E.ON in Joint Venture to Crack Russia’s Power Sector Potential

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Researched by Industrial Info Resources (Sugar Land, Texas). The Russian electrical power market is set to be liberalized in a move to open the way for FDI (foreign direct investment) to bolster funds for the estimated $20 billion per annum that the sector will require over the next 15 years. E.ON (NYSE:EON) (Dusseldorf, Germany) has taken the opportunity to form a joint 50/50 joint venture with the Russian energy company STS-Energia (Tyumen, Siberia) to be called E.ON-STS Energia.

The annual investment needed will not only cover the modernization of power stations and transmission systems but also the construction of new generating capacity to meet Russia’s growing demand for power. RAO UES, Russia’s state owned power holding company and the government have taken steps including the introduction of a largely deregulated wholesale power market and the privatization of 20 large power and heat generation companies, such as TGK-10, currently in the state company’s portfolio.

STS has a number of shareholdings in power generation and distribution and supplies electricity and gas to about 1.1 million customers in western Siberia. E.ON operates numerous technologically advanced power plants in Europe and has extensive experience in liberalized energy markets.

STS intends to transfer some of its own generating capacity into the new joint venture. In order to expand market presence in the region, E.ON-STS Energia will participate in the privatization of power producer TGK-10. Plans call for STS to acquire a majority in the company. TGK-10 intends to build about 1,000 MW of new generating capacity over the medium term.

Russia’s power market is growing at an annual rate of 5% to 6% and with imminent liberalization of the sector presents E.ON with an attractive business environment. The very low thermal efficiency of Russia’s existing power plants will make it possible to achieve significant enhancements that will also be eco-friendly. E.ON’s long term objective is to establish a strong position in Russia’s fast growing industrial regions in the Urals, western Siberia, Volga and central Russia. E.ON is currently cash flush after failing to takeover Spain’s Endesa (NYSE:ELE) (Madrid, Spain).

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