Fortum buys electric utility in Russia

TGC-10 plans big share issue and major investments

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The Finnish energy company Fortum has confirmed reports from Thursday evening that it has won an auction in Russia for the purchase of a majority in a large electric utility in the Ural region.
     The auction was organised by RAO UES, Russia's former monopoly in electricity production, which reported already on Thursday evening that Fortum had placed the high bid.
     
Fortum is reportedly planning to invest a total of about EUR 2 billion in the project, making it one of the biggest ever Finnish investments abroad.
     Fortum did not want to comment on the report immediately, because the result of the auction was not to be officially announced on Friday.
     On Thursday, Fortum's information officer Maria Romantschuk would only say that Fortum took part in the auction.
     The company officially confirmed the news on Friday morning.
     
The auction is part of an extensive privatisation programme in Russian electricity production. RAO UES, which used to have a national monopoly, is being split up into six wholesale production units and 14 regional utilities.
     The company sought by Fortum, one of six regional suppliers, is known as TGC-10. Its power plants are located in West Siberia, immediately east of the Ural Mountains. The plants are located in the region of the cities of Chelyabinsk, Kurgan, and Tjumen.
     
Although TGC-10 is one of the smaller power companies being sold off by UES, it still has a total of about 3,000 megawatts of output capacity.
     Reuters News Agency reported on Thursday that the purchase made by Fortum is divided into two parts.
     In the first stage Fortum is buying a 55 per cent holding in the company, paying the sum set in the auction - a total of about EUR 800 million.
     TGC-10 later plans to organise a share issue, and Fortum is reported to be taking part in it in proportion to the holding that it has. After the share issue, Fortum's total investment in TGC-10 will reach EUR 70 billion, and it will hold more than 70 per cent of the company's shares.
     
The Fortum management announced about a month ago in connection with the publication of its annual report that it is interested in big investments in Russia, because the high price of electricity in Finland and the Nordic Countries has left Fortum with considerable capital assets.
     So far, however, Fortum has not been very successful in Russian auctions, with larger international players coming out ahead.
     Germany's Eon and Italy's Enel were able to buy majorities in two wholesale production companies in the most coveted of the auctions, because wholesale prices on the electricity market are expected to be the first to be freed of regulation.


Previously in HS International Edition:
  Fortum announces all-time best result for 2007 (1.2.2007)
  Fortum executives top earnings lists for 2006 (1.11.2007)
  Fortum management to keep stock options; no action in Parliament (14.10.2005)

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