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Unified Energy board backs plan to break up utility

OAO Unified Energy System, Russia's national power utility, said its board of directors yesterday approved a plan to break up the company into smaller units by July 2008.

State-run Unified will split into generation, distribution, sales and servicing companies, according to an e-mailed company statement. The state, owner of 52% in Unified, will exit thermal generation, sales and servicing, selling its stakes to help fund a $120 billion program to upgrade and expand what is the world's biggest electricity industry by installed capacity. „This is the major hurdle that investors, and company management, have been waiting for,” said Anatoly Romanovsky, investment director at Hermitage Capital Management. The board's decision, in which the state has a deciding voice, is indicative of how Unified's shareholders will vote on the plans, he said. The approval of the board will allow the state to transfer the stakes it holds in thermal generators, known as OGKs and TGKs, to the Federal Grid Co. and to OAO Hydro OGK, the country's biggest hydrogenation company. The stakes, which Federal Grid will be obliged to sell, will raise the state's share in the capital of the two companies to more than 75% in the grid and at least 52% for Hydro OGK and raise cash for investments.

Russia aims to take more control of its power lines, which need the greatest investments and could serve as a state mechanism to regulate the generation segment of the industry. Unified Energy estimated that $50 billion needs to be spend on expanding the grid through 2010. „This is a very positive surprise because the government previously refrained from expressing a clear position on this issue, and it had been considered seriously doubtful that the board would approve any proposal today,” Alexander Kornilov, analyst with Alfa Bank, said in a note to investors. Kornilov said he expected the approved transfer of state shares to Hydro OGK to speed up the company's consolidation. The generator currently manages all its assets as a holding, with most hydropower plants having minority shareholders. (Bloomberg)