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28 Feb, 2008 09:20

Russia's power monopoly paves way for free market

As part of its $US120 billion overhaul, Russia's Unified Energy System is spinning off a new round of generating companies to open the sector for free competition. The sales should bring liquidity to the country's power sector.

Before it ceased to exist in July, UES spun off a total of 70 companies, including a dozen generating assets.

UES shareholders get shares in the newly independent companies, boosting their free float by as much as 40%.

“The interest in free-floating generating companies will increase interests of investors from over the world for the Russian generation sector and in other utilities assets as well, because we will have more liquid stocks in this sector which now is limited by a few names”, commented Matvey Taits, Uralsib analyst.

In the latest round, foreign investors – namely, French giants Electricite de France and Gas de France along with Finland's Fortum – are eyeing some of the juiciest morsels – heat generator TGK-10 and power producer OGK-1. The latter is expected to raise close to $US 7 billion.

Both will sell within two weeks.

In addition to OGK-1 and TGK-10, UES will also sell off at least seven generating companies before the end of April. Most of them already have strategic investors, both foreign and domestic.

In the wake of the UES reforms, Russia's Federal Agency Rosenergo will take over as the power sector regulator.

The agency's head Dmitry Akhanov says the liquidity crisis has had no impact on the interest of foreign companies in Russia's electricity assets.

But in the longer term, the high price tags foreign investors are paying will be justified only if the power sector is fully liberalised, analysts say.