brussels, i.e., the European Union. Of course, we do not want to speculate the detailed outcome of these discussions, but we are in good--

[Alex Leng, Associate Analyst]

What I was trying to gather was whether there has been any sort of signal that you might be able to share with us that there is any sort of new news and why this decision might be made at mid-year?

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

We still believe that we will get clearances by mid-year and when it comes to the Russian situation, yes, you are correct, we need both clearance from the point of view of the strategic investment law and then the, if you will, the normal antitrust clearance. And we are in good discussions regarding both clearances and we expect to receive them by mid this year. And we have not received such messages or information that we would not be getting these clearances.

[Operator]

We will now take our next question, please go ahead. And this question is from Vincent Ayral.

[Vincent Jean Michel Ayral, Analyst]

Vincent Ayral from JPMorgan. So the question regarding Russia has been asked. I will just bounce back quickly on the comments made regarding CapEx. You're talking for 2018 EUR 600 million to EUR 700 million and you say specifically basically that exclude any potential future M&A announcement? So here I'm a bit concerned regarding Uniper, basically want to know if you're considering anything in Fortum or what were you alluding to, was it potentially mid-size or large size?

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

What we said was that, of course, yes, first of all correctly that EUR 600 million, EUR 700 is excluding any acquisitions and very much, of course, excluding the investment into Uniper. There is a need to take care of the balance sheet going forward because Uniper is a big investment. And that means that we will exercise a pretty high degree of scrutiny when it comes to both, in a way, organic investments, building new things, and also making decisions about investments into existing facilities and also potential new acquisition. So high degree of scrutiny and prioritization will be applied to all of these in order to take care of the balance sheet and our flexibility, because, of course, our goal is to have a healthy balance sheet that makes it possible to maneuver in different situations and that's why you can see it pretty easily from the numbers that the Uniper investment takes our leverage to a rather high level, which automatically means that we have to be careful with the balance sheet going forward. We have not given any numeric guidance as to how much the CapEx would be in the coming years. But I hope the signal is well received that we will be highly disciplined when making the decisions.

[Pekka Ilmari Lundmark, President, CEO & MD]

And without any further decisions that we would have announced, the CapEx will come down as the projects that we are now doing, [indiscernible] Zabrze, et cetera, one they come to an end, without new decisions, CapEx wouldn't actually go down.

[Operator]

We will now take our next question.

[Unknown Analyst]

It's, [indiscernible] here. Question on Nordic forward power prices, the 2019 forward price has been extraordinarily strong year-to-date, up about 20%, much more than prices elsewhere in Europe. I was just wondering if you could share any insights as to why it was so strong. And my second question was regarding Russia. I was just wondering if you had had any conversations with the Russian authorities regarding modernization of existing power plants?

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

You are right that the price development both on the spot market and the forward market has been strong. We, of course, don't publish our forecast. So we will be as before restricted as to how much we want to comment that, but very clearly the prices have been driven up by dry hydrology, and when you look at -- especially when you look at the German Nordic spread development, there was a pretty high spread at the end of the year, but that has clearly come down when the hydrology has dried up. Then, of course, you can only speculate that what type of effect then, for example, the ETS, the CO2 allowance price has to all of these, but we do not want to get it into more details than that. Then when it comes to the Russian situation, of course, we are following with a lot of interest that what will happen on the modernization market. But I would say that the same applies in Russia as applies in the whole company that we will exercise a high degree of investment scrutiny now and our balance sheet will be more stretched. The big investment program in Russia has come to an end. We have not stopped our new investments. We are investing in renewables in Russia at the moment. But in general, we will be pretty disciplined and prioritize only a handful of new investments.

[Operator]

We will now take our next question.

[Unknown Analyst]

[indiscernible] Couple of questions from me. The first one is on Uniper. In February, you told us that the corporation agreement was progressing, but rather slowly. Has there been any acceleration since? That's the first question. The second one is just a clarification on the CSA payments on wind in Russia, can you just repeat the terms, I think you mentioned EUR 180 in megawatt hour roughly, over what time period is that? And the third one is also clarification on something you said earlier. You saw on CO2 that we are getting close to the level where the fuels which starts to kick in. Can you just remind me of the level where you think that starts to become relevant?

[Pekka Ilmari Lundmark, President, CEO & MD]

Okay, if I start from the last question and Markus will take the CSA question. These, of course, are very rough numbers, because this is dependent on the fuel price development as well. But roughly speaking EUR 13 to EUR 15 is the level where you can start seeing switching from low-efficiency coal to high-efficiency gas and then again the other end of the spectrum, again with current fuel prices, switch from high-efficiency coal to low-efficiency gas, the EUA price would have to be over EUR 20 before you would start to see that happen. So that's why we are saying that we are now approaching the levels where the system would start to deliver, but there is still way to go. On the speed of the discussions with the Uniper, I said in February that the progress is slow. I still say the same thing. There are discussions, but they are progressing slowly and we have to be realistic here. The 2 companies are competitors on the market. And before we have regulatory clearance, there are many things that cannot even be discussed, but we have a fairly strict NDA with Uniper. So I will not comment any details of the content of the discussions.

