February 27, 2010

• RusHydro has calculated the cost of the Sayano-Shushenskaya Hydropower Plant's restoration at 32.9 billion rubles, which turns out to be lower than the figure announced earlier. Most of this money - 25.6 billion rubles - will be spent on replacing the 10 power units. The cost includes their manufacturing, delivery, and assembly. The launching of four power units using a provisional mode will cost the company 7.2 billion rubles. A RusHydro spokesperson said the company has not yet received the final estimate, but a source close to the company confirmed to Vedomosti that the restoration would cost about 33 billion rubles (Vedomosti, Reduced Estimate).

• The Russia Power Conference and Exhibition, one of the key events in the Russian energy industry, already established for its unrivalled coverage of the gas, coal and nuclear power sectors, will feature a brand new additional element addressing hydropower this year.  A special focus on hydroelectric power, dams and civil structures has been added to the conference program, and the exhibition will boast a dedicated Hydro Pavilion. (Energo-info, Russia Power-2010 Adds New Hydropower Focus To Meet Industry Requirements)

February 26, 2010

• Demand on Russia's power market for the week of February 19-25 increased by 5.6% year-on-year but decreased against the previous week by 2.5%, Market Council said. Only in six of Russia's federal subjects, united by the price zone of the wholesale power market, reported a decrease in electricity demand in comparison with the same period of 2009. (Demand on Russia’s power market up 5.6% for the week – Interfax)

• Enel is going to change the management structure of its Russian asset, Enel OGK-5. After reorganization, the company's executive director will manage not only power plants but also Enel's stakes in Rusenergosbyt and SeverEnergia. Besides, for the first time a Russian energy company's general director will be a foreigner: by May Anatoly Kopsov will have been replaced by his deputy Enrico Viale. (Kommersant, Italians will land at OGK-5)

• Stanislav Tsygankov, head of Gazprom's Foreign Economic Directorate, could quit his job to become full-time director at SeverEnergia, which is part-owned by Eni and Enel and is close to putting the Samburg gas field on stream in the Yamal Nenets Autonomous District, industry sources told Interfax. Tsygankov, 43, was installed at SeverEnergia on a part time basis, working 20 hours a week, at the beginning of February. It was thought he would combine both jobs. But Tsygankov himself came up with the initiative to concentrate solely in SeverEnergia if, as anticipated, the Samburg project is launched in 2011. Gazprom's Information Directorate told Interfax that the information that Tsygankov might leave his post was "inaccurate" and that he continued to combine both positions. (Interfax, Gazprom's Tsygankov Could Move To SeverEnergia Full Time – Sources)

• Federal Grid Company has increased its stake in TGK-11 from 0.43% to 27.45%. FGK received a stake that TGK's former owner, RAO UES, sold to Mikhail Abyzov's Group E4, Alexander Stroinov, head of the TGK-11 Capital Management Department, told Vedomosti; until recently, according to CMD, the register holder, FGC held just 0.43% in TGK-11. A contract for the sale and purchase of 28.47% in TGK-11 was signed by RAO and E4 back in May 2008, with Abyzov offering 5.88 billion rubles for the control stake. He was expected to settle payments with FGK (RAO's successor) before October 2009. But E4 failed to pay for the shares and now the package is back to FGK, Stroinov said. Neither FGK, nor E4 commented on the deal. (Vedomosti, Confusion among shareholders)

February 25, 2010

• Numerous media outlets report in detail about Vladimir Putin’s visit to the Sayano-Shushenskaya GES and the meeting on investment in the power sector held in the republic of Khakasia, in a village near the Sayano-Shushenskaya dam. Vladimir Putin scolded gencos and threatened to fine four wealthy owners for failing to invest in new capacity during the visit to the plant 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. Among the 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 IES Holding, owner of TGK-5, TGK-6, TGK-9 and VoTGK. Vladimir Putin promised sanctions against the companies that squander investments. All media outlets quote Vladimir Putin as saying that "I've looked into who has been meeting his obligations. They are either the state-owned companies, such as Gazprom, Russian Railways, Inter RAO or foreign ones - Finland's Fortum, Italy's Enel, and Germany's E.ON. "Lukoil seems to be the only Russian company that is meeting its commitments. The remaining private investors have run away. What kind of work is it? You call it a civilized market and responsibility of business?” Putin also said on February 24 he had signed a decree which determines the principles of operations of the long-term capacity market. The Prime Minister stressed that this mechanism would guarantee gencos the conditions for stable and profitable operations, as well as a return on investment. He added that this new mechanism was suitable for those companies wishing to develop and strengthen their competitive positions on the market. (The Moscow Times, ITAR-TASS, States News Service, Bloomberg, Reuters, Interfax, Prime-TASS, RIA Novosti, Vedomosti.ru, Kommersant, Rossiskaya Gazeta, Vremya Novostei, Putin’s Energy Packet – Long-Expexted Capacity Market And Poor Notes)

