E.ON is seriously interested in Russia

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The purchase of electricity company OGK-4 shows that German group E.ON is keen to become a major actor in the growing Russian market, in the midst of major reforms.

E.ON, the biggest German energy company, is to spend €4.1 billion ($5.7 billion) for 70% of the shares in OGK-4, one of several power companies that Russia has decided to privatize. “It’s the biggest investment in the history of the Russian electric sector,” Anatoly Chubais, chairman of the Russian electricity monopoly UES said Saturday.

Investors in Frankfurt welcomed the deal, and E.ON shares closed on Monday at €126.73 for a gain of 0.72%, while the DAX index of leading shares lost 0.24% overall. The price could nonetheless climb to €4.6 billion because the German group must now make an offer for outstanding shares in OGK-4, E.ON boss Wulf Bernotat said. His company holds sufficient funds however, and could envisage other Russian acquisitions as well, Bernotat said.

“We are going to watch the process, analyze and then take decisions,” he told reporters in reference to the energy sector privatization now underway in Russia. OGK-4 was one of six electricity generating companies created as part of a wide-ranging reform of the Russian electricity sector that is breaking up the monopoly held by UES. E.ON also bid on OGK-5 but it was bought by the Italian energy group Enel.

E.ON has already agreed to a tie-up with Russian gas behemoth Gazprom to exploit a gas field in western Siberia that has estimated reserves of 700 billion cubic meters. E.ON turned towards Russia after its bid for the Spanish electric group Endesa was spurned by Spanish authorities and the company was bought by Acciona of Spain together with Enel. E.ON was left with a warchest of around €6.0 billion which it said it would invest in Russia and Turkey.

OGK-4 operates five power stations in Russia and accounts for around 3.9% of the country’s total installed generation capacity. Moscow plans to retain a 23% stake in the company through state-owned UES. “With growth of around 5.0% a year, the Russian electricity market is one of the biggest and most dynamic in the world,” Bernotat said. But developing that potential will also require investments of more than $120 billion over the next two-three years, the German group has estimated. (afp.google)

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