Russia UES to sell $2 bln in power assets on Friday

MOSCOW, March 14 (Reuters) - Russia's former electricity monopoly UES EESR.MM is to conclude more than $2 billion in share sales for three of its power producers on Friday, as its drive to sell all of its assets by July draws closer.

Regional generating companies TGK-2 TGKB.MM, TGK-6 TGKF.MM and TGK-7 VTGK.MM will all go on the auction block, with a range of foreign and local bidders, including Germany's RWE RWEG.DE and Russia's Gazprom GAZP.MM.

The sell off of UES assets is part of a sweeping reform of the electricity sector, which will see the Soviet-era monopoly broken up into dozens of independent firms working seperately in the production, distribution and sale of power.

The reforms were undertaken in 2003 in order to introduce competition to the power market and raise investment for a $125 billion overhaul of Russia’s antiquated power systems.

It is the only large-scale liberalisation to be allowed under President Vladimir Putin, who has otherwise favoured tighter state control over strategic industries.

In a partial reversal of the reforms, however, a few Russian industrial giants, most notably state-controlled Gazprom, have bought up some of the choicest UES assets and are threatening to dominate and partly re-monopolise the sector.


TGK-2 and TGK-6 are both holding secondary share sales on Friday, at the same time as UES sells the government’s stakes in these companies. In the past, both the government’s and the new shares have gone to the same investor, who thereby gets control.

The main contenders for TGK-2, whose sales are expected to raise some $700 million in total, are the German utility RWE and investment fund Prosperity Capital Management, which already holds a 23 percent stake in TGK-2.

Russia’s Integrated Energy Systems (IES), an investment vehicle of metals and oil magnate Viktor Vekselberg, is widely expected to buy control of TGK-6, whose sale is to raise close to $1 billion.

TGK-7 is holding a secondary share sale on Friday worth some $450 million, and IES has been in talks with Gazprom to jointly bid for these newly issued shares through an investment vehicle. UES will sell the state’s stake in TGK-7 in early May.

IES, which is also known by its Russian acronym KES, has received permission from the Federal Anti-monopoly Service to acquire both TGK-6 and TGK-7.

But if it wins control of both, the watchdog will force IES to sell 741 megawatts of their generating capacity, or 8 percent of their total, in order to limit its dominance of the market in the regions of central Russia where these firms operate.

UES, or Unified Energy System, initially planned on Friday to also sell OGK-1 OGK1.MM, whose sale will alone raise up to $7 billion.

But late on Thursday it delayed the sale until mid-April, saying a new bidder had asked for more time. (Reporting by Olga Popova, Writing by Simon Shuster; Editing by David Cowell)