• By the end of 2010 RusHydro could announce the placement of another additional share issue in which strategic investors will be able to participate, the company's chairman, Evgeny Dod, said on Thursday. Dod said that by September 2010, the placement of 19 billion shares will take place, in which, the state has allocated 4.3 billion rubles for the construction of Sayano-Shushenskaya Hydroelectric Power Plant's (HPP) shore spillway. Following the placement of this additional share issue, RusHydro could announce another share placement, in which the state will likely not participate. Strategic investors would likely acquire this additional issue. Dod stressed that the possible newer share issue would not be for raising funds for the reconstruction of Sayano-Shushenskaya Hydroelectric Power Plant. (Interfax, RusHydro could announced additional share issue before year’s end for strategic investors)

• The Russian Energy Ministry is proposing that the country's hydroelectric energy producers be consolidated for future expansion abroad. Energy Minister Sergei Shmatko said at a Thursday meeting of hydropower producers that his ministry is discussing with the management of RusHydro the consolidation of sector companies, including project, repair and building, and scientific outfits around the genco. The end-goal of consolidation, Shmatko said, is moving onto foreign markets. (Interfax, Consolidate Russian hydroelectric power for expansion abroad, MinEnergy suggests)

• A stone laying ceremony for the construction of the Baltic nuclear power plant will be held in the Nemansky district of Kaliningrad region on Thursday. It will be the first nuclear power plant to be built in the post-Soviet era in a region, which had no nuclear energy facilities before. The Baltic nuclear power plant is one of the most ambitious projects to be launched by the Rosatom state nuclear energy corporation. The government has negotiated its location on February 20. The first power generating unit is to have been built by 2016, and the second in 2018 (each with a power generating capacity of 1,150 megawatts.) Investment is estimated at 5 billion euros. (Vedomosti, More Nuclear Energy).

February 24, 2010

• Vladimir Putin has ordered the government to allocate 53 billion rubles to fund the construction of new nuclear power plants in the country. "I have signed a resolution today to allocate 53 billion rubles for the construction of nuclear power plants," Putin said today. Speaking in East Siberia at a meeting on energy investment, Putin also said that Russian energy companies had spent 66 billion rubles of 450 billion ruble investment funds on projects not connected to country's energy system. He also said that over 10 billion rubles would be allocated for the repair of Siberia's Sayano-Shushenskaya hydropower plant. (Interfax, RIA Novosti, Putin Allocates 53 Bln Rubles For New Nuclear Power Plants In Russia)  

• Energy Minister Sergei Shmatko has said that Russia's power grid companies have been slow to implement investment programs. "Upon careful review of the investment programs [in the electricity sector] there are serious problems in implementing the investment programs of grid companies," Shmatko said during a meeting concerning the investment program in Russia's electricity system held in Abakan on Wednesday. (Interfax, Grid companies slow to implement investment program – Shmatko)

• Russia might obtain its first nuclear power plant abroad. Moscow has failed to persuade Bulgaria to take out a loan for building a nuclear power plant in Belene, and now Russia is prepared to finance the project itself by investing 1.9 billion euro within two years. In exchange, Russia may get up to 80% of its shares. Bulgaria will have an option to buy this stake, but if Sofia does not use it, Russia will complete the power plant and retain its ownership. The investment may be profitable if the plant sells electricity on a free market (Kommersant, Russia to Buy Bulgarian NPP on Its Own Money).

