EuroSibEnergo to put US$2.85b into expansion

PUBLISHED : Monday, 29 November, 2010, 12:00am
UPDATED : Monday, 29 November, 2010, 12:00am

EuroSibEnergo, the energy unit of Russian oligarch Oleg Deripaska's business empire, plans to spend US$2.85 billion to upgrade and expand its generation capacity by 12 per cent over the next nine years.

The expansion programme of Russia's fourth-largest power producer envisages five separate projects, mostly natural-gas-fired, according to a research report by BOC International.

BOCI, Credit Suisse, and Russia's VTB Capital are lead arrangers of its upcoming Hong Kong initial public offering that aims to raise US$1.5 billion.

Since EuroSibEnergo plans to use US$1.1 billion to retire a bank loan to lower finance costs, only a minor portion of the listing proceeds may go towards the projects, most of which are scheduled to come on stream in 2014 or later.

The projects include the replacement of an old 100 megawatt generation unit in Nizhny Novgorod - 400 kilometres east of Moscow - with an 8 billion rouble (HK$1.98 billion), 400MW high-efficiency gas-fired plant by 2013.

The other four projects are in the Irkutsk region of East Siberia. They include a 58 billion rouble, 1,200MW gas-fired unit to be finished between 2014 and 2018; a six billion rouble, 300MW gas-fired plant to be completed from 2016 to 2019; a one billion rouble, 18MW gas-fired unit commissioning in 2012; and a 16 billion rouble, 320MW coal-fired plant to be started up between 2017 and 2019.

Some of the projects are subject to the finalisation of gas supplies and a new pipeline.

While the projects could raise EuroSibEnergo's existing 19,500MW of installed capacity by 12 per cent, their construction is uncertain and subject to market conditions. Unlike most of its peers, the company, Russia's largest privately-held power producer, is not obliged to commit to any government-imposed plant construction.

Russia has the world's fourth-largest power generation system with 212,000MW of capacity last year, compared to China's 790,000MW - the world's second biggest after the United States.

Moscow is expected to soon sign contracts with Russian power generators to commit them to build 28,000MW of new capacity by 2015, raising the national capacity by 13 per cent, according to a VTB research report. The government also plans to build 171,000MW of capacity by 2030 to replace old and inefficient plants and expand total capacity.

VTB estimated the plan would see the nation's energy intensity, as measured by energy consumption per unit of economic output, drop by half to close to that of developed nations.

Despite being an energy-rich nation, Russia's energy intensity is more than double that of China and the world average, largely due to outdated power plants whose average age is 40 years.

Hydro plants have an average operative life of 30 to 35 years, after which renovations are required to extend their use, according to industry website

To spur investors' interest in funding facility upgrades, Moscow launched power pricing reform in 2007. The ratio of non-residential power sales under free-market pricing has since been raised to 80 per cent this year from 5 per cent in 2007, and will be further increased to 100 per cent on January 1. Residential tariffs remain regulated until 2014.

The swift reform saw power prices rise 46.6 per cent in EuroSibEnergo's plants in regions near Moscow between 2007 and this year following higher gas prices, while those in Siberia surged 56.6 per cent and are closely linked to coal prices, said VTB.

The Russian power market contrasts with that of China, where price controls remain firm.

Powering up for IPO

EuroSibEnergo is Russia's fourth-largest power producer

Its upcoming Hong Kong initial public offering aims to raise this amount, in US dollars: $1.5b