E.ON and UES plan power plant joint venture

4 July 2002 – German energy group E.ON is to conduct a feasibility study with a view to building a 450 MW gas-fired power plant at a Russian site operated by United Energy System (UES), the power monopoly.

The companies have signed a memorandum for the study for a combined-cycle plant at Shchekinskaya GRES south of Moscow and a 620 MW condensate power plant in the Tula region.

Both sides declined to give estimates on the cost of the plant and UES said long-term fuel and supply contracts as well as other financial guarantees would be sought.

E.ON will have the option to build a second combined-cycle gas turbine at Shchekinskaya if it wants.

“We have principal agreement on the project. We have chosen a 450 MW block which will be built together by UES and E.ON,” the deputy head of UES’ investment policy, Sergei Shmanenkov, said, adding that all details were preliminary.

“The structure of the deal is not specified but E.ON should have a controlling stake.”

UES needs to modernise its Soviet-built power plants and is getting ready to split up its generators into competing companies in the hope of drawing strategic investors.

To give investors a foretaste of large-scale investment in the Russian power sector UES last year offered a list of urgent refit and greenfields projects known as the “5000 MW” programme.

“The decision to invest is not made,” E.ON Moscow representative Semyon Gershkovich said by telephone.

He said the study would help the utilities establish the price tag and declined to give possible figures. “We hope to finish the study in December.”

Gershkovich said E.ON was looking for a 50-50 venture with UES.

Shmanenkov said E.ON and UES would either set up the plant as a new company or make a pre-existing UES subsidiary the legal entity into which E.ON and others could invest to build the new generating capacity.

He said UES would court consumers in the Tula region south of Moscow, where Shchekinskaya GRES is located, as other potential investors alongside banks and equipment producers.

“If consumers are shareholders (in the project) we can get guarantees on sales of the plant’s output,” Shmanenkov said.

Tulaenergo, UES’ Tula subsidiary which has a small minority stake in Shchekinskaya GRES, could also be a shareholder, he said.

UES owns 85 per cent of Shchekinskaya GRES and its subsidiary Tulenergo has a minority stake.

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