Russia Headline News

February 27, 2010

·        Following hours of negotiations on Friday, the Customs Union Commission agreed upon the final text of the Customs Code for Russia, Kazakhstan, and Belarus, which should take effect on July 1. Russia's oil export duties will not be debated within the Customs Union, as its members have decided to regulate this issue in agreements on setting up a common economic area, which should come into existence no sooner than 2012, although the basic principles of its work should be developed in 2010. Russia has agreed that Belarus' share in the Customs Union's revenues from oil imports should be recalculated (Kommersant, page 1, Customs Union Acknowledges Its Limits).

·        Russia's President Dmitry Medvedev has initiated cuts in the punishment for economic crimes, which include tax evasion. (Kommersant)

·        Gazprom Export General Director Alexander Medvedev has explained what concessions Gazprom has made to its clients in Europe in order to maintain the level of its sales. Only 10% -15% of gas exports will be exported at spot prices, he said. This system will be in place only in 2010-2012. Gazprom and its European clients can revise contract prices once every three years, and the gas giant has offered a discount for this time, he said. Medvedev did not specify how this would affect Gazprom's earnings (Vedomosti, Gazprom's Discount).

·        Prime Minister Vladimir Putin said Friday that the government would only support mortgages for newly built apartments in a bid to boost the flagging construction industry. The government plans to lend banks an additional 250 billion rubles ($8.3 billion) this year for their mortgage programs starting in April, Putin said during a trip to Tyumen. (The Moscow Times)

·        Seligdar plans an initial public offering to repay debt and fund growth, a shareholder said Friday. The company will use the funds to help boost output to 10 metric tons in 2013, from 2.9 tons last year, said Dmitry Mangilev, a project manager at Russian Funds, owner of 45 percent of Seligdar. (Bloomberg)

February 26, 2010

·        Two Russian state corporations -- Russian Nanotechnologies Corp. and the state road-building company known as Avtodor -- may become joint-stock companies as early as the first quarter of 2011, an Economy Ministry official said. Anatoly Chubais, chief executive officer of the nanotechnologies company, backs the idea, Ivan Oskolkov, head of the ministry’s corporate governance department, said. The Transportation Ministry may seek more time to reorganize Avtodor, Oskolkov said, adding that the final decision rests with the government. (Bloomberg)

·        Gazprom, concerned by Novatek's partnership with oil trader Gennady Timchenko, is considering swapping part of its stake in the company for 51 percent of Sibneftegaz, which it could then merge with Nortgaz and Purgaz to create a third major Russian gas producer. (The Moscow Times)

·        The Federal Customs Service indicated Thursday that it was ready to continue its export-duty duel with Gazprom, proposing new rules that could be used to force the gas export monopoly to disclose its pricing for foreign clients. The changes would base export duties on volumes delivered rather than prices declared by Gazprom, which the customs service argues would increase transparency. The state-run company, however, has said the proposal would decrease its revenue — and as a result, the cash it pays into the federal budget. The announcement shows that pressure on Gazprom from various government agencies is not yet abating, even as the world's largest gas producer has reguarly proven its resilience to new regulation. (The Moscow Times)

·        OAO GMK Norilsk Nickel, Russia’s largest mining company, may pay $1 billion in dividends for 2009, ending two years without a payout, Vedomosti reported, citing unidentified people familiar with the matter. Norilsk’s board, which includes representatives of billionaires Vladimir Potanin and Oleg Deripaska, will vote on the proposal next month. (Vedomosti)

·        Severstal plans to take over British gold producer Crew Gold, which exploits fields in Guinea, by paying about $395 million for the company. The price is high, but the purchase will allow Severstal to increase its own gold production by at least one third, analysts said. (Kommersant, page 12, Severstal overestimates Guinean gold)

·        Russian state uranium production company “Atomredmetzoloto” got a chance to surpass China's CNNC in the struggle for the biggest Mongolian uranium field Dornod. Ulan-Bator cancelled Canadian company Khan Resources' license for Dornod operations. In February, CNNC was able to outbargain ARMZ' offer to buy Khan, but the worth of this company without the uranium license has fallen significantly. (Kommersant, page 12, "Atomredmetzoloto" approaches Mongolia)

