The Cable Directory

The purchase of electricity company OGK-4 shows that German group E.ON is keen to become a major actor in the growing Russian market, in the midst of major reforms.

E.ON, the biggest German energy company, is to spend 4.1 billion euros (5.7 billion dollars) for 70 percent of the shares in OGK-4, one of several power companies that Russia has decided to privatise.

“It’s the biggest investment in the history of the Russian electric sector,” Anatoly Chubais, chairman of the Russian electricity monopoly UES said Saturday.

Investors in Frankfurt welcomed the deal, and E.ON shares closed on Monday at 126.73 euros for a gain of 0.72 percent, while the DAX index of leading shares lost 0.24 percent overall.

The price could nonetheless climb to 4.6 billion euros because the German group must now make an offer for outstanding shares in OGK-4, E.ON boss Wulf Bernotat said.

His company holds sufficient funds however, and could envisage other Russian acquisitions as well, Bernotat said.

“We are going to watch the process, analyse and then take decisions,” he told reporters in reference to the energy sector privatisation now underway in Russia.

OGK-4 was one of six electricity generating companies created as part of a wide-ranging reform of the Russian electricity sector that is breaking up the monopoly held by UES.

E.ON also bid on OGK-5 but it was bought by the Italian energy group Enel.

E.ON has already agreed to a tie-up with Russian gas behemoth Gazprom to exploit a gas field in western Siberia that has estimated reserves of 700 billion cubic meters.

E.ON turned towards Russia after its bid for the Spanish electric group Endesa was spurned by Spanish authorities and the company was bought by Acciona of Spain together with Enel.

E.ON was left with a warchest of around 6.0 billion euros which it said it would invest in Russia and Turkey.

OGK-4 operates five power stations in Russia and accounts for around 3.9 percent of the country’s total installed generation capacity.

Moscow plans to retain a 23-percent stake in the company through state-owned UES.

“With growth of around 5.0 percent a year, the Russian electricity market is one of the biggest and most dynamic in the world,” Bernotat said.

But developing that potential will also require investments of more than 120 billion dollars over the next two-three years, the German group has estimated.