Territorial Generating Company TGK -6

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In March, the Russian territorial generating company TGK 6 became fully privatized through a series of transactions. At the time of its divestiture, TGK-6 included the Vladimir, Ivanovo, Nizhny Novgorod, Penza, and Mordovia generating companies, and the Mordovia grid company. TGK-6 included 14 CHPs, one GRES and three boiler facilities. The genco's installed electricity production capacity came to 3,140 MW, and installed heating capacity totaled 11,120 Gcal per hour. On March 14, 2008, a consortium comprised of Russian Integrated Energy Systems (IES Holding) and Prosperity Capital Management (PCM) bought a 34.8% government stake in the Territorial Generating Company – 6 (TGK-6) for $460 million. That price was equivalent to US$437 per kilowatt of generating capacity. Later in the month TKG-6 issued additional 570 billion shares of common stock which was acquired by the IES-PCM consortium for US$600 million. First, IES-PCM bought 40% of the share offering (or 227 billion shares) which allowed them to maintain their respective stakes in TGK-6 through their pre-emptive rights as existing shareholders. Through an investment vehicle called Primagate Trading Limited, the IES-PCM consortium purchased the remaining 60% of the share offering (or 343 billion shares). In the IPO, IES-PCM consortium paid the same price per share than for the government shares (US$437 for every kilowatt of generating capacity in the company). That increase in capital was required by the Russian regulations to ensure funding for the investment program that all generating companies created based on the assets of RAO UES had to agree as part of the privatization process. The funds would be used for the TGK-6 investment program. In short, the sale of TGK-6 attracted more than $1.06 billion including US$600 million for all the newly issued shares and US$460 million for the government owned shares in TGK-6. After these transactions, IES and PCM had a combined stake of 84% in TGK-6. The two companies did not reveal how they would divide their stakes in TGK-6, but the head of Prosperity Capital said his firm held less than 25% in the partnership with IES. Prior to these transactions, IES and PCM held 23% and 20% stakes in TGK-6, respectively. Private ownership of TGK-6 was the result of the Russian voucher privatization program of the early 1990s. TGK-6 was sold as part of a sweeping reform of the power sector, which saw its parent company, Unified Energy System (UES), sell off all of its assets by July 1, including 20 major power producing firms, known as OGKs and TGKs. TGK-6's investment program until 2015 included the construction of generating capacity at Nizhny Novgorod coal and heat powered (CHP) plant, the reconstruction of Igumnov, Sormov, Ivanov and Novgorod CHPs, as well as several other investment projects. The genco's total increase in capacity was expected to come to 1,171 megawatts. According to preliminary reports, the investment program would cost around US$2.3 billion. Over 2003-2008 period, the Russian power sector underwent significant restructuring. Until 2003 the main assets of RAO UES, the state-owned holding for energy companies, were united into regional vertically integrated energy companies: 73 regional power utilities or Energos which produced and transmitted electricity and heat. RAO UES also centrally managed 32 Federal Power Plants, the Central Dispatch, High Voltage Grid plus Grid Service. 2003 energy sector reform envisioned a new organizational structure that included companies involved in potentially competitive activities (power generation and sales, repair and services) and natural monopolies (transmission, dispatching). As a result of the reform RAO UES was to be dissolved on July 1, 2008. The companies replacing RAO UES were: a System Operator was to receive functions and assets of regional dispatch administrations; a Federal Grid Company (FSK) was to manage the trunk grids; 11 interregional distribution grid companies were to manage regional distribution grids; RAO Eastern Energy Systems Holding was to manage energy companies of the East and isolated power systems of the Far East region; six wholesale generation companies (OGKs) were formed on the basis of large federal plants; one Hydro OGK was to manage large hydro plants; 14 territorial generation companies (TGKs) were formed on the basis of combined heat and power plants and Inter RAO UES was to remain the major investor and a leading exporter and importer of electric power in Russia. Rosenergoatom was to include all nuclear power plants. Wholesale generation companies (OGKs) were formed in 2004-05 on the basis of large federal power plants with a typical installed capacity of 1000-2000 MW. These large power producers were to become the largest participants and the main competitors on the wholesale power market. Seven of such companies were created in the process of reform: six of them incorporated large thermal power plants (OGKs) and one incorporated large hydro power plants (Hydro-OGK). In an effort to restrict the monopoly influence on the competitive wholesale power market, each of the OGKs was established on the basis of power plants geographically dispersed across the country. The reform also created Territorial generation companies (TGKs) by uniting combined heat and power plants with a typical installed capacity of 100-500 MW which were located in a few neighboring regions or one macro region. The territorial generation companies would sell electricity as well as supply regional consumers with heat energy. Interregional Distribution Companies were formed as operating companies to manage electricity distribution networks located in a number of neighboring regions. utility website http://www.tgc6.ru/index.php?id=about investment info http://www.tgc6.ru/index.php?id=goelro2

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