Construction of new OGK-4 power plant begins

Russia's wholesale power generating company OGK-4 has launched construction of a new power unit at its plant, southeast of Moscow. It comes as parent company Unified Energy Systems requires investors to build capacity.

The $US 570 MLN project is part of OGK-4's investment programme and the ongoing overhaul of the entire power sector.

OGK-4 generators are filled with hot steam, which is converted to electricity to power 8 % of industries and households in the Moscow region.

Located southeast of Moscow, the plant has a capacity of 1,100 megawatts. But it is set to go up as the plant's owner OGK-4 launches the construction of a new power unit.

Anatoly Chubais, CEO of electricity monopoly UES, said the project shows the success of reform efforts.

“This proves why we needed to reform the power sector. Hundreds of thousands of policy makers, experts, governors and advisers were claiming the reform was pointless and that it cannot attract investment, that private investment will never go to the power sector and it should not be done. It can be done! End of discussion,” summed up Anatoly Chubais.

The contractors of OGK-4's new expansion project are global players: U.S. General Electric International and Turkish Gama.

Plans to liberalize the power sector involve the unbundling of state-owned monopoly UES. But prior to its break-up, the company has put forward a new set of requirements that binds investors to build generation capacity.

To give investors time to review these new requirements OGK-4, as a UES subsidiary, has postponed its IPO from August to September.

“We don't just hold an IPO and invite investors for the sake of it. We do it so we can build such capacity. That is the goal. That is why we created the market and sought to attract investors. Investors have to understand that by putting money into the IPO, they are then supposed to use the money raised to increase capacity,” explained Anatoly Chubais.

But some analysts say this could defeat the purpose of market liberalization and turn off some investors before the liberalization even kicks off.

“The investors are not yet getting control of the assets but they already require now to build a new facility which was not planned to do,” commented Dmitry Bulgakov, an Utilities Analyst of the Deutsche Bank, Moscow.

Other market insiders say investors will not be able to predict what will happen on the market operate in two or three years. The main concern

“The main problem is that there is still unclear how the market will operate in two or three years and that is the main concern of these new owners because they can lose their money,” warned Roman Filkin, Associate Director of Prosperity Capital, Moscow.

But for now investing in capacity is profitable, with continued high demand likely to continue pushing prices up.

The liberalisation of Russia's power sector is a necessary step to prevent an electricity deficit. It is a catch 22, however. Setting up requirements for investors seems to contradict the concept of a system based on free market rules. But requirements could be an incentive to keep the lights on in many Russian homes.