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

When it comes to CSA, so for the existing, already operating conventional plants that we have, the CSA period was 10 years, as you know, and for the new renewables, Ulyanovsk, solar and then the RUSNANO joint venture, it is 15 years and then the levels we disclosed in our release. And I didn't quite get, did you have a follow-up question on the CSAs too after that?

[Unknown Analyst]

No, that was very clear. Thank you.

[Operator]

Thank you. We will now take our next question.

[Unknown Analyst]

Couple questions from my side. Firstly, with regards to hedging, does you disclose hedging for 2019 incorporate volumes from Olkiluoto 3, which I was expecting to commission in May 19 or will this be on top of any -- of your disclosed hedging profile. Secondly, can you just talk us through quickly your expectations of how working capital develops for the rest of the year, let's say, in a rising power price environment, I just wonder what happens with this Nasdaq OMX settlements. And then thirdly, very quickly, is it possible to get an update on the construction of Zabrze, just to see is this still on track to commission at the end of 2018?

[Pekka Ilmari Lundmark, President, CEO & MD]

Okay. I'll let Markus to think about the first 2 questions and while he's doing that, I can just confirm that Zabrze is on time and on schedule. So we are still looking at inaugurating it this year.

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

Yes. Then for our hedging ratios, of course, that is, we disclosed the ratios on our planned -- productional planned [indiscernible]. Then for the working capital development, if prices would continue to increase, then on a like-for-like basis, yes, there would be more working capital tie-up into the forwards and futures, but as we know this is volatile, and ultimately when these derivatives come to the settlement, of course, then this impacts will be wound out.

[Operator]

We will take our next question.

[Unknown Analyst]

This is [indiscernible]. You said earlier in the television interview with my colleague that any further investment in electric vehicle charging will be focusing on the software side of things rather than physical charging stations, do you have a specific investment program for that, can you give us some rough idea of numbers, there? Thank you.

[Pekka Ilmari Lundmark, President, CEO & MD]

We have not disclosed any numbers, what I said to Bloomberg this morning is that in general in our strategy and making that business scalable, we feel that it makes more sensitive to shift the focus gradually from physical hardware towards software and services. We have 2.5 million consumer customers, a larger and larger share of which will be interested in EV related and e-mobility type of services. That's point number one. These are in our existing markets and then, of course, when you talk about international expansion, it would not be realistic for a company like us to have a [ superior head ] in that expansion, investment into CapEx into physical charging. That's why we are much more seeking cooperation with the owners of physical charging infrastructure so that we can make those charging stations available to our customers.

[Operator]

There are no further questions over the telephone.

[Ingela Ulfves]

And thank you for the questions. We seem to have some questions here on the chat. So Mans, if you would like to ask those.

[Måns Holmberg]

Yes. So the first question is, how will Fortum becoming the biggest shareholder in Uniper, affect the operation of the Oskarshamn nuclear power plant?

[Pekka Ilmari Lundmark, President, CEO & MD]

That is so highly speculative question. As we have said, we are still in the process of getting regulatory clearances and before we have them, it is very difficult to start planning any practical cooperation. There are countries, where both companies are present. Sweden and Russia being the most obvious ones where there would be cooperation possibilities. We are co-owners in same assets including Oskarshamn, but what that cooperation could mean in practice, it is premature to comment.

[Måns Holmberg]

Okay, and then we have a second question here. Could you talk a bit about the impact of the planned increase of the CO2, that's for heating fuels in Finland. What is the implication for the profitability of Fortum CHP fleet?

[Pekka Ilmari Lundmark, President, CEO & MD]

Yes, so without knowing the details, what the tax would be, it is very difficult to say. But of course, us having also for fuels in the production mix, it would have an impact. In any case, we do believe in the decarbonized future, so our plants are targeting that, that we will also in the given timetables or even faster get away from the first fuel-based production. And we have been investing heavily in that not only in Finland, but also other countries. So we have done even almost full decarbonization of various heating systems.

[Markus Heikki Erdem Rauramo, Chief Financial Officer]

Our largest emissions in Finland are in the district heating system here in Espoo, and in our cooperation agreement with the city of Espoo, we have a target of [indiscernible] by 2030. And now the new Finnish government proposal actually would make that 1 year earlier, 2029. So we are fully committed to decarbonization. We would like that to happen so that emissions trading would be the key policy tool to make that happen. And we know that the proposal from actually, from the Finnish government yesterday, which was presented together with other Ministers from other EU countries yesterday, where they suggested that heating, not only district heating but also individual house heating would be included in the ETS system. And we think this would be very welcome development that would increase the scope of ETS. And then in connection with this type of renewal, we would hope that then also the whole taxation of heating would be reviewed. So that emissions trading, with hopefully rising prices, would become the key policy tool in decarbonization.

[Ingela Ulfves]

Thank you, Pekka. One last check here in the audience. Are there any further questions here? No? Then, we are done with the Q&A session. Just as a last reminder, we are publishing our second quarter results on 19th of July. So already now, then we invite you back then, hope to see you here. Thank you for your participation. Thank you to the presentation. Thank you for the questions. We wish you a very nice rest of the day.