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Unified Energy seeks changes to breakup strategy

OAO Unified Energy System, the Russian power utility in the process of being broken up, wants the state-run Federal Grid Co. to get the government's stakes in generating companies in order to boost investment in the grid.

The proposal, sent to the government for review, would boost the nation's stake in the national grid operator to more than 75% and speed up the government's exit from power generation, said OAO Unified Energy System strategy chief Dmitry Akhanov. „The point is not to leave any sales for the government to deal with,” Akhanov said in a statement. „That would make the process lengthy, complicated and unclear as to where the funds would end up.” The plan would help ensure that revenue from selling generating assets goes where it's needed most, to upgrading and expanding the grid, he said.
Russia is reorganizing its power sector along market lines by splitting up the generation, sales and services sectors into competing companies. Unified Energy will be broken up into the new companies and cease to exist by July 2008, Akhanov said. The Federal Grid Co., rather than rely on the budget, would raise the 700 billion Russian rubles (€20 billion) it needs for investments before 2011 by selling shares in power generators, which the government holds via its stake in Unified Energy. Russian antitrust laws bar ownership of generation and transmission assets by the same entity.

The latest proposal offers a new approach to the breakup of Unified Energy. Originally, the utility sought simply to split its assets into separate companies, in which the state and the minority investors in Unified Energy would receive pro-rata stakes. Minorities hold 48% in the utility. The original breakup strategy will still apply for the country's biggest producer of water-generated power OAO Hydro OGK, the regional distribution companies, and also Far East and isolated generation companies.
The country's power systems operator will receive state funds to ensure Russia has a 75% plus one share in the company. Minority investors in Unified Energy would retain their rights to a pro-rata share in the generation companies. The state's 13% to 40% stakes in the generators, held via its 52% in Unified Energy, would also be of interest to strategic investors, Akhanov said.

„The proposed restructuring protects the interests of minority shareholders, following the main principle of proportional share distribution,” analysts led by Caius Rapanu at Uralsib Financial Corp. in Moscow, wrote today in a report. Unified Energy will appraise all its assets by April and hold a board meeting in June to vote on the plan, which will then be put before the shareholders in September.
Any utility stakeholders voting against the plan may have their shares exchanged for cash in November and December this year. „Although this scheme seems to be less transparent and more complex than previous proposals, we do not believe it would destroy value for Unified Energy minorities,” Aton analyst Sergei Arinin and Dmitry Skraybin said in today's note to investors. Aton has a ‘Buy’ recommendation on the stock. (Bloomberg)