February 25, 2010

·        The government is planning to ask investors what assets they would like to buy from the state, an idea proposed by First Deputy Prime Minister Igor Shuvalov to speed up privatizations, a source in the government administration told Vedomosti. The Economic Development Ministry is preparing a letter on the matter, said Alexei Uvarov, director of the ministry's property department, confirming the information. The open letter will be signed by Economic Development Minister Elvira Nabiullina and posted on the ministry's web site soon, he said. (Vedomosti, The Moscow Times)

·        Gazprom may swap part of its 19.4 percent stake in domestic producer 0A0 Novatek for 51 percent of 0A0 Sibneftegaz held by Gazprombank. State-run Gazprom may then combine Sibneftegaz with its Purgaz and Nortgaz units, the Moscow-based newspaper said today, citing three unidentified people familiar with the matter. The new Gazprom-controlled company would rival Novatek in production. (Vedomosti)

·        Bashneft, which recently bought controlling stakes in Ufa-based oil refineries, has posted mandatory offers to buy out minority shareholders in these plants. The buy-out could cost Bashneft 11 billion rubles. But the company might not have to fork this much out because the offer price hardly carries a premium over current market quotations (Kommersant, P 12, Bashneft Goes for Refineries)

·        Mergers and acquisitions activity in Russia sunk by 62 percent in 2009, with just $46.1 billion in deals, compared with $122.4 billion a year earlier, consulting company KPMG said Wednesday. The M&A market crumbled as the financial crisis ushered in higher levels of uncertainty about future economic development, increased risk aversion, a larger gap in valuation expectations between buyers and sellers, and a liquidity crunch that made it difficult to fund deals, KPMG said in its annual report on the market. (Vedomosti, The Mosocw Times).

February 24, 2010

·        U.S. executives from the "Innovation Delegation" on Tuesday offered a list of Russian-U.S. technological and civic initiatives to presidential adviser Arkady Dvorkovich, who saw the group off at Domodedovo Airport to end their weeklong trip to Russia. (The Moscow Times)

·        Russian authorities will make local top managers report on their incomes as a new measure to tackle corruption. (Vedomosti)

·        The ongoing international economic crisis has prompted Gazprom to break a 40-year long tradition, and now it will sell some of its gas to Europe at spot prices. Germany's E.ON Ruhrgas, one of Gazprom's major clients, has secured an agreement that will involve part of the gas shipment from Russia under long-term contracts to be sold using spot prices instead of the previous price formula. Another major gas buyer, Italy's Eni, had earlier reached an agreement with Gazprom on more flexible prices. A person close to Gazprom said almost all of Gazprom's contracts with its Western European partners had been amended. No details were immediately available (Vedomosti, Concession to Europe; Kommersant, page 1, Gazprom Knocks Down Its Price).

·        Russian state oil company Zarubezhneft plans to start oil extraction in Cuba's offshore oil fields in five years' time, the head of the company, Nikolai Brunich, says in an interview. (RBC Daily)

·        Russian government officials are hesitating as to whether to grant Gazprom new tax breaks in Eastern Siberia and on Yamal. The Finance Ministry suggested that no such privileges could be granted at least until 2014, although Prime Minister Vladimir Putin had promised earlier that he would consider it. The mineral extraction tax on gas has been reduced in real terms for several years, and so additional tax breaks for the gas sector would seem groundless in this situation, a source close to the Finance Ministry said (Vedomosti, Pay More).

·        Alexei Bogdanchikov, the eldest son of the head of Rosneft, who resigned from the oil company in January, will head the development department at Novatek in March. Only one of the Novatek shareholders, Gennady Timchenko, a co-owner of the oil trader Gunvor, has previously worked with Alexei Bogdanchikov before. Gunvor has become a major market player in large part because it exported Rosneft's crude (Kommersant, page 11, Alexei Bogdanchikov Switches to Gas).

·        The Central Bank has cut its benchmark interest rate for the 11th time since April 2009 after earlier reductions proved insufficient to spur lending growth, leaving businesses unwilling to raise investment. The regulator cut the refinancing rate by a quarter of a point to a record low 8.5 percent and the repurchase rate charged on one- and seven-day Central Bank loans to 7.5 percent, from 7.75 percent, effective Wednesday, it said in a statement Friday. (Reuters, Bloomberg)

·        The government is planning to hand more power to the central bank in regulating operations of local commercial banks. (Kommersant)