Prime Minister Vladimir Putin scolded generating companies and threatened to fine four wealthy owners for failing to invest in new capacity during a visit to the Sayano-Shushenskaya Hydroelectric Station on Wednesday.
Putin said the giant energy holdings, which bought most of the country’s generating assets after they were sold off to private investors, have failed to live up to their end of the bargain by investing in increased generating capacity.
“TGK-4 does not even have working plans. The main shareholder there is Mr. [Mikhail] Prokhorov, who is feeling pretty well-off economically. He cashed out his assets. … He has the money and … is looking for ways to invest these funds,” Putin said at a meeting in the republic of Khakasia, in a village near the Sayano-Shushenskaya dam.
“At another company OGK-3, the main shareholder is Mr. [Vladimir] Potanin. He bought this company for 81.7 billion rubles ($2.7 billion), and he received [another] 81.7 billion rubles through an additional share emission — he essentially snapped up a valuable property for kopeks,” Putin said.
Other companies that the prime minister said were unable to meet their obligations are Senator Leonid Lebedev’s Sintez Group, which owns TGK-2, and Viktor Vekselberg’s Integrated Energy Systems, owner of TGK-5, TGK-6, TGK-9 and VoTGK.
The companies that purchased electricity assets from the dismantled UES signed an agreement with the government that they would use the funds raised through an additional share issue to increase capacity and, in exchange, the government agreed to move toward a system of market-based electricity pricing from the former system of fixed tariffs. But much of the money raised through the additional share issue has gone to other ends.
A total of 66 billion rubles of the 450 billion rubles raised through the additional share issues was used to purchase other noncore assets, Putin said, while another 100 billion rubles is sitting idly in their bank accounts. Only 270 billion rubles has so far been invested in increasing capacity.
In 2008, Potanin’s Norilsk Nickel, OGK-3’s main shareholder, bought a 25 percent stake of RUSIA-Petroleum, operator of the Kovykta gas-condensate field, for $576 million, as well as a 35 percent stake in US Plug Power for $33 million from Interros. Analysts at the time said the assets were overpriced.
The energy holdings “blame the crisis and the lack of demand … but when they are offered to build a power station in a place where there is guaranteed demand … in Sochi, for instance, they back out,” Putin said.
TGK-2, TGK-4 and OGK-3 all refused to participate in the project to build the Kudepstenskaya heating station near Sochi, each giving different excuses, he said.
Putin said the generators that continued to delay investing in new capacity would incur fines, and that the government could enlist the Prosecutor General’s Office to speed up the process, if necessary.
But not all owners of electricity assets came in for such harsh criticism. The foreign companies who bought stakes in some generators, including E.On, Enel and Fotum, have been praised by the government for adhering to their investment plans. Putin praised E.On on Wednesday, saying that while it raised 48 billion rubles through its share emission, its investment program has topped 95 billion rubles.
The energy holdings responded cautiously Wednesday, saying their investment programs had been delayed for reasons beyond their control.
“We have had some difficult projects whose realization is being delayed for objective reasons,” IES Holding said in an e-mailed statement.
Construction on their Novobogoslovskaya, Igumnovskaya, Novobereznikovskaya and Nizhegorodskaya stations have been delayed variously because of accidents on the planned site, land ownership disputes, a lack of demand and the difficulty of getting fuel supplies, IES Holding said, adding that the changes in its investment deadline were “approved by System Operator and are now in the process of approval in the Energy Ministry.”
Sintez Group managing director Andrei Korolyov said in a statement that the firm’s investment in TGK-2 was held up because it received less than expected in its additional share issue and had to use some of the money to pay off the generator’s debts. It also blamed the activities of “raiders,” referring to an ongoing dispute with a minority shareholder.
Prokhorov’s Onexim Group declined to comment.
Onexim’s TGK-4 said in November that it has reached an agreement with System Operator, the electricity market regulator, on pushing back construction on its eight new generating projects, which was “technically impossible to do” before the deadline because of falling demand.
The main reason that generating companies are not rushing to invest in new projects is that they are not sure that demand for electricity will rebound very fast, said Alexander Seleznev, a utilities analyst at UralSib.
In January, power consumption rebounded to its pre-crises level of 103 billion kilowatt-hours, pushed up by an unusually cold winter. “Investors are not sure they will get decent return on investments,” Seleznev said. “I wouldn’t judge by January’s energy consumption figures because they are largely affected by the unusually cold winter countrywide, I would look more closely at the March and April figures.”
In 2009, demand for electricity declined 4.6 percent to 964.4 billion kilowatt-hours countrywide as the recession brought down demand, System Operator said earlier this month, and could have been even lower if not for the cold winter, Seleznev said.
While publicly shaking a very big stick at the holding companies, Putin simultaneously held up a carrot, saying he had signed an order outlining the long-term operation of a generating capacity market and that the fulfillment of investment programs was directly linked to the opportunity to sell power at market prices. The market will allow generators to sell their generating capacity in addition to electricity.
While details on the capacity market have not been released, investors are optimistic that it will allow generators to improve their profitability, said Sergei Beiden, a utilities analyst at Metropol.
The MICEX Power Index was up 0.4 percent on Wednesday, beating the MICEX as a whole, which lost 1.4 percent.
Putin visited Sayano-Shushenskaya to preside over the reopening of one of the dam’s 10 turbines after an accident in August crippled its generating equipment and killed 75 people.
He said the government would spend 10 billion rubles rebuilding the dam in 2010.