UPDATE 2-Fortum to pay record price, $3 bln for TGK-10

By Olga Popova and Simon Shuster

MOSCOW, Feb 28 (Reuters) - Finnish utility Fortum (FUM1V.HE) committed on Thursday to pay $3 billion for Russia's TGK-10 (TGKJ.MM), offering a record price to join the small number of foreign players allowed into Russia's power sector.

Fortum bought 55.29 percent of TGK-10, and plans to buy all of the new shares to be issued by the utility in order to bring its stake to 77.6 percent, said Vladimir Avetisyan, an executive from TGK-10's parent, Unified Energy System (UES) EESR.MM.

Thursday's price trumped all previous purchases in terms of dollars per kilowatt of generating capacity, the way assets in the sector are traditionally valued.

In these terms, Fortum paid $767 per kilowatt. But taking into account the net debt of TGK-10, which Fortum will have to take on, the price of the company is $863 per kilowatt, well above the sector average of around $500 per kilowatt.

"Everyone knows we won't sell cheap," said Avetisyan, who is head of UES's Business Unit No. 2.

"But considering all the factors, we see this price as realistic, in line with the true cost of the company," he added.

CONTROL PREMIUM

The price topped the $753 per kilowatt Germany's E.ON EONG.DE paid for Russian power producer OGK-4 (OGK4.MM). Before E.ON, Italian utility Enel (ENEI.MI) paid some $690 per kilowatt for OGK-5 (OGKE.MM).

Fortum's new record underscored the eagerness of foreign firms to enter Russia's liberalised power market, despite competition from local players, who have paid far less for similar assets.

Finland's largest utility has attempted several times to enter the market, but has been disappointed in the past by slightly higher bids from Russian rivals.

This time, however, Fortum was the only one to bid, Avetisyan said at a news briefing in UES headquarters.

Fortum offered a total of 28.6 billion roubles ($1.18 billion) for the government's 255.6 million ordinary shares, or 111.8 roubles ($4.62) per share, a premium of more than 8 percent to the current market price of 103 roubles per share.

"A control premium was certainly paid, but I think fundamentally the company is worth it," said Matvei Taits, utilities analyst at Uralsib brokerage.

TGK-10, which has a generating capacity of 2.8 gigawatts, provides power and heat to five regions of western Siberia, including oil-rich Khanty-Mansiisk and Tyumen, which has seen some of the fastest growth in demand for power.