Russian Utility to Spend $78.5 Billion

Aug 09 - International Herald Tribune

Unified Energy System, the Russian national power utility, and its subsidiaries plan to invest 2.1 trillion rubles, or $78.5 billion, through 2010 as the country's eight-year economic boom fuels demand for electricity.

Unified Energy's management approved plans to spend 1 trillion rubles to build 20.9 gigawatts of new generating capacity, about 13 percent of the company's current capacity, the firm, based in Moscow, said Tuesday. About 650 billion rubles will be spent on thermal generators, with the rest used for hydropower.

The other 1.1 trillion rubles will be invested in the country's power grid, Unified Energy said. The program will be funded through higher electricity prices, budget funds, share sales and loans, the utility said. The plan will be sent to the board for approval, Unified Energy said.

"Such an ambitious plan is only possible if electricity tariffs are raised sharply," the Moscow brokerage Aton Capital Group said in a note to investors Tuesday. "Selling United Energy's assets and taking on debt are unlikely to be sufficient."

The Russian government in June approved United Energy's plan to sell shares in its subsidiaries, opening the way for the company to bolster investment through 2010. Unified Energy wants to raise as much as 208 billion rubles in the next four years by selling stock in about a dozen generation companies.

Wholesale Generation Company No.5, better known by its Russian acronym OGK-5, aims to raise 5.1 billion rubles later this year in the first initial public offering of a Unified Energy generation unit.

President Vladimir Putin has urged Unified Energy to upgrade the country's power stations and grid because blackouts and shortages in the past year have threatened to hold back economic growth. The aging power grid in Moscow failed on May 25, 2005, leaving two million people without electricity, shutting subway lines, disrupting water supplies and stock trading.

Russia's power grid is so overloaded that 90 percent of the businesses that seek a connection to the power system won't get it next year, the government said in June. Forty-six percent of the country's generators are past their expected lifespan. By 2010, that figure will reach 55 percent.

National power use rose 5 percent in the first half of the year, double the government's forecast. Unified Energy has called on the government to raise tariffs to attract the necessary investment from the private sector. Unified Energy tariff increases were less than inflation rates in 2004 and 2005.