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Norilsk Buys Into OGK-3 for $3Bln

Unified Energy Systems on Saturday for the first time relinquished control of one of its wholesale power producers, selling 38 percent of OGK-3 to mining giant Norilsk Nickel for a premium price of $3.1 billion.

"This is, of course, an absolutely fantastic success," OGK-3 chairman Alexander Chikunov said at a news conference at UES headquarters in southwestern Moscow. "We were only expecting to attract $1.6 billion to $1.8 billion."

Chikunov also announced that OGK-3 general director Maxim Kuznetsov would step down at the end of the month, to be replaced by his first deputy, Nikolai Baldin. No reason was given for the change, and Kuznetsov said he was not sure whether he would stay in the power sector.

The list of bidders for the share emission read like a who's who of international energy giants. Norilsk's winning bid looks to have trumped them all, as it is 13 percent higher than the market price at Friday's close, and 23 percent higher than the average price of the stock this month.

Norilsk's main local competition was Gazprom, while the foreigners included Italy's Enel, Finland's Fortum, France's Mechel and Gaz de France, and the United States' Integrated Energy Systems.

Chikunov declined to name or to rank the other bids, saying only that they were all "substantial."

Before Saturday's sale, Norilsk owned about 12 percent of OGK-3, which controls six power stations across the country and has 8,500 megawatts of installed capacity, Chikunov said. After the share emission, Norilsk will control more than 40 percent and less than 50 percent of OGK-3, UES spokeswoman Margarita Nagoga said.

But by snapping up shares on the open market, Norilsk could cheaply and easily get majority control of the company, analysts said.

As the majority stakeholder, Norilsk would essentially get its money back, because the $3.1 billion that it paid would be on OGK-3's accounts, which Norilsk would then control.

Chikunov, however, said Norilsk had signed a "memorandum" agreeing to spend this money to build up OGK-3 -- more specifically, to install 2,800 megawatts of new capacity by 2013.

This investment project, he added, would cost about $1.6 billion. As for the rest of the money raised through the share emission, he said, "We believe we will be able to talk the new investor into spending these funds on our company as well."

Although Chikunov said other shareholders could take Norilsk to court for not developing the firm as it promised, Russian law gives the controlling shareholder the last word on how to spend the firm's money, and there is no legal precedent for intruding on this right.

Out of all of the bidders, Norilsk is the only one that could have gained majority control from this emission, as it already held a significant stake. This may explain why its bid was so radically above the market price, said a Moscow-based analyst who declined to be identified.

The analyst added that, after following through on the $1.6 billion investment program set out by OGK-3, Norilsk would probably spend the rest of the $3.1 billion on other acquisitions.

UES, whose stake in OGK-3 is being reduced to 38 percent, will still have the right to block decisions by the board of directors, but only until 2008, when it will have spun off all of its assets to help fund $120 billion of upgrades to the power system.

Under its reform plan, UES hopes to see 70 gigawatts of new capacity installed to keep pace with surging demand.

Norilsk Nickel is controlled by the $15 billion Interros holding, which was founded by business partners Vladimir Potanin and Mikhail Prokhorov in 1990.

In January, the partners announced that they were splitting their assets, with Potanin buying most of Prokhorov's Interros assets, and Prokhorov forming a new electricity holding.

Matvei Taits, utilities analyst at UralSib, said Interros' OGK-3 stake would go to Prokhorov's new venture.

The holding is already expected to inherit a 3.5 percent stake in UES, a 7 percent stake in power producer TGK-1, and smaller stakes in other generating firms.

According to Forbes magazine's new rich list, Prokhorov has a personal fortune of $14.2 billion. His interest in the electricity business is "serious," he said in a recent statement on the Interros web site.

Taits said Interros was likely to spin off its electricity assets into an independent company, much like Prokhorov did with the holding's gold assets last year to form the largest gold producer in Russia, Polyus Gold, which is worth about $9 billion.

This new electricity company would be second only to Gazprom in terms of its potential to dominate the power sector.

The OGK-3 share emission appears to show that demand for electricity assets is robust -- a welcome piece of news for UES, which is trying to raise $15 billion through as many as 15 public offerings this year.

"The results of this emission, its final sale price, testifies to how this process is progressing, what significance it has and what kinds of resources it is able to attract," Nagoga, the UES spokeswoman, said Saturday.


(The Moscow Times 12.iii.07)

 
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